How are emerging technologies changing the audit profession?

Internal audit is undergoing a period of significant change, and nowhere is this more evident than in the IT audit space. Technology now touches on almost all areas of business operations, creating both opportunities and challenges for corporate governance departments.

Global IT spending is expected to grow 3.7% in 2020, with expenditure for this year set to reach $3.7 trillion, according to Gartner. Data analytics, artificial intelligence (AI), machine learning, robotic process automation (RPA) and the cloud are just some of the emerging technologies that are revolutionizing many industries.

Amid this backdrop, the C-suite has increasingly sought greater insights from auditors, with hopes the profession can become trusted advisors to the business and take a more proactive role in predicting technology risk.

Auditors are stepping up to the challenge. A recent global survey from Protiviti revealed three-quarters of departments are embarking on some form of innovation or transformation initiative. In this article, I’ll explore the impact these changes are already having on internal audit and IT audit recruitment in New York and beyond.

Emerging technologies on the rise

Protiviti’s research indicated that next-generation audit capabilities are still in the early stages, but here at Barclay Simpson, we believe 2020 could be a breakout year for emerging technologies, particularly data analytics.

Our 2019 Internal Audit Market Report revealed 80% of audit teams are already using data analytics and AI tools in some form. Of these, 82% say these technologies have led to improved audit findings, with nearly six out of ten respondents also claiming they have cut costs.

Analytics work is commonly split into three groups: descriptive, predictive and prescriptive. Or, put simply, ‘what happened?’, ‘what will happen?’ and ‘how can we make it happen?’ respectively.

Predictive and prescriptive processes are typically considered advanced analytics, which are less common in companies than more basic forms. The Protiviti figures show less than a quarter of audit departments use advanced analytics, although up to four-fifths have plans to adopt such practices within the next two years.

— Protiviti (@Protiviti) October 15, 2019

Advanced analytics appear to be delivering compelling results for the majority of adopters. Half of respondents said analytics was a high-value technology, with a further 27% claiming it offered medium value. According to Protiviti, the most common uses of advanced analytics are to:

• Enhance coverage (36% of respondents);
• Drive efficiency (30%);
• Identify unknowns (30%);
• Provide continuous auditing (26%); and
• Review risks in real-time (25%).

Machine learning and AI, RPA and process mining are also increasingly prevalent in audit departments. All of these technologies are planned for adoption at two-thirds of businesses or more within the next two years.

Clearly, audit departments are placing greater emphasis on transforming their technological capabilities, but are these changes delivering results? This typically depends on how sophisticated audit functions are at embedding innovation into their frameworks.

Becoming a ‘digitally fit’ audit function

A recent PwC report highlighted the importance of having a ‘digitally fit’ audit function. My colleague Russell unpacked the insights from this research in an article a few months ago, which you can read here.

Digital fitness was measured in two ways:

1. Having the right skills and competencies in place to provide strategic advice to stakeholders and offer assurance regarding digital transformation risks; and
2. Changing internal audit’s own processes and services to ensure the function is technologically capable of aligning with the organization’s strategic risks and responding appropriately.

The report separated internal audit departments into three categories based on key digital fitness metrics:

1. Dynamics: The most digitally fit teams (19% of firms);
2. Actives: Businesses taking the necessary steps towards digital fitness (27%); and
3. Beginners: Those in the very early stages of technological progress (54%).

PwC noted that Dynamics are already beginning to find ways of using emerging technologies in their work. As an example, 49% of audit functions are unsure how to use RPA or have no plans to implement it at all. However, 37% of Dynamics already use the technology, while a further 45% plan to adopt it by 2021.

The benefits of digital fitness are striking. While just 39% of Beginners and 45% of Actives audit departments meet or exceed better decision-making goals, this figure rises to 77% of Dynamics. Furthermore, 78% of Dynamics develop new services for their organization and other stakeholders, such as real-time dashboards. This innovative value is provided at only 29% of Actives and 13% of Beginners.

Auditing emerging technologies 

We’ve explored the key emerging technologies that audit departments are implementing, as well as how much progress has been made and the benefits early adopters are seeing. However, are IT audit teams doing enough to provide effective assurance and oversight of other business areas that use these technologies?

Last year, Deloitte revealed a third of private companies have little or no IT governance strategy in place to monitor the risks and opportunities associated with emerging technologies. The main issues holding professionals back were a lack of understanding at the C-suite level, insufficient resources and high costs.

Even Dynamic audit departments from the PwC survey aren’t fully able to audit the latest technologies. Cloud platforms have the greatest coverage, but still only 36% of the most digitally fit teams are providing assurance in this area. The figures for intelligent automation, robotics and AI are even lower at 26%, 25% and 9%, respectively. The percentage of Dynamics auditing virtual reality, blockchain and 3D printing technologies are all in the single digits.

— PwC (@PwC) April 29, 2019

Melvin Flowers, Corporate Vice-President of Internal Audit at Microsoft, highlighted the problems that many organizations face when trying to audit technology in today’s business landscape.

“Our products, services and/or business model can significantly change within six months. So, I don’t know what I’ll need in two years. I don’t have a three-year audit plan. My one-year plan changes every three months,” he told PwC.

Meeting stakeholder expectations

A key problem that businesses face is finding the right talent. Barclay Simpson research found that a shortage of technical skills was the main recruitment challenge for 63% of audit teams in 2019, with highly technical IT auditors particularly in demand. To put this in perspective, interpersonal skills came second with only 20% of responses.

Of all the emerging technologies, data analytics is arguably the prime focus within many audit teams. People with data visualization skills and coding languages such as Python, R and SQL are therefore at the top of the wish list for many organizations.

It goes without saying that professionals who already possess these skills are extremely sought-after for IT audit jobs in NY and the rest of the US. However, there are also considerable opportunities for data scientists and analysts who are weighing up a sideways shift into auditing. In fact, we expect more organizations to merge their analytics and audit departments moving forward, as these functions still often operate separately.

Auditors who don’t currently have technical skills will benefit greatly from investing in training – the sooner, the better. If employers aren’t offering the chance to upskill, there are various online courses and bootcamps available to brush up on the necessary knowledge. An analytics qualification, such as an ACL Certification, is an obvious advantage, although rarely essential.

Ultimately, the adoption of emerging technologies is gaining momentum in businesses worldwide, and auditors must keep pace with these changes to continue providing effective assurance and added value. At Barclay Simpson, we understand the challenges that both employers and candidates face when trying to navigate this ever-evolving environment.

If you would like to discuss the opportunities and risks associated with emerging technologies in audit, please contact me today on +1 212 786 7490 or via email at jmu@barclaysimpson.com. Whether you’re a business hoping to recruit for audit jobs in your teams, or a candidate looking to take the next step in your career, I’d love to hear from you.

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