Three Key Areas Where Technology Is Modernizing The Audit

By Russ Banham

During the pandemic’s early rush to create hybrid and remote work environments, most business leaders were rightly focused on business continuity and employee safety. For many, shifting to remote work provided surprising opportunities among the challenges.

“Auditing is about evidence and validation where auditors have traditionally needed to verify findings firsthand, but now technology has begun to change that model,” explains Lou Trebino, Audit Chief Technology Officer at KPMG LLP.

Below, Trebino shares examples of game-changing technologies that are driving some of the most profound changes in the modern audit.

1. Analytics And Automation

Much of any audit is a manual process of collecting and sorting through enormous sets of data, making data extraction a critical component that can vary across companies and industries.

“In the auditing profession, so much time is spent ‘reading,’ like the legal profession,” Trebino explains. This can drain much-needed resources from other parts of the process.

Enter advanced analytics. Powered by adaptable artificial intelligence, machine learning and other automation technology, the technology is changing how the audit is done.

Document readers, for example, can scan through millions of line items and rapidly flag potential inconsistencies. They can also cross-reference divergent data sets according to predetermined parameters.

These tools free up time and resources for the more important work: human-based analysis for a greater focus on areas of increased risk.

“By taking the client’s full data sets and layering on the analytics and visualization capabilities, you’re able to zero in on and highlight anomalies that require further investigation,” says Trebino. Automating data extraction allows auditors to provide analytical value and insight.

“By moving to the cloud with our core audit platform and leveraging clients’ clouds, we have truly enhanced and accelerated client collaboration,” Trebino continues. “Clients are able to upload audit documents and queries and see exactly where we are in the audit process, resulting in more real-time collaboration.”

This, Trebino adds, is the new normal for the modern audit: These and other cloud-based functions are already standard practice at most public companies.

2. Blockchains And Smart Contracts

Blockchain is a powerful, if oft-misunderstood, technology that’s already relevant to the modern audit.

The source of auditors’ interest in blockchain should be obvious. Companies are using blockchain networks as a transparent, immutable, secure and decentralized way to record assets and transactions.

Indeed, smart contracts (applications stored on a blockchain that run according to predetermined conditions) have already proved capable of facilitating vast amounts of client transactions.

Of course, auditing transactions recorded on blockchains comes with certain challenges. Auditors need reliable access to data recorded on blockchains as well as tools to validate clients’ assertions about their control over the private keys. In addition, certain digital assets recorded on blockchains, such as nonfungible tokens (NFTs), may be difficult to value.

KPMG believes that solutions to these challenges require specialized investments in data and tools to obtain audit evidence for blockchains. That’s why the firm built Chain Fusion®, a patented suite of capabilities that help KPMG teams solve these challenges and serve their clients.

“Chain Fusion is enabling KPMG to provide audit services to leading financial institutions and crypto natives,” said Robert Sledge, partner, Audit at KPMG. “The ability to obtain audit evidence about balances and transactions recorded on leading blockchains helps us continue to deliver high-quality audits that satisfy regulatory standards.”

Chain Fusion is just one of many blockchain-based auditing tools that will further modernize the audit in the coming years.

3. Virtualization

Finally, the most remarkable facet of the modern audit may be its virtualization.

To remain relevant and flexible, one way the audit evolved at KPMG because of the pandemic was to create “virtual audit rooms” to manifest the virtualization needed. Virtual audit rooms are secure, private, shared digital environments where auditors can safely access financial records and other sensitive documents. Under the pressure of recent circumstances, they have moved from possibility to practicality. Thanks to earlier investments, KPMG transformed its processes to include virtual audit rooms during the pandemic.

To help ensure virtual audits are just as reliable as their face-to-face analogues, KPMG has also incorporated smart glasses, which allow auditing professionals to interact with remote assets securely and in real time on-site, such as with inventories, etc.

In other regards, the virtual audit room resembles a traditional on-site operation. The digital space remains “open” all day, permitting real-time and full-time collaborations on an around-the-clock basis for audit teams.

“It allows us to conduct virtual reviews of documents as if we were sitting side by side in person,” Trebino says.

Looking ahead, will the audit become a fully virtualized process, without any face-to-face interaction between auditors and their clients? Doubtful, says Trebino. Already, he says, audit committees are asking, “When are you going to go back to being in person?"

Instead, just as the future of work is expected to be hybrid, so too will be the modern audit. And that’s no accident.

“We are really a mirror of the client in many, many ways,” Trebino says. “We have to navigate the ebb and flow, the infrastructure and the culture of clients to help ensure we are getting an optimal audit done—quality-wise, time-wise.”

As markets change and companies evolve, so must the audit. The use of key technologies such as advanced analytics, adaptable artificial intelligence and virtualization all of which help auditors boost productivity, efficiency and deliver a better audit experience.

Russ Banham is a Pulitzer-nominated financial journalist and bestselling author.

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