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Audit services – the next frontier for tech giants?

As data analytics, AI and automation technology advance, could we be about to see technology firms take on some of the responsibilities of the big financial audit firms?

Throughout 2018, debate about the nature of the audit market intensified, with growing calls across different jurisdictions for measures to open the market up to more competition.

There are concerns in some quarters about long-standing relationships between businesses and their auditors, along with worries that the Big Four are simply too dominant.

Many proposals have been put forward, ranging from a system of joint audits, to more frequent rotation and caps on market share. What changes we will see and at what speed remains to be seen, but based on recent research, one of the most powerful drivers of change will not be a regulatory lever but rather a technology one.

In a survey of 150 senior executives in the UK and US – over half of whose companies are audited by the Big Four – a third are already breaking down their audit process into separate parts, and almost half (45%) say this change will lead to more parts of audit work going to technology firms.

This illustrates a significant opportunity opening up for IT businesses, and which is coming in three waves.

Data gathering

The initial entry point for the tech giants is automation of the data-gathering process. Gathering the necessary financial data for the audit is a key task that finance functions must perform, and this data then has to be audited by the auditor.

Through robotic process automation (RPA), this process can be automated at scale. Audit firms have started to make increasing use of RPA processes, but the research found that 61% of executives believe technology firms would do a better job of automation, and 59% say such firms would be able to gather data more quickly and cheaply.

The first wave of opportunity, therefore, lies with the big software developers such as SAP and Oracle, Sage for mid-sized businesses, and Microsoft. SAP and Oracle in particular are already incumbent players in the financial reporting market and their ERP systems have had an enormous impact from the 1990s onwards.

Just as enterprise resource planning (ERP) revolutionised financial information management, so software applications that automate the gathering of financial data, with built-in controls such that the information does not need to be further audited, have the potential to change the game for auditing. They could become something that every business buys as standard.

The tech firms would not be replacing the auditor, but they would be significantly eating into the work the auditor does – and hence the auditor’s fees too.

IT services

The second wave of opportunity would come for IT services firms, such as IBM, Accenture, and others. They would support businesses in customising the software applications to optimally fit each individual organisation and perhaps perform additional bespoke, value-adding functions.

However, at this stage, there seems little prospect of tech firms expanding into providing complete audit services – they will not want to become audit firms themselves. Once you move into providing an audit opinion and vouching for the financial robustness of a business, the risks escalate, together with the potential liabilities.

Therefore, while audit firms should undoubtedly be thinking very hard about how best to defend against this encroachment upon their territory, they don’t yet need to fear for their very business models.

But this too could change. Technology moves quickly. Executives anticipate that their business could be using automated data-gathering software in just five to 10 years’ time.

The third wave of opportunity comes with the rapid development of AI capabilities. It would not be a surprise if, in perhaps 15 years’ time, technology exists that can generate its own intelligent insights into financial data and move into the sphere of giving an opinion.

That really would threaten audit firms. It’s a struggle that could get serious.

Fiona Czerniawska is director of Source Global Research, a research and strategy firm for the global professional services industry.

Read more about IT and audits

This was last published in March 2019

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