Prof. Dr. Nick Gehrke

written by

Prof. Dr. Nick Gehrke

Where the external audit stands in times of digitization and digital transformation

Digitization projects are currently underway in every industry. Everyone is looking for ways to successfully harness the digital transformation for the benefit of their business model. And of course, auditors are no exception. However, in the auditing industry, there are specific industry drivers that influence digital transformation. This article seeks to highlight some of these particular considerations.

 

Fundamentally good prerequisites for digital transformation

Auditors are information service providers, that audit and certify. It takes a lot of information processing to analyze the customer's information and make a judgment. Postings in annual financial statements, i.e., at least those in the balance sheet and P&L statement, form a very structured dataset in today's ERP systems (often SAP in the case of larger companies). That, above all means, there are good prerequisites in place for using modern analysis tools and methods to analyze audit material efficiently – just as one would expect in the age of digital transformation. Customers – as the audited companies – are also likely to be very interested in efficient data analysis procedures.

 

Audit standards and audit innovation do not always go hand-in-hand

However, my impression is that modern methods of data analysis are still being used with hesitation for auditing in the sense of a standard audit procedure model. That is probably due to the regulation of the profession. Innumerable auditing standards prescribe what is to be audited and by what means. However, modern methods of data analysis are only slowly becoming part of auditing standards. Therefore, auditors must always be asking themselves whether data analysis is sufficient as an audit procedure or which other audit procedures could be omitted. And because this cannot always be clearly deduced from auditing standards, one innovation or other often tends to be left out of the auditing process.

 

Translate old world into new world

In this respect, the article "How Automation Will Change the Face of Audit for CPAs" by Christopher T. Kosty is refreshing. It makes reference to a document by the American Institute of Certified Public Accountants (AICPA), which aims to build a bridge between classic audit procedures and the possibilities of data analysis for these audit procedures. It is interesting to note that this work aid is known as the "Audit Data Analytics to Audit Procedures mapping document," which was published by an official professional association of auditors. The document is structured according to different audit areas and shows which data analysis tools and methods can be used to process classic audit procedures. Some suggestions from the audit areas are, for example:

  • Risk Assessment
  • Journal Entry Procedures
  • Cash
  • Marketable Securities
  • Accounts Receivable
  • Inventory
  • Prepaid Expenses and Other Assets
  • Investments
  • Impairment
  • Intercompany
  • Long-Term Financial Assets
  • Property, Plant, and Equipment (PPE)
  • Intangibles (Including Goodwill)
  • Notes Payable
  • Accounts Payable
  • Income Taxes
  • Other Liabilities
  • Debt
  • Equity

 

In what areas can zap Audit be of help as a data analysis tool and methodology?

zap Audit automates the auditing of SAP processes and can be of particular help in the assessment of the Internal Control System (ICS). It is possible to perform a comprehensive assessment for the ICS and the associated balance sheet items using over 150 data indicators from various processes:

 

As a result, zap Audit contains data indicators for the following areas:

  • Risk Assessment
  • Journal Entry Procedures
  • Cash
  • Accounts Receivable
  • Inventory
  • Intercompany
  • Property, Plant, and Equipment (PPE)
  • Notes Payable
  • Accounts Payable
  • General Ledger Postings

 

zap Audit also allows a risk assessment to be carried out, as the frequency of occurrence of indications gives an indication of high-risk audit fields, which the auditor should then analyze in more detail.

With zap Audit, you can do a proof of concept for free and convince yourself without taking any risks:

 

discover zap Audit

 

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