Are Accountants, Auditors and Businesses Aligning With Technology?
Technology as an outset has caused a very disruptive situation in the world today. However, the need for new requirements within the Accounting and Auditing world is very much disrupted and is causing an onslaught need to work towards technology for critical means of compliance. Looking back, we know that, not long ago, audits could be performed only by teams of accountants manually scouring reams of financial information. But given the explosion of data in today’s digital world, it’s critical that the accounting and audit profession evolves its traditional processes and embraces advanced technology tools—including robotics, automation and cognitive technology. By doing so, it can uncover insights that allow the audit to continue to be relevant and effective in helping investors make important financial decisions. It is more to do like putting flesh on the bones of technological change in auditing which begins with talking to the people who will affect that change—and those most affected by it.
Further down the line, as any other business areas the transformative situation that is pushing the boundaries are also needing the transformation as part of digital trend and transformation within the digital realm and the accelerated advancement. The digitizing of information has been going on since about the early 2000s.
Understanding how technology, and in particular data analytics, will impact on the future of audit and understand the opportunities and threats that technology is bringing are very important questions to be posed.
Companies have been converting their information on products, services, and customers to digital data, developing new processes for how they do business along the way by using a variety of different tools and approaches over many years. Which one way or the other, sets the stage for the next phase of technological advancement, which is automation and analytics.
Once you have information that’s digitized, how do you connect your systems to business processes so that it becomes automated?
Technology is emerging to enable systems to interface with one another—robotics process automation, or RPA etc.,
RPA is essentially coding bots to act as if people were acting in a routine way. We know that Bots interface with the system like a person to process information systematically from one system to another. It saves people from having to copy and paste information from one system to another. Brilliant isn’t it?
A new lease accounting standard has demonstrated for many companies where they could better leverage technology to not just achieve accounting compliance, but to improve their management of leases. At many companies, lease contracts have been signed and managed using various different methods at various locations literally all over the world.
Before we move, let us just briefly understand what is “lease accounting standard”: The FASB’s lease accounting standard change, ASU 2016-02, Leases (Topic 842), presents dramatic changes to the balance sheets of lessees. Among many of the changes, lessor accounting is updated to align with certain changes in the lessee model and the new revenue recognition standard.
Difficult to put your thumb on it, let us just briefly see.
How an equipment lease management solution can provide benefits beyond compliance
Historically, equipment leases have lacked centralized processes and controls with most companies using manual tracking methods, resulting in limited visibility across the lease portfolio. The new leasing standards pose a particularly difficult challenge for equipment leases, which are often smaller in value but much more numerous and complex than property leases.
Compliance with the new standards will be more challenging without a complete understanding of an organization’s equipment-leasing portfolio. A robust equipment lease management solution not only helps companies comply with the new standards, but can also provide increased transparency and efficiencies across the organization.
Still not on it are we?
So, in essence, companies are now using various types of tools to centralize leases into single systems, read the contracts for abstract terms that are important to the new accounting, enter data into accounting systems, and perform the new lease accounting calculations. Anywhere you have systems that don’t talk to each other, one option is to build a bot to do that for you. So, automation comes into view.
Cloud technology is also helping in the interfacing that is transforming accounting processes. We also need to recognize that cloud solutions are proving critical to the implementation of and compliance with major changes in accounting standards.
Public companies are also slowly and pervasively adopting new requirements for how to recognize revenue, and now they’re sprinting to the finish line to be ready for equally sweeping new rules on how to recognize leases in financial statements. For financial institutions, an even more critical change takes place the following year is how to recognize credit losses, adopting the “current expected credit losses” model for projecting and reporting where a company may have risk in its portfolio.
New accounting standards are not only major changes for the accounting world, but also represent major changes for virtually every other area of any organization as well. We should accept, that implementation efforts touch so many different areas throughout the organization, it requires a lot of collaboration. And collaboration is also key to flow of processes and being better managed and also comply to regulations as they come into use and obviously the more needed standards.
A normal cloud approach, connects people throughout the organization and allows them to work together more effectively, accessing and sharing information more efficiently and more confidently. That has been important in assessing the impact of new accounting standards, gathering and sharing data, and documenting every step of the journey. However, if not cloud oriented we need to grasp and ensure the same effectiveness happens within any organisation. In a way it is true that the cloud forces different platforms to interact and an integrative platform exists to cut the costs as well. The issue with inhouse is not a problem but we seldom, use so many different solutions that it is hard for anyone to even be able to understand the process over any one-year audit and certainly understanding the solutions is another one. However, this is where shared ledgers are bright solutions – Blockchain.
We know that accounting experts, have been relying on information coming from other people. Relying on that information to develop accounting policies, establish judgments and estimates, and assert proper control over financial statement assertions, accountants need to document that they’ve done their due diligence.
Using a cloud application can enable not only the collaboration necessary to establish accounting policies and arrive at critical estimates and judgments, but it also documents the entire process. We also know that auditors want to look at the process, and this is an easy way to evidence the review process. How to achieve that, well simply because if you decide to move to cloud solutions you need to ensure a clear definition of your core processes within the organisation to be ported to the cloud. This is perhaps a very helpful way, but does not stop you from looking at your process inhouse properly and streamline them and show an effective working principle.
Beyond the development and management of accounting policies, some organisations uses the same cloud platform to track new accounting changes that may be on the horizon, to perform all the modeling and documentation necessary for comprehensive capital analysis and review and to manage certain aspects of its Sarbanes-Oxley internal control reporting, among others.
Using, different workspaces within the platform, various work groups can have access as necessary to specific functions or projects. As such, it connects hundreds of people inside the organization. As the Public Company Accounting Oversight Board has come down especially hard on auditors for their review of management review controls, the cloud platform with its documentation features has been a massive win. Ensuring auditors can go in and see all the review that’s been done. It’s much easier to package everything together.
With the potential of applications to be automated in a way that improves compliance, not all companies have embraced it as readily. However, corporate adoption of technology tools to automate the process is still lagging.
Only some organizations, for example, are automating workflow approvals or access controls, and others are not using technology to test controls to demonstrate SOX compliance. Technological tools could remove some of the monotonous, recurring work associated with SOX, while also providing visibility into larger or even complete data sets rather than samples. The encouraging side is that companies are trying to get there.
Given the speed of change and the massive new opportunities created by technology, it can be difficult for companies to figure out where to invest their money. The decision should start with an inventory of what’s already in place, both from a systems and data perspective. If a company already has a single platform that forms the basis of its Enterprise Resource Planning process, that creates a different set of opportunities and challenges compared with a company operating multiple disparate systems. Understand how accessible and uniform the data is within the organization, so you can start to see what is feasible to work in the short term.
The analysis can then identify intersections of complex accounting judgments and data supporting those judgements, or areas that are typically most problematic, to identify where perhaps manual steps could be replaced with automated processes, or where data could be better mined and analyzed. This is also based on availability of data that can be matched easily and build the Analytics and then slowly automate. The catch here is it now makes it slightly more difficult to modify any data or information without playing the whole end to end process. It starts to slowly build that integration and reduces the actual gap where one needs to ascertain reliability of the data/information.
It is a difficult process, because the business and the external environment are always changing.
To ensure that people really utilize technology, you have to get down into the details. One needs to know, what is truly data that you can analyze to make an informed decision-making process and not just data for the sake of just having a collection of nothing that can be readily used. Even with all the benefits of technology, the human factor still needs to make the critical decisions and offer key analysis and insights.
Bottomline, is that accountants and auditors together need to embrace technology and should be recommending changes that ensure control and better compliance and accountability.
N.B: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position of the African Academic Network on Internet Policy.