2018 Audit Team Trends with Sunder Gee
At the start of the year we chatted with a panel of six experts in the audit industry to discuss the trends and changes audit teams should expect in 2018. Read on for thoughts from Sunder Gee, Senior Director, Data Services at RTA Corporation, and author of Fraud and Fraud Detection: A Data Analytics Approach.
Q: If you could build the ideal audit team for your industry, how many auditors would you have on your team?
Sunder: For industry, I would say a team of at least seven people—a director/manager of internal audit, at least two internal auditors who understand the business, one junior IT specialist, a data analytics specialist, a generalist who is not an accountant, and a Certified Fraud Examiner (CFE). The last three can be outside consultants, for companies that cannot afford that many full-time staff.
For accounting firms, I would recommend a staff of at least seven as well which would include an audit lead who would be a partner in the CPA firm, two CPAs (or CPA candidates), one data analytic specialist, one CFE, and one generalist who is not an accountant. Internal auditors and IT staff of the CPA client’s staff could assist as necessary without causing an independence issue.
Q: What would be the specific skillset of each team member?
Sunder: For the industry audit team, at least one internal auditor would have worked in the company for a long time and have a good idea of the riskier areas to investigate even before the audit commences.
The junior IT specialist would know a little bit about everyone (in order to be aware of changes in behavior) and everything and can also obtain—or be the liaison to obtain—the data from the company’s business systems for the data analysis specialist. The data analysis specialist would know how to normalize and organize the data so that it was useful for the audit. They would also be experts in the use of data analytics tools and work with the internal auditors to complete the audit steps. Finally, the CFE would provide expertise in fraud detection and have investigative skills, if potential fraud is identified.
I would also add a generalist to the mix who is not an accountant but can provide input into brainstorming sessions and also view the organization from a different lens than accountants, who sometimes have too much professional skepticism.
Q: How do you think the audit teams of 2017 and 2018 will differ?
Sunder: There will be little or no differences. Purpose-built data analytic tools have been in existence for almost 30 years, yet acceptance of these has been slow. Accountants and auditors are typically highly conservative and slow to change.
One survey states that two out of three internal audit departments utilize data analytics, but most internal audit shops are still in “analytics infancy”. In addition, CPA Canada’s Survey on Use of Audit Data Analytics in Canada — Results and Possible Implications notes that 92 percent of CPA firms use “data analytics”; however, if Microsoft Excel is excluded, it drops down to 26 percent. Hopefully in 2018 we see a shift towards more data analytics proficiency.
Q: How do you think changes in the 2017 audit landscape will affect audit teams in 2018? (e.g., at the time of our discussion, PwC was in court because a regulator was attempting to hold the company liable for losses arising after PwC failed to detect fraud at a bank that later collapsed.)
Sunder: Given the PwC case with Colonial Bank and the Supreme Court of Canada Teva case, one might suggest that companies and their internal audit department might be more relaxed in having to detect fraud since it would not be their organization bearing the losses of fraud. This would simply not be true as these two cases deal with known or detected fraud. The organization would still suffer losses for all undetected fraud, so I don’t believe that internal audit will be less vigilant in performing their duties.
Q: What role do you foresee data analytics playing in the audit teams of 2018?
Sunder: While it may not happen in 2018, over the next few years data analytics will play a larger role in audits, especially assurance audits conducted by CPA firms.
One reason for this may be the Canadian Standard on Review Engagements (CSRE) 2400. CSRE 2400 is effective for reviews of annual and interim financial statements for periods ending on or after December 14, 2017.This is to harmonize with International Standard on Review Engagements (ISRE 2400). As part of understanding the entity and its environment and of the specific inquiry requirements in paragraph 47(d) of CSRE 2400, practitioners are required to make inquiries about any actual, suspected, or alleged fraud or illegal acts affecting the entity.
Understanding of entity and environment includes accounting systems and records. “In designing analytical procedures, the practitioner shall consider whether the data from the entity’s accounting system and accounting records are adequate for the purpose of performing the analytical procedures.”
“The standard also requires that the practitioner obtain evidence that the financial statements agree with, or reconcile to, the underlying accounting records.” (Ref: Para. A101-A103)
It is difficult to meet the CSRE 2400 standards without the use of data analytics. But again, the accounting industry moves very slowly. With artificial intelligence and machine learning being applied to data analytics, more organizations will embrace the new technology because detecting anomalies with data analytics tools will be much simpler for users. Again, this won’t happen in 2018 but may explode over the next five years.
To learn what our other industry experts had to say about these questions, download your copy of the full 2018 Audit Team Trends Report now.
About Anu Sood:
Anu Sood is the Director of Product and Corporate Marketing at CaseWare Analytics and is responsible for the company’s global marketing strategy. Prior to CaseWare Analytics, Anu worked in various roles in the high-tech industry and her accomplishments range from writing software for telephone switches to launching a new global satellite communication service. Anu has extensive experience in strategic marketing, corporate communications, demand generation, content marketing, product management, product marketing and technology development.