Audit committees want more technology — but not if it makes auditors lazy

Audit committees possess a fairly measured attitude towards technology, described in a recent report from the Public Company Accounting Oversight Board as neither bullish nor bearish — they're enthusiastic about the improvements, but remain wary of potential risks.

The report, based on 244 conversations with audit committee chairs, found that many of them see transformative potential in their use of technology, but also saw potential challenges. In terms of the positives, data analytics was highly cited as a positive application of technology, as it can help auditors spot anomalies, detect fraud and identify risks. Chairs also pointed to automation, which they said could enhance the audit process’s efficiency and free up the engagement team to focus on risk, as well as the greatly expanded testing capabilities that audit technology has enabled, allowing professionals to examine entire data sets versus samples.

However, there were also several worries at the front of audit committee chairs’ minds. One was cybersecurity, with chairs noting that audit systems are vulnerable to hacking and, further, ransomware from similar attacks affecting company data can impact the engagement team’s ability to perform procedures.

There were other worries about how technology might affect quality control. They were concerned not only with the quality of the technology itself but also the quality of the data it produces, with audit committee chairs saying low-grade information cannot be predictive. They cited the risk that it could make auditors overconfident and lazy as automation increases. And while enthusiastic about the idea of AI and machine learning, audit committee chairs said the technology needs more development to reach its full potential.

Overall, audit committee chairs stressed that technology is not a silver bullet and auditors must think of technology in terms of how it increases their capacities, versus doing their job for them.

Courtesy of the PCAOB

Beyond technology, audit committee chairs said auditors were doing well with comprehensive and timely communications, having deep knowledge of their industries, taking a proactive and responsive approach to the audit, and benefiting from their familiarity and use of technology. In fact, in terms of areas where auditors could improve, chairs said they want to see even more deployment of technology.

On the downside, they said they did not appreciate last-minute scrambles or surprises from their auditors, particularly pileups at year end. They also said auditors could do better at managing costs and fees, and the external and internal audit functions need better coordination. Several audit committee chairs also expressed concerns about turnover in engagement teams.