After decades of overpromising and underdelivering, technology has now evolved to the point where it is fundamentally changing how accountants work – for the better. The pandemic and resulting support of remote work set the stage for a transformation of how accounting efforts are structured and performed, all for the better. Remote audits that became routine during lockdowns are evolving into virtual ones, where auditors take full advantage of advanced software to achieve dependably higher audit quality with less effort, while improving working conditions for auditors and staff accountants. Although discussions I’ve had with practitioners over the past two years indicate that organizations are using this approach to some extent, widespread use has become practical only recently.
The virtual approach benefits audit firms by substantially increasing efficiency and improving the ability to hire and retain staff by offering better working conditions (spending less time on the road, for example).
A virtual audit differs from the remote version by providing the audit firm’s team with remote access to all necessary systems, such as general ledgers, the consolidation application and close management software. Read-only permission prevents access to non-essential and confidential information. Many software vendors offer this approach. An organization’s risk management software can fully document audit analysis reviews and sign-offs to mitigate fraud, ensure separation of duties and prevent access violations. Such an approach can demonstrate to external auditors that systems are in place to monitor security and manage access workflows. Today, technology that reduces the need for on-site examinations is common, including remote teleconferencing, collaborative document sharing across and between organizations and shared data repositories.
An “open book” approach eliminates the need for extensive provided-by-client documentation because the auditor accesses the systems directly, saving the accounting staff time and enabling the auditor to do more complete testing. Rather than spending a week or two on-site, the audit team can limit its physical presence to manage what cannot be achieved virtually. People spend less time away from home, and ancillary costs are lower.
Technology can cut the accounting staff’s audit-related workloads and reduce disruptions that impact productivity. It can also cut the time needed to complete the process, and enable an organization to reduce fees to best-in-class levels.
The virtual audit structure also enables a continuous audit, where tests and tasks are spread out over a fiscal year to better balance the need for resources, avoiding period-end spikes. Audit firms are already doing this to some extent, but remote access broadens the scope of how testing and review calendars are structured to better level workloads over a year.
While the enterprise resource planning or financial management system is the primary focus of the audit process, a close automation system can be helpful. For the audit itself, software electronically manages the paper trail related to the close, including file attachments, review notes, sign-offs and comments. All documents related to the close are organized and stored electronically, searchable and easily accessed remotely. The software provides evidence of strong accounting controls.
Beyond the audit benefits, close automation software boosts staff productivity, potentially enabling organizations to shorten the close, reduce risk and make the process more efficient. Our Office
Although information technology has been at work keeping the books of organizations since the 1950s, until recently it was incapable of making fundamental changes because systems were really nothing more than a digital iteration of centuries-old analog methods. The accounting close is a case in point. With paper-based journals and ledgers, the most efficient way of managing the books while ensuring financial control was to have a monthly routine of “balancing the books,” and a more extensive and detailed quarterly or semi-annual process. In those days, taking staff accountants offline daily or weekly to do all of the adding, allocating, reconciling, ticking and tying would be monumentally inefficient, with limited benefit to the quality of financial statements or to management’s understanding of organizational performance. For decades, digital systems were incapable of transformation because technology limitations forced accounting software to operate in batch mode, and most of what improved were transaction speed, scalability and system downtime.
As a rule, accountants and financial executives are oblivious to technology. Our Office of Finance Benchmark Research
Regards,
Robert Kugel