Shamus Rae on the Future of Audit: Part One

Engine B - August 17th, 2021

In the first of this two-part blog series, CEO Shamus Rae, describes Engine B’s vision for the future of audit and how Engine B is helping to design a fairer, more transparent, technology-driven sector.

Audit today

We must not dwell too much on what is wrong with audit today. However, having worked across multiple firms, it is clear nearly all firms spend a minimal time considering a business’s future prospects and limit the vast majority of attention and scrutiny to backward-looking and reactive audit. When problems arise, more people are thrown at the audits and more check lists are created. There is increasing need to sticky plaster the current processes whilst the opportunity to embrace a wider scope with next generation technology is broadly ignored.

“When problems arise, more people

are thrown at the audits and

more check lists are created.”

Today’s model is adequate, but it has not embraced the opportunity given to it by ‘big data’, changing societal needs of audit or the opportunity to increase assurance beyond financial data (i.e., ESG).

The reasons for this are far more complicated than simply laying the blame on the culture of partnerships, though that does give in-built cultural resistance. The key is to address multiple workstreams at the same time. At Engine B, we have identified what we think the main areas of focus should be, and categorised them into the following workstreams:

  1. Refining the future vision of audit – This workstream is always ongoing as we continue to work closely with industry partners.
  2. Data and Technology – Most of technology we need is available today, but it needs tailoring.
  3. Research – Engine B works with academics and in-house research teams to develop AI and Graph technology.
  4. Methodology – Engine B also works with IFAC, Mercia and others to agree on the digitisation of methodology but also influence broadening scope, like ESG.
  5. Regulators – The role of the regulator will change but we cannot force that to happen. However, we can and continue to be transparent about our engagement with regulators such as the FCA and PCAOB.
  6. Business Model Changes – As technology picks up more of the workload the business models will change and so will the way the service chain is insured.
  7. Managing the ‘Pivot Points’ – The role of senior leadership in firms will be to manage several pivot points as we move to the new models. These pivot points include margin, liability (across the service chain), cultural inertia, regulations and skills.

Engine B’s vision for the future of audit

Our vision for the future of audit is not a static one and will constantly evolve as we continue to talk to firms, entities, regulators, associations, academics, other industries and owners of methodologies.

“Our vision for the future of audit

is not a static one”

The traditional view of the future of audit is to mention ‘always-on-audit’ and have a video of a ‘Siri-type’ character talking to an executive. Whilst fun, this doesn’t drive us forward at the level of detail we need. Technology and methodology must work in tandem to deliver a new future for audit. This should focus on leveraging technology to make the best of all of the information available, to provide assurance to anyone who needs it, on any subject and in real time.

A ‘Lens of Truth’

Engine B believes that we are moving to a world where, rather than a ‘single source of truth’, we have a ‘Lens of Truth’, enabling auditors to view details of different bank balances or currency, for example, at a very high level. Auditors can only confirm that accounts give a true and fair view if they have access to all the data which confirms or challenges the truth of the accounts.

It’s true that the concept of a ‘single source of truth’ has been around for some time, and we believe that this is directionally correct, but identify the following key differences:

  1. We believe that data security requirements will only increase and therefore, we believe that data needs to stay in the data owner’s environment or as close to as possible, and a lens on to that data is provided. This needs distributed graph technology and, where required, app to data rather than data to app approaches.
  2. Corporate Data cannot be a single source of truth without verification (assurance) and this needs to be done both by leveraging different data sources to cross check but also by a third-party assurance firm.
  3. Digital reporting has already started to emerge in Banking and indirect taxes in certain countries. This will only accelerate. The current model of that reporting coming from data sources that are not assured or validated is not viable in the medium term.

Getting ready for tomorrow

At Engine B, we continue to refine and progress our vision for the future of audit as attitudes change, technology matures, and regulators’ expectations evolve. Engine B may only be in its second year of business but the friction points hampering the audit sector have been visible for a long time prior to its birth. The need for change is undeniable, but the profession must carefully navigate the next chapter of transformation to encompass all the seven workstreams, mentioned above. It is only through the combining of these areas of focus: refining the vision, integrating and developing technology, embedding research, adapting methodology and working together with regulators, that a concept like the ‘lens of truth’ can finally be realised.

 

Enjoyed this article? Keep an eye out for Part Two on our social media channels.

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