IMPLEMENTATION SUCCESS FACTORS AND CONSIDERATIONS
The digital revolution is sparking transformation in every sphere of business. As this happens, the audit profession faces its own game-changing moment. To remain relevant, audit needs to open up to innovation. By pivoting towards advanced technologies such as robotic process automation (RPA), auditors have more time to focus on the critical issues that matter to their clients.
KEEPING AUDIT RELEVANT AMID TECHNOLOGICAL DISRUPTION
From an ever-competitive business landscape and the war for talent to evolving disclosure standards and increasing client expectations, today’s audit profession faces constant challenges. But foremost on the minds of the profession’s leaders is the impact from digital disruption. With the relevance of the profession at stake, can auditors keep up with the accelerating pace of technological change?
According to PwC’s “2018 State of the Internal Audit Profession Study”, 56% of internal audit leaders are concerned that failing to improve internal audit’s technology adoption will diminish its value to their organisation.
Audit clients have raised their expectations. They want even deeper analysis and more meaningful advice from their auditors. Across almost every industry, audit clients are also embarking on digitalisation, making investments to simplify operations and streamline data. To leverage and perform robust analysis on clients’ data, the profession needs to stay ahead of the curve.
On the flip side, auditors joining the profession expect to develop deep skill sets. They aspire to gain exposure to challenging and judgemental work which can add value to clients. At the same time, they do not want to be bogged down by repetitive or mundane tasks. To attract and retain these young talents, the profession must offer them a long runway for development.
The audit profession has to evolve to meet both internal and external expectations. It needs to execute audits better, faster and smarter, so that time can best be spent on strategic initiatives that can drive growth.
Today’s leading companies recognise the importance of increasing the efficiency and effectiveness of operations. To drive revenue growth, the majority of respondents (77%) in PwC’s “22nd Annual Global CEO Survey” plan to implement initiatives over the next 12 months to enhance operational efficiencies. This is where digitalising and automating processes can carry the weight.
As it is, the audit profession is already harnessing the benefits of technology to augment insights and improve audit quality. Technologies such as RPA have the potential to significantly improve operational efficiencies, giving auditors the opportunity to deliver more impactful work.
WHAT IS RPA?
RPA uses logic-driven software applications that are programmed to execute certain tasks. Contrary to its name, RPA does not involve a physical robot that performs operational processes. Instead, it can be thought of as digital labour, with bots that can be easily configured, trained and coded to automate tasks.
As these bots can run 24/7 with little or no downtime, processing time can be cut down significantly. Offering speed and agility, RPA can take over manual and time-consuming tasks, leading to greater efficiencies. According to PwC estimates, 45% of work activities can be automated, saving US$2 trillion in global workforce costs.
However, not all processes are suitable for RPA. Those that lend themselves best to automation are rules-based, standardised, repetitive and involve the use of structured data. Therefore, RPA is best suited for activities such as the transfer, reconciliation and cross-referencing of data among different applications.
ROLE OF RPA IN AUDIT
Internal and external audit procedures consist of a fixed sequence of processes to determine the quality of information that goes into financial statements. With RPA, these processes can be redesigned to enhance efficiency and effectiveness. These are some of the audit tasks that can be automated with RPA:
- Capturing documentation or transferring files;
- Validating information or checking master data files for completeness or duplicates;
- Tracking progress against the audit plan and monitoring key risk indicators;
- Reviewing and reconciling cash transactions, sales and purchases, journal entries, inventory lists, payroll and other expenses;
- Generating alerts when risk thresholds have been crossed;
- Comparing data against external sources as part of the validation process;
- Populating data for external stakeholders such as audit committee and management.
BENEFITS OF RPA IN AUDIT
There are many compelling reasons to implement RPA in audit, and here are some of them:
- Enhances efficiencies
RPA reduces the manual workload and increases throughput and capacity on all levels. It can replace monotonous or routine activities such as the manual checking of inventory lists by junior auditors. As the bots can work round the clock, the audit cycle time can be cut down significantly. Bots can perform tasks such as controls testing much faster and more accurately than humans.
- Increases effectiveness of the audit
Deploying RPA allows auditors to execute testing on a full population of accounting data, instead of conducting random sampling manually. As every process is recorded, a complete audit trail can be captured. This reduces the number of errors that can occur during the audit process. RPA also enables auditors to easily identify exceptions from standardised processes more quickly. As a result, they are better able to detect accounting anomalies, discrepancies or even fraud.
- Raises audit quality
RPA enables more extensive and detailed data capture. This gives auditors greater access to information, helping them to gain a more indepth understanding of their clients’ business operations. Auditors can then assess the risk of material misstatements more accurately, leading to a better quality of audit.
- Provides more strategic value to the audit
Perhaps the most important benefit of RPA is that it allows auditors to prioritise their attention on critical issues such as risk and governance, which can add better value to the audit. The software performs the tasks which auditors usually find the most repetitive, administrative or time consuming. This frees up their time so they can turn their attention to work which requires professional judgement, estimation or analysis.
- Strengthens the auditor-client relationship
With routine tasks taken care of by RPA, auditors can spend more time in meaningful discussions with their clients where they can raise, debate and address key issues. As RPA facilitates real-time audits at greater frequencies, management is also able to resolve problems that arise in a more timely manner.
- Raises professional standards
In the long run, the implementation of RPA paves the way for improved professional capabilities. Instead of dealing with tedious, vouching work and sifting through piles of hard-copy audit files, entrants to the profession can focus on honing their analytical and communication skills, as well as developing critical mindsets through more meaningful work.
Perhaps the most important benefit of RPA is that it allows auditors to prioritise their attention on critical issues such as risk and governance, which can add better value to the audit... (it) frees up their time so they can turn their attention to work which requires professional judgement, estimation or analysis.
RPA IMPLEMENTATION: CRITICAL SUCCESS FACTORS AND MAIN CONSIDERATIONS
Given the considerable benefits promised by RPA, it is clear that there is a strong business case for its implementation. Automating labour-intensive processes increases productivity and allows auditors to be more strategic in their work.
For RPA to succeed, both auditors and their clients need to make the leap to digitalisation. Some internal audit functions are already making significant headway in implementing digital initiatives, according to PwC’s “2019 State of the Internal Audit Profession Study”. According to the study, this group of “Dynamics”, which comprises 19% of internal audit respondents, has been streamlining internal audit operations through technology and investing heavily in data, analytics and automation. For them, the future of digital transformation has already arrived.
While there has been progress, the ecosystem has yet to fully mature. In an ideal world, all clients’ data should be standardised and aligned with audit protocols. In reality, many clients are still at different stages of digital transformation, with varying processes and data formats. Small and medium-sized enterprises in particular, in Singapore and across Asia Pacific, have not entirely eliminated manual processes nor paper-based documents.
These are just some of the key questions that need to be considered during the RPA implementation process:
- Are all relevant information captured in a digital format?
- Which are the repetitive, mundane or undifferentiated tasks carried out by auditors that can be replaced by bots?
- Which audit processes can be simplified and then automated?
- Are functional or business leaders capable of coordinating RPA initiatives?
For audit firms or their clients to successfully implement RPA, several factors need to be considered:
- Digital maturity needs to exist
Before RPA can be implemented, legacy systems need to be replaced. Businesses need to ensure that data is machine-readable and in a digital format. For example, payroll data should be entered directly into a database, rather than filled out manually on paper.
- A clear roadmap has to be devised
To roll out RPA successfully, businesses need to map out a formal strategy so that deployment can be managed with discipline. The steering committee will need to define a vision and develop an end-to-end strategy, as well as carry out an assessment of operational readiness. The full framework needs to consider the right infrastructure and operating model to manage the new, automated system.
- Processes need to be streamlined
While RPA is highly scalable, much depends on the structure of the processes. Existing audit processes need to be evaluated in order to select those that are suitable to be automated. As RPA can only work for rules-based processes, the logic and workflow must be streamlined before automation takes place. There should also be a review of whether parts of the audit automation may require judgement. If human intervention is required, this may impact the workflow.
- Governance is critical
Businesses need to enforce accountability for the enablement of RPA at the onset, assigning roles and mapping out responsibilities to manage and scale the implementation. Throughout the productive life, the bots will need constant maintenance, with regular updates and security patches. A strong control hub is needed to keep processes mission critical at all times.
- Change management is a key piece of the puzzle
The change management process is instrumental to the success of the programme. It is important to get stakeholder and user buy-in for the automation so they can fully appreciate the final end-to-end process and recognise where they fit in. Users need to grasp how RPA would replace workflows, how it would impact their work and what they need to do to adjust to new ways of working.
- Post-implementation training must be provided
Upon deployment, training must be given to arm end-users with the skills required to operate under the new model. A sound communication plan to update all stakeholders on the benefits of the new digital environment must be put in place.
MERGING RPA WITH AI
Redefining audit processes through RPA can bring audit firms to the next level of productivity. As a concept, RPA can be easily scaled to the extent that formats and data sets are structured. However, an RPA tool that reviews bank reconciliation, for example, cannot be used for the reconciliation of sales, purchases or payroll as the data sets are different. This poses a challenge in scaling RPA across audit clients from different industries.
For RPA to fully work its magic, it is critical to integrate it with other innovative and more powerful technologies such as artificial intelligence (AI) and machine learning. As audit firms increase the scale of automation, they can use AI to improve automation algorithms, creating new applications for RPA. In the long run, auditors will be able to create sustainable and long-term transformational change.
PwC’s Halo platform is an example of data auditing technology which combines RPA with AI so that various data sets can be automatically transformed into a standard format that is suitable for testing. Halo can test huge volumes of business-critical data, analysing whole populations. With its unique algorithms, Halo can be applied to different industries and risks, allowing auditors to analyse different performance drivers, assess risks and identify outliers.
For RPA to fully work its magic, it is critical to integrate it with other innovative and more powerful technologies such as artificial intelligence (AI) and machine learning. As audit firms increase the scale of automation, they can use AI to improve automation algorithms, creating new applications for RPA.
THE AUDITOR OF THE FUTURE
RPA not only adds value to clients and stakeholders, more importantly, it helps to preserve the longevity of those with careers in audit.
As RPA takes root in the audit industry, the next wave of emerging technologies is already on the horizon. This includes not only AI but augmented reality, blockchain, drones, the Internet of Things, robotics, virtual reality and 3D printing. As these technologies continue to disrupt industries, forward-thinking audit leaders will need to ask themselves whether they should mobilise any of these ahead of the curve.
While technology can help to bring about a better audit, professional judgement remains the bedrock of the profession. Auditors need to adapt to a future where algorithms and analytics may do most of the work for them. But intuition, judgement and an inquiring mind will be where auditors can continue to make a difference to their clients.
David Toh is Governance, Risks, Controls and Internal Audit Leader, and Magdelene Chua is Assurance Partner; both are from PwC Singapore.