Real-time insight into financial transactions, and a clear picture of transactions that do not follow the standard process flow. These are crucial elements for organizations to be able to achieve deeper insights into their own processes. It ultimately leads to robust internal control and better decision making. Therefore, organizations are increasingly investing in IT to better control processes and make relevant information available faster.
The speed is essential because the complexity of the challenges that organizations face continues to grow. Agility is a key theme, now more than ever. However, an organization can only move quickly if you have the right information timely available, and preferably that it is continuously updated. Therefore, logically, organizations are placing increasing demands on internal control, the audit and on auditors. Consequently, we see a rapid transformation in audits: a shift from periodic auditing to technologically, highly sophisticated and continuous auditing.
Flipping the pyramid
In terms of auditing, we can divide the flow of transactions a company records into routine and non-routine transactions. A significant part of the audit time goes into auditing routine transactions. The remaining time goes to auditing non-routine transactions. This includes non-standard contracts with customers, price adjustments, the projections of future cash flows in impairment testing and auditing the provisions. The non-routine transactions carries most of the risk. This is why the organisation needs to have an accurate view of these transactions.
This is why in audits, KPMG is fully committed to digitize the testing of routine transactions as much as possible to enable auditing through a combination of (reliance on) internal controls and data analysis. This allows us to create both more time for non-routine transactions (which by their nature offer fewer opportunities for digitization) and for our customers. We call it flipping the pyramid.
Our highly digitized audit approach allows us to make our audit more efficient and of better quality. This is why we are moving away from a traditional way of auditing via sampling to a highly digitized auditing method. Such data analysis allows us to assess 100% of transactions and thus identify all potential risks. By applying such risk based auditing, we can focus even better on what really matters to the business. In addition, companies gain better and more accurate insights to reduce risk and make better strategic decisions as well as to provide all relevant stakeholders with the insights they need to properly assess the organization.
KPMG Clara Enables Continuous Auditing and Monitoring
This process of digitization is customized, tailoring the details together with the customer. Together, we review the options of maximum reliance on automated controls in the system for our audit approach. In addition, we speak with relevant individuals within the organization to incorporate appropriate process knowledge into our algorithms for applying data analysis. The key for success in the innovation journey for both KPMG and the customers is working together. In our vision, customers want to be more in control and further digitize in their internal control environment, which we can in turn subsequently rely on in our audit.
For our audits, we work from a single central secure platform, both within our team and with our clients: KPMG Clara. Through this platform, we deploy various solutions to perform data analysis. This includes the KPMG continuous auditing tool to automatically test routine transactions or process mining to efficiently get a better understanding of how processes run. This is used as input for our risk assessment. With KPMG Clara, we offer our clients complete transparency on audit status and a secure platform for document exchange plus insight into our findings as well as results of the various data analyses. Based on the findings from the audit, our clients can improve and streamline their own processes.
KPMG strives to make the best use of new technology. Traditionally, our auditors, working closely with our technology experts, were accustomed to retrieving data from individual client IT systems; but that is increasingly a thing of the past. With the emergence of new technologies such as SAP S/4 HANA and data lakes, we are increasingly bringing our data analytics solutions and algorithms into our customers' environments. This offers benefits: increased efficiency, data can stay within the customer environment, and optimal return on investments.
With the application of continuous auditing in our audit approach, we want to highlight innovation and digitization. We see its application as a promising intermediate step toward our customers' implementation of continuous monitoring. This will enable our customers to be even more in control due to the continuous and in-time insights into potential risks in their internal control environment.