“We are excited about the future of audit, helping businesses to transform and providing trust to the marketplace”.
Head of Audit (Operations)
KPMG in Malta
New and emerging technologies and accelerated digitalisation are radically changing the future of audit. At KPMG we are committed to transforming the future of audit by serving the public interest and bringing value to our clients, through continuous innovation.
Leveraging the strength of our network, KPMG launched the campaign All eyes on: The future of Audit that reveals how we believe audit may be fundamentally transformed over the coming years. This article draws from that campaign.
Like all of us at KPMG, I am convinced that the topics outlined herein: Artificial Intelligence (“AI”), Technology Assurance, Continuous Auditing and Big Data are among the drivers towards the future of audit.
Transforming the Audit with AI
How is AI changing the audit and the way auditors work?
It’s the same way AI is changing every business and organisation: automating, accelerating and enhancing business processes, helping to transform at scale and drive value. We believe that means delivering even higher quality audits. For example, we expect AI will continue to help us at KPMG to better identify high risk transactions, allowing us to sustain our focus on risk assessment and obtain audit evidence over much larger, more complex sets of data. Also, by removing some of the more time-consuming tasks for auditors, AI will free them up to apply valuable skills in other areas, again enhancing the audit for everyone.
How is KPMG adapting to AI trend?
As businesses introduce more AI, the ask to provide assurance will increase. KPMG firms have already developed the know-how to help businesses and organisations adapt to (and even embrace) the cultural changes that AI brings. All within an ethical framework that helps manage responsible implementation.
One way we are adapting this is by using ‘Feature engineering’ to really shift the dial in anomaly detection. It will be able to spot behaviour outliers across the different data elements including identifying users that normally do not post entries and suddenly do. Suddenly we’re not setting rules and looking for exceptions. AI will help us to find that needle in the haystack. Additionally, we’re using AI to help support processing of large datasets around natural language processing, voice and speech recognition.
With change comes challenge
There’s no doubt that while digital transformation brings many opportunities, driving efficiencies and competitive advantage, it also exposes companies to new risks and threats. Technology assurance (including cybersecurity), can build confidence in new and exciting technologies.
According to the KPMG 2022 CEO Outlook, businesses are increasingly investing in new advanced technology, with over half of CEOs placing more emphasis on it. As these businesses adopt new technologies, such as robotic automation, artificial intelligence and blockchain, they tend to become more efficient and competitive. However, this digital transformation requires new ways of providing assurance over the use of technology, including protecting businesses from the new risks it brings.
How can technology assurance change the audit and the way auditors work?
Technology is quickly changing financial reporting. Machine learning, natural language processing and AI can automate tasks that would previously require time-consuming manual oversight. As part of the financial statement audit, auditors are now increasingly providing assurance over automation and even artificial intelligence used within the financial accounting organisation of businesses.
As part of KPMG’s own digital transformation, our firms not only equip auditors with new technologies, through KPMG Clara, but also with the skills and competencies to thrive in a more digital world. The goal is to audit advanced technology with advanced technology, making financial audits more efficient and providing organisations with a better audit experience overall.
To illustrate what this means in practice, take cyber security for example. Cyber security is the body of technologies, processes and practices designed to protect networks, computers, programs and data from attacks, damage or unauthorised access. KPMG has developed sophisticated cyber security maturity assessments and assurance frameworks to help businesses operate technology in financial accounting with reliable quality and security. To do this, KPMG itself leverages certified bots and data and analytics capabilities.
What is KPMG doing to enhance technology assurance services?
KPMG firms have invested in developing tools to automate and drive value to our audits by using data analytics, robotic automation and artificial intelligence. Around this, we have established a global methodology focusing on delivering assurance over emerging technologies.
As such, we have incorporated our AI/ML experience, tools and methodologies, as well as our multidisciplinary capabilities around governance and risk management into a globally consistent approach. We provide independent assurance where permissible and approved on specific algorithms with our technical deep dive and review, showing whether it’s reliable, explainable and ethically responsible. Our own use of AI in audit supports our ability to bring trust and quality to the use of AI.
Continuous auditing is a process that examines accounting practices, risk controls, compliance, information-technology systems and business procedures on an ongoing basis. It reflects an evolution of the audit from a point-in-time execution to something that stretches across the financial year in iterations. This is facilitated by more readily available data and the more frequently executed digital audit procedures.
Cloud technologies have enabled dramatic improvements in data acquisition, processing and analysis techniques in recent years. This allows auditors to process and analyse large volumes of data in a shorter amount of time, which has led to the rise of continuous auditing. In fact, technology now allows almost real-time auditing.
Continuous or more frequent auditing will likely become more common for auditors in the future and should allow them to spend more time on crucial judgments. Utilising automation, enables the quick detection of issues that previously would have only been picked up in a single audit at the end of the financial year. By providing these timelier insights, we believe continuous auditing has the potential to make a significant impact on earlier identification of risk throughout the audit.
How can continuous auditing change the audit and the way auditors work?
Continuous auditing typically has the following components:
- Continuous risk, control and transaction monitoring
- Investigation of potential inappropriate activities
- Continuous reporting to stakeholders
These activities are possible thanks to automation, which allows auditors to collect audit evidence and indicators from an entity’s IT systems, processes, transactions and controls on a frequent or continuous basis. This information enhances auditor capabilities and helps ensure compliance with policies, procedures and regulations. In many cases, it can also act as an early warning system to detect control failure, transaction errors, and other new issues in a more timely manner than under traditional approaches – and potentially in almost real time.
KPMG firms believe continuous auditing is likely to smooth the audit effort and reinforce audit quality, introducing a more dynamic and iterative approach to the audit process. Rather than conducting a single audit at the end of the financial year, auditors are able to continuously monitor and evaluate a business’s data throughout the year.
How is KPMG adapting to continuous auditing?
KPMG sees continuous auditing as facilitating better relationships with the organisations who work with us, as it enables ongoing anticipation, communication and action that brings significant added value. That’s why KPMG firms are investing in enhanced technologies that enable an ever more continuous audit approach. Many steps of the audit are already happening prior to the end of the financial year for the entity audited. With the help of technology, they can now occur in more frequent iterations and increasingly in real time.
One of the most pressing challenges for audit is how to tackle “Big Data” – which holds huge potential value to businesses, but is of such variety, velocity and volume that it is challenging, or even impossible, to process via traditional means.
Previously audits would draw primarily on structured datasets from financial systems and listings, whereas today, there is both opportunity and demand to analyse the aggregate of unstructured assets, such as legacy formats, text, emails, and audio/visual resources, which based on a recent survey could account for over 80% of available data.
How can Big Data change the audit and the way auditors work?
Across the businesses that KPMG firms audit, the quantity and diversity of data is increasing exponentially. Beyond analysing verified databases and listings (structured data), we’re now leveraging input from a broadening spectrum of both new and legacy sources including unstructured data.
By building transformative software that combines NLP and OCR technologies, we can automate formerly time-consuming manual processes. This allows us to advance from sample-based audits to evaluate full populations of data, including content and comparators that would historically have been inaccessible. With more time released, and access to a richer dataset, our specialists can focus on the more complex areas of the audit, and provide deeper, more accurate insights.
How is KPMG adapting to Big Data?
KPMG firms are making substantial investments into enhancing data acquisition, governance and processing techniques for all types of data, to drive the audit of the future.
The specific needs and complexity of our audits are unique, requiring new processes and tools to augment our capabilities, and optimise the role we fulfil to the organisations we serve. This includes partnering with leading technology companies to develop cloud-based data capabilities and training our auditors in the latest digital innovations. KPMG Clara enables us to continuously innovate and integrate these new capabilities to effectively manage both structured and unstructured data and turn it into insights and actions.
Audits are being fundamentally transformed through artificial intelligence, and the digital transformation requires assurances for the use of new technologies including cybersecurity. Continuous auditing gradually becomes more prominent for the auditors of the future. And finally, unstructured and structured data are increasing in volume, velocity and variety, requiring auditors to determine new solutions to harvest this data. These changes will not only impact businesses, but also change the way auditors perform their audits.
At KPMG, we recognise that the modern audit requires innovation at the core of what we do. We are constantly working to create an ever more digitised, connected, integrated, AI and data driven audit.
We have a clear pathway to accelerate this to 2024 and beyond.