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We are officially in the era of digital transformation where technology has greatly impacted audit processes. This has ushered changes that were hard to imagine as possible about a decade back. While the accounting profession has by and large embraced technology in various processes, it was restricted to the documentation, calculation, stor age and retrieval process. However, this is all set to change as cutting-edge technology dons a greater role in auditing. The clamour for different reporting and financial statements has been growing, and technology has all the right answersv. Taking a leaf out of fintech companies for development of intelligent software Bookkeeping outsourcing company in uk. Processes that will be touched by technology will include those areas where it may be necessary for a machine to understand and use that knowledge to identify complex information. Fintech companies have been able to deploy automated solutions by leveraging the power of AI and machine learning. Auditing will similarly find a greater role for technology, beyond the present functions. For instance, technology has developed to a level where it is possible for AI powered systems to look at all the data of a company that is being audited and identify anything that is amiss. This will help auditors to turn their focus to flagged areas that need more of their attention. Evolving reporting requirements Bookkeeping outsourcing company Present audit reporting helps investors and shareholders understand the financial health of businesses. However, in the context of a data driven world with more and more information available, there is an increasing chorus for auditors to share additional information. Stakeholders are of the opinion that auditors possess more information, than what is actually reflected in the reports. And the demand is for more contextual information from auditors about how a specific conclusion was made or arrive at. Readers want to know how the auditors arrived at a conclusion. This open the floodgates of confusion. Auditors crunch numbers and make conclusions, expecting a reader to do the same is an invitation to chaos. However, technology has the ability to present relevant information in the right form for dissemination, that is in alignment with the overall findings/conclusion. Impact of revisions and penalties corporate secretarial services in ukThe Financial Reporting Council released revisions to International Standards on Auditing (UK)[1], which had more to do with the Code of Ethics. This has great significance for auditors and by extension the companies that are being audited. The changed standards, despite being limited in scope can have implications for stakeholders. This needs to be read in the context of the fines levied by the FRC, on some of the top global auditing firms for misconduct. Even as the dust began to settle over the fines and the circumstances surrounding it, most of the iconic and respected auditing firms commenced an overhaul of their systems and processes, bringing in more technology driven processes to strengthen existing processes. This will be the order of the future, as auditors look towards technology for greater compliance. Moving from sample testing to testing of all transactions In the future, auditors will harness technology to carry out checks of all transactions, and not just rely on a sampling or random check of transactions. While the certainly humungous volumes of transactions may have come in the way of checking out all the transactions in the past or the present, this is all set to change. With the use of the right technology, not only will all transactions be checked, they will be completed at high speed, which means that the process of checking will not add to the time element. And this aspect of checking all the transactions will help auditors to gain more insights about the financial health and other inputs about the organization and the domain it operates. This will be invaluable to investors and shareholders who will now be able to understand reports on the basis of checking all transactions and not just a sample. Sampling has a probability of error, which will be corrected in the future. The need for speed The new techno-social order has turned time on its head. Processes that once took a specific period of time has now been shortened drastically. As a consequence, all other allied processes and procedures are also expected to commence/conclude at proportionate speed. Effectively, this has led to a cascading effect. Audit, resultantly, requires to be concluded faster than ever before. Manual processes do not stand a chance of delivering results at speed or with the accuracy and precision required. While it is impossible for technology, as it stands now, to replace the power of human intuition in tasks as complicated as auditing, many of the tasks that are repetitive or rote in nature need to be entrusted to technology and automated processes to be able to meet the deadlines. Leveraging the power of blockchain for cost effective audit processes Blockchain is the buzzword that will continue to hold sway over businesses well into the near future. And by virtue of being a distributed ledger, blockchain is the natural bedfellow for auditing processes. Auditors need not seek information or wait for clients or third parties to furnish statements, or any documents for verification and cross-verification. Auditors can simply carry out the verifications from blockchain ledgers. With the power of offering verifiable and immutable transactional information, these ledgers will save a lot of time and money, in addition to the assurance of offering information that is accurate and free from errors. This is basically, because the transactions themselves would have been carried out only after fulfilling the criteria or conditions of all –parties involved in the transaction. Analytics only as good as the data that is fed Analytics can be only as good as the data that is fed, which means that standards also need to improve so as to offer data that is of the right standard. While systems will be powered to detect anomalies over entire transaction history, the advantage of perception that is available to the human mind and the logic of perspective will be unavailable to technology driven systems. This will make it mandatory for records to conform to certain standards. The quality of the data and the processes or technology that is available to bring in the data from many sources needs to be advanced so as to prevent gaps in data capture and its use. The need for more regulations and standards Past processes had stakeholders trying to catch up with the regulations and standards. For instance, auditors and organisations had to fulfill or meet the standards and regulations as laid down and the need of the hour used to be a scramble to meet the standards. However, with changes in the way business is conducted, there are multiple issues which cannot be met or fulfilled by existing standards. This turns the whole equation of regulations and standards on its head. Regulations and standards are now expected to keep pace with the developments and evolving changes in the world of business. Till the regulations and changes are in place, auditors and businesses will have to work within the contours of existing regulations which may not be very easy considering the inherent differences among domains. Conclusion: Auditing is a proven facilitator for growth, in addition to meeting the requirements of accounting and financial reporting. While nations have their own set of policies about the size of businesses that need to be audited or not audited, it is a proven fact that auditing is one of the pillars of growth of a business. Technological innovations will assist the acumen of humans to bring about greater accuracy, improved reporting and faster conclusion. Auditing will not be limited to random checks but will encompass the whole history of transactions for specific periods. Contrary to popular belief, technology will not take the place of humans, but will help humans in their deliverables.

A return to prudence: restoring faith in accounting 

The journey towards achieving fair value standards has resulted in the loss of prudence and judgment in accounting outsourcing companiesPoor audits and troubled auditors have seeped into the very heart of the corporate system and rendered it dysfunctional. Further investigation into this matter has proved that the problems in the audit market may be perhaps due to some loopholes in the accounting standards in place.  

 

Recent financial scandals such as the fraud at the Colonial Bank in the US to the disintegration of Carillion, the UK outsourced bookkeeping services group has significantly pointed out the inefficiencies and errors in the system. One of the main problems is the structural dependency on the Big Four firms. Another problem is that auditors have failed to prevent investors from being cheated and to report criminal practices. The rules have become defunct and unnecessary for the practice.  

 

Three decades ago, banks would manipulate their profits by valuing loans and keeping aside provisions for losses on loans without caring much about the existing economic situation. This incorrect higher scaling of profits was good news for many investors as they would get higher returns. However, these practices were detrimental to the economy leading to the savings and loans crisis of the 1980s and 90s. 

What went or is going wrong 

Managers who are spoilt by the equity incentives and fringe benefits are using the system for their own personal gains. The writing up of asset values in relation to market values, whether real or estimated, have enabled them to get profits, distribute dividends and increase share prices. The fair value system will only work if correct market valuations and proper estimates based on logic are prepared. The credibility of the company is what’s at stake and an auditor’s responsibility is to guard that. 

 

However, auditors, especially in the Big Four firms, have shed that responsibility, instead of using their lobbying power to make decisions devoid of any judgment. This is where one of the drawbacks of the fair value approach creeps in. Rationale and prudence can only be restored if time is taken to understand the different uses of the models, estimates, and projections. This will help work around the manipulative nature of the historical cost approach. 

 

There is always a place for new rules and approaches in the market. The problem of non-performing loans in Europe has been dealt with by creating a new rule, IFRS 9. The rule mandates that companies set aside bad debts provisions before incurring any losses, in order to be on the safe side. The rule is a healthy mix of fair value accounting and predecessor standards. 

 

Principles of modern accounting 

An important principle of modern accounting is fair value. The framers of accounting standards suggest the coordination of accounting rules globally and to do away with system loopholes. This method relates asset valuations with the prevailing market prices. The aim is to prepare accounts according to the current economic situation rather than the historical cost of the assets. It has since been accepted as a fundamental concept in modern accounting. The method has been adopted in the European accounting practices as well. The concept stems from the idea that accounts should be user-friendly. It has been used for volatile and fictitious valuations and extends to non-liquid assets with no certain market price. 

 

This rational approach should accrue to all areas and regulate cash flows. Also, auditors should keep an eye on decisions made by financial directors and consult with them on important matters. The underlying aim of the audit market is to assure investors and the public of the fairness of accounts and this sanctity should be maintained. Changing the accounting rules is only the beginning. 

  

What else can accountants do 

It is also important for the accounting firms to include their clients in the discussions and allow them space to share their thoughts too. This helps in building trust as shared below. 

 

  1. Be available proactively – Your clients may not be accounting experts and the words may be jargon to them. They may also be relying heavily on you for your opinion, suggestions, and recommendations.  It is important that you look for opportunities where you can add value to your client and ensure they don’t get stuck with any compliance issues or miss important deadlines. 
  1. Give them enough space to intervene – You are an expert, no doubt but your client may also have a fresh view. You can tell them what can be done or what is the right way or wrong anyway. It is important to allow your clients to intervene so that they get the feeling that they have the control of their accounting and this authoritative feel can make them more comfortable to help you in getting their trust built in you. 
  1. Breaking down the complexity for them – Explaining each process and accounting details of course is and should be one of your tasks. Accounting is a scary term for many and what an accountant may find a simple concept, could be a nightmare for others to understand. It is important that they know what you mean by the terms you use. Decide recurring meeting slots and discuss the financial data and performance with your client so that they know where you are heading and so that they don’t raise a concern out of the blue one day. We also provide payroll outsourcing services provider. 

A better transparency, ethical accounting, and communication with customers can help get the faith back in outsourcing. 

BY: AMIT AGARWAL 

London  

Suite 7, First Floor, Amba House,  
15 College Road, Harrow  
Middlesex - HA1 1BA  
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India  

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Unit No.110-111, Spaze IT Park,   

Tower b4, Sohna Road  

Gurugram, Haryana - 122001  

  

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