PricewaterhouseCoopers has been working on ways to soup up its audit practice by leveraging data analytics technology.
“We’d like to think that we have been transforming the way we audit for decades, especially in light of everything that’s been going on in the marketplace, particularly with the regulatory changes that have impacted us,” said Bill Brennan, managing partner of assurance transformation at PwC. “Starting north of 10 years ago, we introduced to our auditors worldwide Aura. It’s basically the way we execute the documentation and where our evidence resides for our audit efforts. Aura is used by almost 100,000 people all around the world.”
Aura allows PwC’s auditors to gain more visibility into what’s going on in all components of the audit, particularly those involving large multinational entities around the world.
“Aura helps us focus our energy,” said Brennan. “It’s very adaptive to changes not only within the audit profession, but then even within industry. I call that the foundation from which we build everything else on. It either has to plug into, tie next to, or integrate seamlessly into Aura, all of our innovation.”
Two other systems that Aura ties into at PwC are Halo, which focuses on data analytics, and Connect, a collaborative workflow system.
Brennan has been leading audit transformation at PwC for about four years. “Basically the role was to start out with a clean sheet of paper to help focus the firm on what we wanted to do and how we want to evolve the way we execute our audits,” he said. “We came up with a very simple focus right out of the gate and it was to standardize, simplify and automate virtually everything we do. It’s that simple.”
Part of the transformation involves automation. “We automate certain processes that we’ve been doing manually for decades, maybe even a century,” said Brennan. “The second piece is process. How can we improve the process by which we execute the audits, the approach, if you will. We have a tagline called ‘Engagement, Performance and Quality.’ It takes project management process improvement and injects it into the equation. You can have the greatest technology in the world, but if you don’t have good processes, it’s going to be useless. Then the last thing is people. How do we develop our people? How do we train them? How do we equip their skills such that they can adapt to the changes in not only the regulatory environment, but our own audit approach. How can we teach them to leverage data and analyze data in a wholesome way? You can have a great tool, but if the people are not equipped to do it, then it’s useless.”
PwC is also leveraging the investments that its clients are making in technology for the purposes of auditing. “Our clients are making considerable investments in their own businesses, their own operations,” said Brennan. “They’re simplifying their businesses, they’re centralizing work, they’re creating back-office environments and they’re investing hundreds of millions of dollars in technology. As a result, they’re relying on their own data. There’s no reason why we can’t leverage that same data and analyze it as part of our audit equation. What we’ve been focused on of late is how do we extract the data from our clients in a very secure manner and how do we use that data to analyze it, to inject analytics on it to perform robust analysis to help influence what we audit.”
He cited the example of looking at shipments from a company. “You could look at nearly 100 percent of the shipments that a company makes, maybe in a quarter, maybe in an annual period, and then look for outliers, things that straddled a period end,” he said. “They were shipped before the year end, or they were received after the year end, so maybe it’s not a valid revenue transaction. In the past, we might pull a sample size to try to find that. Statistical samples are good. In this case, we may get to nearly 100 percent of that matching concept. We can look at the outliers and see if maybe there is a reason for that, and if not, then we’ll focus our efforts on what happened and the root causes as to why it occurred.”
Breannan acknowledged there are some limitations to automation. “It will never eliminate 100 percent sample sizes. That’s for sure,” he said. “There will always be a reason to test it, to get back to vouching and such, but it will definitely give us the opportunity to focus on looking at anomalies and outliers and identify areas of risk and significance by leveraging data. It really can help us in shaping and influencing our audit. More than anything else, it creates efficiencies, and efficiencies create time to repurpose our efforts in areas that are more judgmental, more high risk, that are fraught with estimation. Those are the types of things that you can’t have a push-the-button automated concept do. There always has to be a manual intervention. But if you’re getting people away from the grind of vouching, ticking and tying, you’re freeing them up to focus on other areas, and also to generate valuable insights that clients would expect from somebody that’s looking at the totality of their financial information.”