“Everyone with an interest in audit has an opportunity – probably a rare one – to think again about what we all want from an audit, and how data analytics might be able to transform it.” – International Accounting, Auditing & Ethics
Do your audits deliver value? Many firms say yes, but their clients have a different opinion about the value of audits. From a client’s perspective, an audit is a cost or a necessary evil. They may need an audit to obtain financing or meet regulatory requirements. However, it adds little to no value to their business. As a result, clients put pressure on their firm to lower fees each year. As with any other commodity, clients will buy their audit from the lowest bidder.
Unless you are willing to continue lowering fees to hang on to the clients you have, you need to figure out how to do things differently. Clients still need audited financial statements and firms still need to cover the audit standards. So you need to take advantage of technology that will streamline compliance. That will free up time for auditors to leverage their thinking capability.
The service value continuum
Looking at this graphic, on the far left are transaction services of bookkeeping, payroll, and bill management. What takes the firm from transactional services to compliance services to performance services is data connectors, or the ability to extract client data and bring it into the firm’s software. For this to occur, firms need the right technology platform to get transactional data out of QuickBooks, Xero, Sage or any other accounting application used by the client and into the firm’s tax or audit software.
When a firm prepares a client’s bookkeeping and payroll, it makes sense also to provide tax preparation and financial statements. The firm already has the data, so they can move up the value chain to offer additional services. These services have traditionally been profitable for firms of all sizes. But capacity has limited growth. And in addition, the focus was still on compliance: services that your client doesn’t want, but needs.
Moving beyond compliance
The cloud allowed firms to move up the value chain again to services that clients want and need, such as outsourced CFO services and business advisory. At this level, growth is not limited by capacity, but by capability. Services at this level and beyond require a different skillset than compliance services. So in addition to the technology needed to access and analyze client information, firms must invest in human capital.
Once firms have reached the Performance level, it’s not data that will take them to the next level, but knowledge. Strategic planning, succession planning, and M&A services will use all of the data that the firm collected in previous levels, but the advisor needs the capability to extrapolate strategy from the data. Accounting education in the future may rely more on information technology, statistics, and modeling than traditional debits and credits.
The key, then, is investing in technology that increases a firm’s capacity to do more work and improve the capabilities of your team with data analytics.
Data analytics, big data and the value of audits
“We do not believe that the existing audit model is broken – far from it. But it has necessarily been constrained by many technological limitations that have now vanished.” – International Accounting, Auditing & Ethics
First, let’s review the definition of big data. World Bank’s Centre for Financial Reporting Reform defines big data as “large amounts of complex data coming from a variety of sources and processed at high velocities.”
On its own, big data has limited value. Firms need to mine and explore the data for further information. That is the purposes of data analytics. From the Centre for Financial Reporting: “Data analytics is the process of examining raw data with the purpose of drawing conclusions and supporting decision making. It is used by many companies to make better business decisions, predict future outcomes and manage risks.”
No one would argue that a CPA firm does not have a wealth of data on hand. But few have the toolsets and skill sets to turn that data into insight for clients. Tools like CCH Audit Accelerator can increase capacity. This gives your people time to develop the capability to increase the value of audits they deliver above and beyond a traditional financial statement audit. This solution connects directly to client’s accounting application. It extracts an exact copy of their data, interrogates the data for accuracy, and creates standard reports, analytics, and financials.
Increasing client perception of value
Big data gives auditors the opportunity to deliver better quality audits. That’s because data analytics means testing 100% of the transactions in a population rather than relying on controls testing, sampling, risk-based auditing, and materiality. Moreover, it improves client perception of the value of audits. Clients can visualize everyday data graphically, giving them the opportunity to understand their own information from a fresh perspective.
Some large businesses already similarly analyze their own data, so client expectations regarding the use of technological advances are evolving rapidly. Even small clients are coming to appreciate the benefits of data analytics. They expect it to be used in the audit process.
CPA firms have long held a vast amount of data, so finding new ways to analyze that data is a natural evolutionary process. Technology does not cut billable hours or make financial audits obsolete; it reduces the time spent on manual data preparation so firms can focus on higher level, strategic services and leveraging their thinking capability – skills that artificial intelligence cannot replace.