The auditing cycle has remained relatively unchanged for the last 80 years. While this stability instills confidence in investors and markets, advances in technology and the availability and accessibility of data, are creating a new landscape for financial reporting that will demand more from its audits. With investors having access to what seems like an unlimited breadth and depth of information, James Liddy, U.S. Vice Chair, Audit and Regional Head of Audit at KPMG, argued in Forbes that the audit process must evolve to provide “deeper and more relevant insights about an organization’s financial condition and performance – while maintaining and continually improving audit quality.” As you work toward your accounting master’s degree, these are the important changes of which to take note:
One example of “deeper and more relevant insights” is the potential for more effective audits performed by auditors with more dynamic tools and skill sets. With the help of more data and the processing power to analyze it, auditors could have the capacity to examine all of a customer’s transactions rather than a small sample set that they then extrapolate. They will be able to “sort, filter, and analyze tens of thousands or millions of transactions to identify anomalies, making it easier to focus in on areas of potential concern and drill down on those items that may have the highest risk.” And with smart data, each year’s audit will “learn” from previous years, building a repository of knowledge to better inform future audits, companies, and investors.
Another evolution of the auditing process will be in the use of advanced data and analytics to explore external forces and consequences beyond an organization. Weather, traffic patterns, economic conditions, the demography of employment, and other factors can all impact an organization’s financial performance. Advances in data science mean that a wider range of data sets, often unstructured, can be mined and incorporated into an audit to enhance its quality.
These changes won’t be without their challenges. Concerns over auditor autonomy, data security, and transparency will require intense debate, dialogue, and scrutiny over what data to share, how much of it to share, and how it should be stored and secured. Regulators will also need to be brought on board and shown how the quality of the auditing process can be strengthened. The business world – not just the auditing one – is on the cusp of a data revolution, and to benefit from it will require an open conversation about shared goals and benefits for investors, regulators, and organizations.
New England College
As big data continues to evolve and businesses become more sophisticated in its use, traditional roles, such as auditors, can take advantage of its insights as well. New England College is developing the leaders of tomorrow through its Master of Science in Accounting program. It arms students with the technical skills needed to collect and analyze data, as well as the business skills needed to translate it into the intelligence that will give you and your business a competitive advantage.