Not only has fintech transformed the role of accountants, mentioned in a previous article, but has also changed auditing services provided by internal and external auditors.
Findings from the report ‘Audit 2025: The Future Is Now’ by Forbes Insights and KPMG, state that 80% of respondents expect auditors to use bigger samples and more sophisticated technologies for data gathering and analysis in their day-to-day work.
Fintech is disrupting the auditing process by increasing automation when it comes to collecting, processing and analysing data. An audit with access to real-time data can be processed quicker, yet there are still challenges auditors have to grapple with when it comes to fintech.
Here are the challenges fintech poses on auditing:
Validity of transactions
When it comes to validating transactions, blockchain is starting to play a big role. According to ICAEW, blockchain is a digital ledger that creates, stores and updates records that are distributed among all participants rather than a single owner.
The design of blockchain enables permanent records to be created that are resistant to modification of any stored data. With an immutable blockchain, it is an ideal way for businesses to verify reported transactions.
But auditors might struggle to determine the reliability and validity of transactions by solely looking at the information on a blockchain. A report by Deloitte emphasises that a transaction recorded in a blockchain can still be incorrectly classified, unauthorised and even illegal in some cases.
Audits that are conducted using big data will be able to identify more pitfalls and detect more risks for companies.
With the help of fintech, some of these risks can be reduced. But at the same time, security concerns and clients taking on more risk with technologies will leave stakeholders wanting assurance that mitigates these new risks.
Auditors will have to use their judgement alongside factual evidence to figure out whether anomalies and exceptions are related to risk appetite or a breach in bye-laws.
With fintech, data can be easily gathered from non-financial sources like social media and tied to the financial data of a client. These diverse sources provide greater context that can help form a clearer audit opinion on a client’s financial profile.
Yet with stringent data protection guidelines put into place worldwide, there are limitations to the use and disclosure of this particular type of data.
In an article published in the Accountancy Plus December Issue 2018 by CPA Ireland, Sandro Psaila from Deloitte Malta explains that in adherence with the International Standards on Auditing (ISAs), “auditors are required to understand the specific risks to an entity’s financial statements arising from IT, and how the entity is responding to these risks through implementation of IT controls”.
The adoption of blockchain technology means auditors must adhere to regulation by providing assurance to companies that find themselves in volatile business environments.
Service fee charges
Typically, audit fees are charged based on the time taken to complete an audit. But with automation processing data quickly, audit firms will need to come up with an alternative way to charge their services.
Fintech can be used to facilitate a new value model. A model proposed by Hisham Farouk, CEO and Global Board Member of Grant Thornton, was fees “based on knowledge, connecting that knowledge to strategy, mitigating the specific risks of the organisation”.
Charging audits based on knowledge and strategy can help clients continue to gain value for their business by paying for auditing services.
Role of external auditing services
More insight can be gained from data analytics, presenting a complete and detailed view of financial information and accounting records for businesses to utilise.
As a result, organisations that can afford to may heavily invest in audit technologies for internal purposes, mitigating the need for external audits.
For external audit firms that are seeing the demand for their traditional data-focused audit services dwindle, the shift away from external auditing will be damaging.
But developing real-time and forward-looking assurance services can give organisations the incentive to invest in external auditing as well.
While technologies such as artificial intelligence and machine learning use real-time data to help identify patterns and generate exception reports, auditors are left to deal with major challenges brought on by fintech.
To meet the expectations of clients, business owners and stakeholders, auditing firms need to respond to these challenges with greater expertise and an open mindset so that they are prepared for the changing business landscape.
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