How to audit the massive data volumes that companies nowadays process in their financial IT systems? The answer is obvious and recognized by financial auditors: data analysis. There is a need to move away from the traditional audit approach, which is based on testing IT controls, manual controls and sampling. This traditional approach served well in the 20th century, however today this is not sufficient anymore.
In addition, there is a strong demand by companies, which are subject to financial audit, for more quality, efficiency and innovation. Competition in audit is fierce. Almost every time when companies go for an audit tender the prize of the audit goes down. The traditional audit has become a commodity and financial auditors are fighting for market share. To survive, audit firms need to stay relevant and deliver quality and value against a competitive prize: there is a need for advanced and innovative audits, which are driven by data analysis.
Fortunately, today’s technology enables auditors to analyze huge volumes of data. Larger audit firms are investing heavily in data analytics techniques and they are competing to develop the most advanced analytics tools that analyze data for the audit and provide additional insights for their clients. Data analysis is positioned as a key marketing instrument and differentiator in audit proposals.
Although audit firms are traditionally no software developers, the data analysis technology itself is not the biggest challenge: most audit firms nowadays have implemented smart technology and expertise to retrieve and analyze the data from the financial systems. They build alliances, acquire software development companies and are competing to recruit data scientists. The bigger challenge lies in successfully applying the technology in the audit: fools with tools are still fools…
So, the bigger challenge for an audit firm to become successful in data driven audits is not the technology, but to re-design the traditional audit approach. In order to do so, financial auditors need to transform their people to data-driven and technology savvy auditors. The real innovation as such has to come from the new generation of auditors: often referred to as “generation Y”, but “generation D(ata)” might be a better name. Auditors need to extend their people force with data scientists and auditors have to re-educate themselves to become data domain experts: being able to leverage and integrate data analytics in the audit approach.
3 core competencies of a Generation D Auditor are:
Financial auditors, however are bound to the regulations set by the internal risk and quality departments of the audit firms and the external regulators. Therefore these regulator bodies also need to transform. The nature and task of these bodies and organizational departments however is to be risk averse and conservative for change that endanger the quality of audit. The Generation D in Financial Audit need to collaborate with their regulators and risk departments to change the paradigms. Generation D has an important mission here as well to transform towards a Regulator 2.0.
Data analytics in audit is going to be disruptive. If auditors are not able to change and drive Generation D, they will lose market share. New innovative auditors will arise and conquer the standing world. In order to survive, the traditional audit firms need to re-invent themselves. Generation D has to be grown and cherished. Data and Technology need to become a more significant part of the (continuous) education program of financial auditors. Financial auditors should focus their investment on re-inventing the traditional audit. The battle is not about technology, the battle is about audit transformation and the people market for Generation D.