Sarah Hallam is partner and audit specialist at accountancy firm Menzies LLP
The role of the auditor is changing. Instead of relying on random sampling and sniper-style investigations, businesses are now using specialist software combined with improved financial management systems to carry out better quality audits, more quickly.
Traditionally, performing an audit involved analysing small data populations, which were usually selected at random, to identify potential issues with a company’s reports and accounts. This process has an inherent risk of leaving some irregular data undetected. By contrast, smart auditing procedures allow a greater pool of data to be analysed in a more streamlined manner, reducing the likelihood that small details are overlooked.
Artificial intelligence software is capable of processing large datasets at the touch of a button, scanning for anomalies so auditors can focus testing any data that looks out of place. At a time when client datasets are getting larger, this approach is helping to improve the quality of audits, whilst requiring less hands-on support compared to traditional audit processes.
A better quality audit enables the company’s auditors to focus on providing added-value recommendations to guide the management team and facilitate strategic decision making. Reducing reliance on manual auditing means that fraudulent activity in financial statements can be detected more easily. For example, irregular transactions are easier to detect when using AI-based systems to audit journal entries – a hot spot for fraudulent activity.
For small to medium-sized-size enterprises (SMEs), smart audits can bring unexpected benefits that assist in the running of the business. Even if a business is exempt and not required by law to carry out an annual audit, doing so voluntarily is worth considering. Auditors can gain a deeper insight into their financial data in a more efficient manner which can result in valuable strategic advice on how their run their business. For example, the assurance of quality control that comes with a smart audit means businesses are made aware of improvements that can make their processes more efficient and can take action to address them, potentially boosting profit margins.
SMEs should also consider a voluntary audit if they are seeking financial investment or planning an initial public offering (IPO). Venture capitalists and angel investors will typically look more favourably on businesses that can provide an audited set of accounts, as this can help with credit ratings and demonstrates that the business is well-managed and viable.
Although audits may seem expensive, they can deliver significant value and support a business’ growth strategy. They can also help businesses to become more fraud resilient, as anomalies are more likely to be detected and investigated. Most crucially, many SME business owners are time poor, so a smart audit could help provide insight on how they can improve their systems to reduce pressure on in-house finance teams too.
