Aside from the importance of the legal requirements for an audit, the undertaking of the audit itself provides valuable insight and give an organisation an eage’s eye view of their financial performance and position; critical for informed decision-making.
It is therefore imperative that CAs(SA) perform this duty with diligence, accuracy and transparency in order to root out corruption and pave the way forward. Many auditors fear how digital transformation will impact their careers, however, in this issue a couple of experts speak about how the digital revolution has the power to literally improve audit quality that will provide more effective risk assessments and recommendations to their clients.
Digital transformation in the South African audit profession
The consumer internet has transformed the way customers interact with businesses. Technology is reshaping every element of our lives, with every advancement pushing the boundaries of what the human race is capable of. This is also true for organisations and how they are audited.
SPEAKERS:
Nevellan Moodley CA(SA), who leads the BDO Africa Fintech desk, is an industry leader in blockchain and digital ledgers. He leads the global partnership between BDO and ALICE, the world’s first robot auditor. ALICE aims to deliver one of the first 15-minute audits in the world.
Professor Monica Singer CA(SA) was the first CEO of South Africa’s Central Securities Depository (CSD), Strate. Today, she is the SA lead for ConsenSys, the biggest blockchain company in the world.
Lauren Berrington CA(SA) is a founding member of ALICE and head of the team developing audit-as-a-service. She is also the Chief Audit Executive of the Bidvest Group.
The 2023 SAICA Audit Reform Webcast, held on 18 April and chaired by SAICA project director Angel Sithole, explored how digital technology – through blockchain, artificial intelligence (AI) and big data analytics – can improve the quality of audit, making it possible to evaluate the audit offer, develop new audit firm services and redefine the profile of auditors in the future.
The digital revolution has the power to improve audit quality and efficiency in an entirely new way. Digital tools can, for example, help auditors identify potential risks and issues more quickly and accurately, enabling them to provide more effective risk assessments and recommendations to their clients.
People, process, technology
People, process, and technology are the three elements of successful organisational transformation and achieving alignment between all three is critical.
‘Across markets, industries and audit firms, the “people” element of digital transformation is routinely ignored,’ said Moodley. ‘It’s also the number one cause of failure. As a profession, we need change management experts to lead the people side of digital transformation to achieve the desired outcome.’
To achieve digital transformation of processes, the processes themselves must change because it not just about implementing new technologies, but also about rethinking and reengineering business processes to take full advantage of those technologies.
‘Spending vast amounts of money on new technology without paying attention to people and process change will only result in disaster,’ Moodley added.
Berrington agreed. ‘There is a space for everyone in the digital journey and we need to make our people aware of that. Auditors are creatures of routine, and many fear how digital transformation will impact their careers. If you’re on the journey, encourage your people to come on board and to embrace the digital mindset.’
The AI way of auditing
Digital transformation has been hailed as a way to free up humans from doing mundane, repetitive tasks, and allow them to focus on more important things, improving efficiency and productivity.
Imagine a world where different global audit platforms feed data into a large language model like ChatGPT, for example, which uses large datasets of natural language to learn the patterns and structures and is trained using massive amounts of text data. It’s a world where you connect your technology directly to the client environment and use the power of AI to drive efficiency, consistency, quality, maximum assurance, and continuous assurance.
‘With ALICE, we were able to test 41 controls and quality approve them to complete the audit in 15 minutes,’ said Moodley. ‘No human auditor in the world can do that.’
There is another significant use for ChatGPT in a country with skills shortages. In auditing firms, which are people-heavy, there is an opportunity to equip auditors to use the platform to code and think digitally.
‘It’s a journey that could see us taking advantage of the value of the rand to create digital services that can be promoted and sold globally,’ Moodley said.
The data analytics myth
There’s a misconception that using data analytics in auditing is a simple and straightforward process that can replace human judgement and expertise. The myth assumes that by simply feeding data into an algorithm, auditors can automatically detect all potential errors and fraud, without the need for critical thinking, professional judgement, or human intervention.
‘While data analytics can be a powerful tool for auditors to improve the efficiency and effectiveness of their work, different clients have different amounts of data of varying quality and accessibility,’ Moodley said. ‘Real data analytics will be achieved by platform-based, data-led organisations, and there are many striving to reach that goal.’
The unstoppable rate of change
Exponential change, now a term that’s widely used, refers to the rate of progress that increases over time due to improvements in technology, resulting in increasingly rapid change.
Related to that is the concept of ‘singularity’, a hypothetical point in the future where technological progress reaches a level that fundamentally transforms human civilisation, and is associated with the idea of superintelligence, where machines become exponentially more intelligent than humans – solving problems and making decisions that are currently beyond human capability.
‘his is a way of saying, ‘You ain’t seen nothing yet’,” Moodley added. ‘What it really means is that exponential growth of technology will lead to exponential change in business. There is no escaping that and our profession as a whole has to overcome resistance to change.’
Moodley noted the current divide between business and combined assurance, where the various assurance providers within an organisation coordinate and find alignment in their work. ‘This is the great audit divide and it’s where risk happens. When organisations are platform-based and data-led, risk management efforts can be combined, aligning assurance processes between internal audit and other assurance providers to deliver deeper insights.’
Exponential change and the evolution of assurance
There are four key benefits to the evolution of assurance, all enabled by digital transformation:
Digital combined assurance − Using technology and data analytics enhances traditional auditing methods and provides more comprehensive and efficient assurance services. It combines financial audits, IT audits, and cybersecurity audits, into a single integrated process that leverages technology to analyse large amounts of data. Auditors gain a better understanding of an organisation’s risks and controls, the ability to identify potential issues or anomalies and provide more insightful and data-driven recommendations to management.
Maximum assurance − This is the highest level of assurance that an auditor can provide and happens when they have conducted a thorough examination of the underlying data and performed extensive testing of the accounting records and related controls.
Realtime assurance − This provides continuous, ongoing assurance of an organisation’s financial information and feedback on the accuracy, completeness, and reliability of financial data as it is generated and processed. Real-time assurance uses technology to collect and analyse data from various sources in real-time, such as sensors, databases, and other systems.
Continuous assurance − This involves ongoing and frequent monitoring and reporting on an organisation’s financial and operational data.
‘The challenge now is that 99,6% of the world’s data is unstructured,’ Moodley noted. ‘Unstructured data stores contain a wealth of information, and we need to be able to access it.
From email to text files, social media and websites, and mobile and communications data, it has historically been very difficult to analyse. With the help of AI and machine learning, software tools can search through vast quantities of this data and uncover beneficial intelligence to help identify risks.’
Imagining audit-as-a-service
Anything-as-a-Service (XaaS) is a collective term for products, tools, and technologies that vendors deliver to users as a service over the Internet, using a pay-as-you-go cloud pricing model. It’s about delivering and consuming services differently.
When it comes to people, the adaptability quotient (AQ) – an individual’s ability to adjust to change in real time – is essential for employees who want to continue to succeed in the digital era. These are people who see the world with fresh eyes and remain open to possibilities. In addition to IQ and EQ, it is an essential measure for evaluating employees’ ability to embrace the digital revolution.
‘Currently, in light of exponential change, we need to be surrounding ourselves with people who are ready to reinvent themselves and relearn everything once every five years,’ Moodley said. ‘How we manage our people will determine how we set ourselves up to become the digital assurance providers of the future.’
Commenting on the challenges and opportunities of digital transformation for business in terms of audit, Professor Singer said that little was learnt post the global financial crisis.
‘Blockchain and other decentralised ledger technologies could have major implications for the audit profession as they can provide a permanent and immutable record of transactions, which has significant potential to boost the confidence and trust that users have in data. The four-eyes principle will evolve into the many-eyes principle. Our profession has to appreciate that blockchain is an enormous gift. In South Africa, it has the potential to rid the public sector of corruption.’
She stressed that auditors cannot be resistant simply because they may view blockchain as too complicated to understand, especially given the wealth of information that exists out there, from YouTube tutorials to whitepapers and articles dedicated to demystifying the technology.
On the vexed question of AI and ethical considerations, Berrington noted that training accurate AI algorithms posed ethical challenges in terms of privacy, confidentiality, and data protection, but that the world is not going to stop embracing AI. ‘This is a topic that many people are investigating, and progress is being made in reaching a consensus on how to manage the ethics. Regardless, if you have not yet embarked on your digital journey, start afraid, but start anyway. There is help available, and many resources to take advantage of.’
The panellists concluded that the digital transformation of the profession provided a meaningful opportunity to bring value to economies and most importantly to humankind. They agreed that this was an exciting prospect and encouraged members of the profession to make the journey a fun one.
