By Russ Banham
During the early pandemic rush to create hybrid and remote work environments, most business leaders were rightfully focused on business continuity and employee safety. For many, the shift to telecommuting has provided surprising opportunities amid challenges.
“Audit is all about evidence and validation, where auditors have traditionally had to verify findings first-hand, but now technology has started to change that model,” explains Lou Trebino, Chief Audit Technology Officer at KPMG LLP.
Below, Trebino shares examples of game-changing technologies that are driving some of the most profound changes in modern auditing.
1. Analytics and Automation
Much of any audit is a manual process of collecting and sorting through massive data sets, making data mining a critical component that can vary across companies and industries.
“In the auditing profession, as much time is spent on ‘reading’ as in the legal profession,” explains Trebino. This can drain much-needed resources from other parts of the process.
Enter advanced analysis. Fueled by adaptive artificial intelligence, machine learning and other automation technologies, technology is changing the way auditing is done.
Document readers, for example, can scan millions of lines and quickly flag potential inconsistencies. They can also cross-reference different datasets according to predefined parameters.
These tools free up time and resources for the more important work: human analytics to focus more on areas of increased risk.
“By taking the full customer data sets and overlaying the analytics and visualization capabilities, you are able to focus on and highlight anomalies that warrant further investigation,” says Trebino. Automating data mining enables auditors to provide analytical value and insight.
“By moving to the cloud with our core audit platform and leveraging client clouds, we’ve really improved and accelerated collaboration with clients,” continues Trebino. “Clients can upload audit documents and requests and see exactly where we are in the audit process, leading to greater real-time collaboration.”
This, Trebino adds, is the new normal for modern auditing: These and other cloud-based features are now standard practice at most public companies.
2. Block chains and smart contracts
Blockchain is a powerful, if often misunderstood, technology that is already well-suited to modern auditing.
The source of auditors’ interest in blockchain should be obvious. Companies use blockchain networks as a transparent, immutable, secure and decentralized way to record assets and transactions.
Indeed, smart contracts (applications stored on the blockchain that operate according to predetermined conditions) have already proven their ability to facilitate massive amounts of customer transactions.
Of course, auditing transactions recorded on a blockchain comes with certain challenges. Auditors need reliable access to data recorded on blockchains, as well as tools to validate clients’ claims about their control over private keys. In addition, some digital assets recorded on blockchains, such as non-fungible tokens (NFTs), may be difficult to value.
KPMG believes that solutions to these challenges require specialized investment in data and tools to obtain audit evidence for blockchains. That’s why the firm created Chain Fusion®, a proprietary suite of capabilities that help KPMG teams solve these challenges and serve their clients.
“Chain Fusion enables KPMG to provide audit services to leading financial institutions and crypto-locals,” said Robert Sledge, Partner, Audit at KPMG. “The ability to obtain audit evidence of balances and transactions recorded on leading blockchains helps us continue to deliver high-quality audits that meet regulatory standards.”
Chain Fusion is just one of many blockchain-based auditing tools that will further modernize auditing in the coming years.
Finally, the most notable aspect of modern auditing may be its virtualization.
To remain relevant and flexible, one of the ways audit at KPMG has evolved due to the pandemic has been the creation of “virtual audit rooms” to bring about the necessary virtualization. Virtual audit rooms are secure, private, shared digital environments where auditors have secure access to financial records and other sensitive documents. Under the pressure of recent circumstances, they moved from possibility to practicality. Thanks to previous investments, KPMG transformed its processes to include virtual audit rooms during the pandemic.
To ensure that virtual audits are just as reliable as their face-to-face counterparts, KPMG has also included smart glasses that allow audit professionals to interact with remote assets securely and in real-time on-site, such as with inventory etc.
In other ways, the virtual audit room resembles a traditional on-site operation. The digital space remains “open” throughout the day, enabling real-time, full-time collaboration on a 24/7 basis for audit teams.
“This allows us to conduct virtual document reviews as if we were sitting next to each other in person,” says Trebino.
In the future, will auditing become a fully virtualized process, with no face-to-face interaction between auditors and their clients? Doubtful, Trebino says. He says audit committees are already asking, “When are you going to go back to being in person?”
Instead, just as the future of work is expected to be hybrid, so will modern auditing. And this is no accident.
“We’re really a mirror of the customer in many, many ways,” says Trebino. “We need to manage the ebb and flow, infrastructure and culture of the clients to ensure we are performing the optimal audit – in terms of quality and timing.”
As markets change and companies evolve, so must auditing. The use of key technologies such as advanced analytics, adaptive artificial intelligence and virtualization, all of which help auditors increase productivity, efficiency and provide a better audit experience.
Russ Banham is a Pulitzer Prize-nominated financial journalist and best-selling author.