Innovation in audit: It’s not just about technology

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Innovation is a word that gets tossed around a lot these days, but what does it really mean? Innovation means we’ve got to be willing to try doing things differently and to try doing different things. It’s not just about throwing some technology at the way we’ve always done things. As Thomas Edison said, “Innovation is 1 percent inspiration, and 99 percent perspiration.” Innovation requires us to work at it. And we need to be willing to try things that may not work quite right the first time, then course correct and learn.

Innovation is one of the attributes of a framework for audit leadership we’ve developed over the years, where the other attributes are relevance, business-mindedness, quality and empowerment. Innovation means really thinking about what we do in audit, and how we can continuously keep pace with the changing business environment. Innovation allows us to remain relevant to our clients and as a profession.

What’s it for?

One of the most important components of innovation is to think hard about the problem you are trying to solve. Work on this before you jump into a solution. Are you trying to up your game in the value that you deliver to your clients based on their industry and issues? Are you attempting to prepare your firm for auditing in the future? Or are you attempting to even out your workload through the year to minimize stress on staff during busy season?

By starting with your goal in mind, you can then jump into options to consider. Make it holistic. What might we do differently with our people? Or maybe even with different people (some may even be from outside the firm...)? The SALY approach has to be put by the wayside, because strongly challenging the status quo opens up significant possibilities. Finally, we might look at novel system approaches — which may or may not include new software. Perhaps we just more completely use our current software that we only partially employ? What do our people really need to get the work done right the first time? Maybe they need extra training, not extra monitors.

Let’s take a look at some specific areas where we might drive innovation in audit.

Need to change your audit processes?

Do your processes need to be altered to better suit your clients’ business cycles? Would a continuous audit (with continuous data input and output) help them? Would it help your workload to develop processes that move the work forward? Would more insights from their own data (consider dashboards) help your clients be more buttoned up for their audits or help them run their business better? Look at systems that you can deploy to make any or all of that happen.

If you want to change your process, don't let your staff start with last year's work papers, but start with a blank sheet of paper. Getting wedded to the historical approach is the quickest way to thwart innovation. If they know what they're doing and if you're a good supervisor, there really should be only minimal need anyway. When we ask our people, “Why did you create this schedule?” the answer tends to be “Because we did it that way last year.” No one is thinking about the future or about the best way to go forward.

One way that some firms are turning the usual workflow for audit on its head is by doing a virtual audit. Even before the COVID-19 pandemic, some firms were experimenting with this. These firms set up portals and clients upload all their documents so the team can review them all in the office, before they go out to the field. With this approach, the field work is done in the office, and the wrap-up is done at the client’s office.

Clients who have had virtual audits appreciate that the audit team isn’t occupying the conference room for weeks or months on end. Plus, leadership on both sides — the audit firm and the client — get valuable face time and can have meaningful discussions about the important issues.

Becoming better auditors

An often-overlooked benefit of expanding what you do and how you do it is that your people will grow. Remember, learning should be driven by experiences, enhanced by coaching and only supplemented by formal classes. When someone says they’ve had five years of experience, that might mean that they’ve repeated the same year five times by filling out the same forms the same way. So, they really had one year of experience repeated five times. We spend more time teaching them how to fill out the forms the right way than how to think about how to do an audit; change that. Move your people around so that they have opportunities to be coached by different engagement supervisors and to work on different types of audits.

Another way to look at audit and people is to ask which people will help to create a better audit. By that we mean, are there others that we could bring into planning or analysis that might help us think differently about what we are trying to accomplish? People who may even be outside of the firm? Consider inviting someone from the client’s industry into a pre-planning meeting.

Maximizing existing technology

Start by thinking about other, better ways to use your existing systems. It's amazing — data extraction software and tools like IDEA or ACL have been out there forever. We can make better use of the tools we have if we just take the time to think things through.

Most auditors have Excel already on their laptops. But how extensively is your firm using all its capabilities? Are your people successfully using the add-on, PowerBI? We need to look behind the way it’s been done to the outcome we want. Too often, those bright shiny (and pricey) tech tools never get used and become shelfware.

Most firms are using technology but not using it very thoroughly nor innovatively. Maybe they dabble with it for sampling. AI is just beginning to be at the point where it can be a powerful tool. Applications like Mindbridge.ai comb through all of a company’s transactions to pull out the ones that are outliers.

In the future, we’ll use AI and bots in the client’s books to continuously monitor transactions. When something goes directionally wrong with a particular transaction based on the artificial intelligence that's built into it, you'll get a notice on your phone saying that there's a transaction that's out of sync. That will enhance audit quality, but so will using more thoroughly what you already have in place.

Moving ahead into the future

We’re at a crossroads in terms of what the future of audit looks like. One direction is staying the same, which may mean that audit becomes such a commodity that no one does it anymore. The other direction is reinventing what audit can be and transforming it into a valued service. Innovation — doing things differently and doing different things — is one of the keys to reaching the positive side of that crossroads.

Advances in technology have been a catalyst for innovation in audit, but technology is only one part of the equation. Real innovation isn’t just technology, but it’s using all we have — our people, our processes and our systems — to drive real change.

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Audits Audit preparation Innovation