BCAS President CA Chirag Doshi’s Message for the Month of April 2024
Audits Of Future
Dear BCAS Family,
As more and more entities are undergoing digital transformation, it is now becoming increasingly important to include the technology tools as part of our audit procedures. The term coined nowadays for the way audits would be undertaken in future is Continuous Auditing.
Amongst firms, especially small and medium sized firms today, there is a struggle for adequate technology staff / support; there is also a lack of understanding of the technological advancements which can ease their execution and lack of technologically proficient staff. The above challenges for such firms are on account of lack of allocation of adequate financial resources to attract skilled staff and / or conduct upskilling / reskilling initiatives for existing staff. Smaller firms are also concerned about the increasing exposure to cybersecurity risks as audit firms’ increased access to clients’ data which is requested, obtained and stored online.
This month, I attended the 1st NFRA international conference. Certain key areas which this conference touched upon were Audit fees charged by auditors are too low and need to be addressed, use of technology in Audits is ever increasing, role of independent auditors and directors needs course correction, importance of training and upskilling of audit staff is need of the hour, amongst others.
At our Society this month, the Accounting and Assurance Committee of BCAS has launched a 75-hour-long duration course in the 75th year of the Society. This course covers the accounting standards (Indian GAAP and IndAS), auditing standards, FRRB observations, NFRA observations, Ethics and Governance and many other relevant topics. This is with the aim of equipping accountants, staff of audit firms and other assurance function intermediates with adequate knowledge for preparation of Companies Act-compliant financial statements and also to bring efficiency in assurance function.
I would also like to touch upon the most critical area for attest function, viz, use of technology in audit processes, considering that the information technology used in business processes is always evolving but changes significantly with new breakthroughs. As the high costs of IT infrastructure are shared through using cloud services, the costs of using technology for business processes are reducing. This has made the use of technology available for smaller organizations that would otherwise not have the resources to do so.
We can expect more entities to start implementing emerging technologies such as continuous integration / deployment, Data lakes, Artificial Intelligence and Machine Learning, and integrating these technologies into core business processes. This change will further increase the relevance of the use of technology within the audit processes.
The new innovations in technology, like collaborative portals, are resulting in a situation whereby the audit clients can directly interact with the technology used in the audit or the result can be presented through the automated portal.
As we move towards automation-based audits, there would be a number of challenges to overcome like technological integration and data analytics, cybersecurity and data privacy, non-financial reporting, remote auditing, talent management and skills development, globalization and cross-border auditing. One of the key challenges globally is to bridge the gap between the new way of auditing and the existing auditing standards. One key aspect of the audit process which cannot be automated is the judgement of the auditor. The reality of technological changes is that deviations will occur, either due to evolvement of new disruptive technologies or due to changes in the way the businesses will function. Whether the deviations occur or not, the involvement of human auditors to provide judgement shall continue; however, the increasing gap between technology and auditing standards needs to be bridged. As audit automation takes the driving seat, this will be the most discussed and relevant topic between auditors and accounting oversight boards of various countries.
The other challenge is that creating tools to automate auditing and the relevant infrastructure requires a significant upfront investment and will likely not yield returns until several years of operation. This challenge can partially be overcome by using low-code development or open source codes, which typically requires less time and investment to create a piece of automation.
The other technical challenges to overcome are related to data completeness and its integrity and also ensuring that the results of the automated procedures produce quality and consistent results. The future audit will, therefore, require an auditor of the future. The current skill set of accounting knowledge needs to be upgraded with knowledge of data analysis and other analytical skills so as to automate our more routine work and be more efficient and effective.
I came across an international Survey done in May 2022, whereby CPA Australia with the support of the Malaysian Audit Oversight Board conducted an online survey of 179 external audit and IT professionals in Malaysia to obtain their perspectives on the use of technology by auditors.
All participants stated that technology is used in external audits in some form. The extent of firms’ usage of technology in external audits largely aligns with the firm’s size and the nature of audit clients. The observations in case of the Big 4 were 65 per cent use technology in audit to a large extent, 34 per cent use it to a moderate extent and 2 per cent with limited use of technology in external audit. In case of other firms that consist of mid-tier and smaller size firms, the results are encouraging although the technology uptake in other firms is slightly lower. Twenty-six per cent use technology in audit to a large extent, 45 per cent use it to a moderate extent and 22 per cent indicated that there is limited use of technology in external audit.
Over 90 per cent of participants embraced the use of four core technologies (cloud technology, digital tools, digital platform and projects, work-flow, or time management system) in managing external audit engagements.
One of the Research papers regarding the audit of the future said to gain a better understanding of processes, and how information flows through the organization, data analytics can be used to follow accounting records through the organization’s business processes. This can be performed as an audit procedure to verify that all information is part of the financial statements.
As markets change and companies evolve, so must the audit function. The use of key technologies such as advanced analytics, artificial intelligence and virtualization, digital twins should be encouraged which in turn help auditors boost their efficiency and deliver a better-quality audit.
Women’s Day Celebrations
This month our Society planned a women empowerment session. The session had two female speakers Ms. NazChougley and Ms. RupalTejani. Concepts like Law of attraction and women as venture were discussed and both of them spoke on the importance and challenges towards empowerment of women in the current scenario. The program was very well received, and I congratulate the Seminar Public Relations and Membership Development committee led by three female convenors for organizing such an impactful and interactive session.
Wishing you a happy summer and a good vacation ahead!
