Towards a modern version of audit and accounting processes: the opportunities behind digital transformation
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Today's read is ~11 minutes
Inefficiencies and needs - Why should auditors go digital?
Auditing has been an ever-changing discipline since its inception over 100 years ago. But how much have the challenges facing accountants evolved over the last decade?
Some unsolved issues stand out persistent in auditing today, such as:
Such shifting business and regulatory circumstances entail substantial implications. Auditors are not only tasked with working out how to incorporate these changes into their own businesses and activities but also with considering how the news will impact their clients or those they do business with.
A growing demand
To these historical problems are then added new ones, those arising especially during the “busy season”:?
No matter the specific type – public, private, audit, and tax accountants – audit professionals are familiar with this notorious period of the year. The intensity and timing of it can vary, but they all share the increase in workload and, consequently, higher stress levels to cope with clients' (and their own firms') pressure.
Audit firms play a vital role in the functioning of capital markets. By promoting integrity in reporting and building a foundation of trust, auditors reduce financing costs and contribute to an efficient allocation of capital to fuel economic growth. In providing this essential service, they have seen an increase in clients in recent times – involving both public entities that must necessarily undergo audits (due to regulations) and private companies that do it voluntarily.?
Assurance reports are steadily more in demand, and the workload for auditors is constantly increasing. In the meantime, customer expectations and widespread needs for speed and safety have evolved as well.?
…and its implications
Surveys have shown that both auditors and their customers face significant hurdles during their audit processes.?
Delays in providing documents and, more generally, the cost-effectiveness and the time spent gathering evidence are among the most common issues faced by professionals in carrying out audits.?
Clients complain about excessive audit duration and frequent postponements in finalizing financial statements and reports, availing documents, and responding to audit queries. This is mainly due to the fact that auditors usually have to deal with multiple clients and many assignments piling up on their desks.?
Other issues arise in relation to the vulnerability of sensitive business data involved in the audit process. Many respondents stated that they feel – and fear – that auditors get exposed to confidential information. Although most of them trust in the ethical behavior of accounting professionals (bound to the confidentiality agreement), some admitted that they still see the audit firm personnel acquiring knowledge of their organization’s sensitive information as an inherent risk. That’s sometimes because no specific and strict security measures are usually in place to protect the privacy of the documentation exchanged between the parties.?
Auditors are expected to be at the forefront of protecting clients and organizations. To this end, they need to guarantee the utmost privacy of clients’ information, as well as a high level of comfort about security and compliance.
Has the world moved faster than the audit field when it comes to digitalization?
Technology is now pervasive and embedded in all business activities. The exponential growth of information shared online has a profound influence on business operations.?
Companies from all sectors are making significant investments in technology, specifically regarding the use of data. Society’s expectations are shifting rapidly, and accounting practices must keep pace.?
All this adds up to thought-provoking times ahead for auditors.?
In such a context, where are the accounting firms on the digitalization roadmap? Can they also take advantage of new technologies to improve operations and processes??
Is digital transformation an opportunity for auditors just as it is for everybody else?
All workflows, where possible, should exploit digitalization. Embracing the power of technology goes a long way in providing faster and safer operations, improving customer experience, and building overhead trust.?
Transition times rarely come without challenges, but automation has the potential to advance and future-proof the overall business.
Assuming that companies of all sizes that manage more than 3,000 documents annually should consider going digital, auditing professionals should not be seen as an exception, as theirs represents the perfect example of a business that relies heavily on written documentation.?
With the necessary technologies and regulatory frameworks in place to support a digitized business environment, auditors only need to implement the right solutions and systems to start deriving benefits for their work and their clients.?
What "going digital" means in the world of auditing
In its purest form, digitalization for auditors means transitioning accounting and reporting documents from the traditional paper-based system to an electronic format.?
Auditing has traditionally been a field characterized by a low level of digital innovation. Historically, auditors have been slow to embrace digitalization and have tended to use disparate technology to perform various accounting tasks. However, as many auditors’ processes are repetitive and labor-intensive by nature, a general realization of the achievable potential of automating these tasks has emerged in the industry in recent years.
Like other companies from the BFSI sector, auditors typically perform paper-centric workflows, whose automation would result in significant cost reduction and process optimization potential. Additionally, the stiffening of compliance requirements due to AML regulations and GDPR has made KYC business process automation a critical area of focus for companies in this industry.?
For auditors, digital adoption means improved quality and greater transparency, shorter audit cycle times, and reduction of errors and disservices.?
It’s more than a transformation in technology. By accelerating administrative tasks, digital investments help optimize efficiency so that professionals can focus on more strategic areas of their roles and, in turn, add more value to stakeholders.
What’s holding auditors back??
Digital transformation is sometimes not as quick and easy as it might seem - due to a variety of circumstances.?
One of the primary causes is the difficulty of understanding where to start and how to equip the business with the necessary tools to improve operational efficiency and customer experience.?
The most common issues auditors face in embracing digitization can be summarized as follows:
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Trends, drivers, and benefits paving the way for auditing digitalization
The concept of auditing digitalization, previously viewed with distrust and suspicion, has seen an evolution in recent years.?
Several factors influenced this change of direction. The need for business process optimization, the socio-political endorsement, and the stakeholders’ expectations for better CSR performance stand out as the most crucial.
These fundamental circumstances are paving the way for innovations in accounting firms and are expected to continue to push auditors towards a digital evolution of their work habits.
For all those activities involving the frequent and copious processing of papers (documents, records, emails, statements) – and the need to print, scan, exchange, and store this information - the digital evolution has offered solutions that can be defined as almost revolutionary for their ability to simplify and speed up daily work, save resources and time, and boost productivity.
Converting labor-intensive tasks, like receiving-sharing, storing, securing, and retrieving documentation, from manual to digital processes allows for error minimization. It also prevents duplication of effort and undue stress and helps avoid redundant operations that cause rework and lessen staff productivity.?
Additionally, this transition implies risk management improvements and inherent greater security of the data involved.?
Replacing manual methods and multiple and disconnected systems with innovative and harmonized solutions brings major benefits that extend beyond the business management area.?
Improved time efficiency and higher productivity translate into happier customers who enjoy faster service and a more flexible and dynamic experience thanks to digital interaction.?
Long processing times, frustrating delays, and time-consuming steps not only affect employees’ ability to perform their jobs on time but also, just as importantly, the customer’s perception of the service quality.?
Ergo, accounting firms are increasing digitization budgets to undertake significant company-wide changes toward becoming technology-driven.
Political ambitions and regulations enacted by the European Union and the United Nations are incentivizing digitization in both governments and businesses to such an extent that digital and political agendas have become intertwined.?
The promotion of digital identification mechanisms and the creation of standards for performing e-transactions (with eIDAS ) were the first steps towards creating a modern digital market that allows Europe to keep up and compete with the rest of the world.
The new AML Directives further tightened the KYC requirements. Auditors, external accountants, and tax advisors are now required to perform more and more thorough customer background screenings - which, in turn, have led to a more considerable amount of personal data to be collected, processed, and be responsible for.?
Bearing in mind the large amount of confidential information they get exposed to, audit and accounting professionals are expected to be on the front line of protecting clients’ organizations - as well as complying with the GDPR . It follows the need for firms to establish compliant and automated processes to ensure the security and privacy of such data.?
Last but not least, the initiative to make the electronic format of annual financial reports consistent and homogeneous (ESEF ) contributes to accelerating the digital maturity of the European market but also increases the need for auditors to embrace digitization and evolve their traditional working methods to adapt to legislative changes and meet customer needs.
These tendencies are facilitating and driving the digital shift in the auditing industry. In addition to the political leanings, the International Auditing and Assurance Standards Board (ISAAB) of the International Federation of Accountants (IFAC) is also openly promoting cross-border standardization of financial accounting and reporting processes, assurance, and quality control.?
The many regulatory initiatives launched, together with the general trend of increasing levels of digitalization, will continue to push audit professionals toward upgrading their traditional processes.
Climate change and environmental issues have become so profoundly rooted in the public conscience that the commitment to green initiatives has begun to manifest in corporate actions as well.?
Regardless of their size, all companies have large carbon footprints. It is, therefore, every business’s responsibility to make sure they are doing their best to preserve the world’s resources.?
The “myth” of the paperless office has been promoted for decades, and it was expected to become a reality by 2020. However, truth be told, the volume of paper being used has actually expanded, and the same has been witnessed for packaging and postage.?
It’s only in recent years that environmental efforts began to be included more seriously in business conversations and found fertile ground in the concept of Corporate Social Responsibility.?
Consumers, employees, and shareholders size up the level of CSR when choosing a firm, and hold corporations accountable for effecting social change with their business beliefs, practices, and profits.
Document processes digitalization has a crucial role in CSR as it removes the need for physical documents and supports organizations’ mission of limiting their paper usage.?
Time for a change: How to embark on business digitalization
Client onboarding procedures, KYC processes , audit processes , and signing processes (as well as all the document management activities involved in them) are all repetitive and labor-intensive workflows that can efficiently be done digitally, eliminating the need for mailing document folders or meeting in person - and greatly accelerating the entire flow.?
Commonly, companies don’t have the necessary know-how in-house to automate such workflows. Hence the need for relying on third-party service providers.?
Also, considering how processes such as signing documents, onboarding clients, and filing financial reports interlink and interact with one another, it’s essential for the digital tools supporting them to be systematically integrated.
Relatively high switching costs, dreaded difficulties in the transition to digital, and concerns related to cybersecurity and data privacy are the main factors taken into consideration by auditing firms in the choice of vendors and providers to rely on when embarking on this digital transformation. Picking the right one is vital for the success of the entire business (r)evolution project.?
What can you do to drive improvements in your business processes?
The right time is now
As we are in a time of political, economic, and technological upheaval, it’s a critical moment to reflect on the challenges facing the accounting world and identify opportunities for improved audit quality and client service.??
With the Big Four leading the way toward digital adoption, audit firms worldwide have indicated that they are currently making prominent investments to investigate ways to redesign their audits and take advantage of emerging innovations. Smaller accounting firms are inspired to follow, which ultimately sets new standards for the use of digital solutions and the proliferation of technology-driven organizations.
What about you? What’s the level of digitalization in your business?