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Just as technology is transforming the operations of financial services companies, it is also revolutionizing the way their audits are conducted.
The financial services sector is undergoing large-scale digital transformation that has widespread implications for how companies in the sector run their businesses. New technologies are enabling banks, insurers and other established financial services companies to overhaul their operations and identify different ways of serving their clients.
At the same time, the emergence of these technologies creates opportunities for challenger businesses, such as payment services providers. Furthermore, financial services companies operate in a highly regulated environment, which requires them to manage digital transformation while simultaneously meeting demands from stakeholders for greater transparency and trust.
There is a strong trend in the financial services industry toward upgrading legacy systems and implementing an agile way of working across business functions. Companies are looking to restructure operating models so that they can become more agile and make efficiency gains. To meet customer demands, investments are continuing in innovative online banking, digital platforms, exploring different channels, insurance applications valued by customers, and improving data quality to benefit from more accurate reporting. The adoption of technology is the critical element to enable these changes.
The main technologies in which financial services companies are investing include artificial intelligence (AI), blockchain, data analytics, the internet of things and robotic process automation (RPA). In addition to these, to upgrade legacy system, a growing number of financial institutions are turning to the cloud, which is seen not only as a driver of efficiency but also an enabler of change. The benefits of cloud infrastructure for financial services include cost reduction, better and more integrated security, improved scalability and flexibility – and it is seen as a more efficient and cost-effective approach to big data and analytics.
Automation is a particularly important component of digital transformation for financial services companies. Banking and insurance, in particular, are highly transaction-based industries that generate large amounts of data. Automatic processing of this data allows them to operate far more efficiently and make use of technologies, such as AI and data analytics, to retain and expand their customer base while managing their risks.
For example, companies can use chatbots to provide a better customer experience, AI technologies to extract complex information from documents, and analytics to gain deeper business insights. Many financial services companies are also taking advantage of the opportunity that automation provides to develop new products and services in collaboration with partners in their ecosystem.
In concert, all the technological advances that we see are vastly improving the connectivity that exists within financial services. In turn, greater connectivity is enabling banks and insurance companies to react and adapt faster in the face of constant and pervasive change.
Audit and financial services
Just as greater connectivity is transforming the financial services sector, it is also transforming the way in which the audits of financial services companies are conducted. Auditors are putting technology right at the heart of their audit strategy, with the aim of securing better access to the data that companies hold, and interrogating that data, thereby enhancing audit quality and delivering greater value to the stakeholders of audited entities.
Today, the use of digital technology is embedded in every phase of the EY Digital Audit from initial planning and risk assessment through to drawing the final conclusion. Like the companies audited, EY auditors are investing in the latest technologies and approaches. These include the agile and intelligent application of AI, data analytics, optical character recognition and RPA, cloud-based platforms and various other emerging technologies to better understand both the IT and business processes that organizations follow.
A significant benefit of a digitally transformed audit is that it creates much greater visibility around business and risks. Thanks to data analytics, in particular, auditors are able to gain better insights from the data held by financial services organizations. This then enables them to ask more challenging questions of management, making the audit more valuable both to the audited entity itself and to all its stakeholders.
Having a keen focus on data is particularly important in light of the accounting standards that have been recently introduced for the financial services industry. These include IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers, IFRS 16 Leases and IFRS 17 Insurance Contracts. The standards require companies to work with more granular data and align their finance, risk and business data through the implementation of well-defined automated processes. The implementation of these new standards can also be more efficiently audited with an end-to-end data-driven audit, including the use of emerging technologies to enhance the auditor’s risk assessment procedures.
By automating some of the procedures, and embracing technologies, such as AI and machine learning, the administrative burden on companies during the audit process is reduced and it also frees up time for auditors to focus more on how judgements have been applied. This is also a critical consideration in the accounting standards.
There are some important actions that CFOs, CTOs and audit committee members can take to ensure that their companies get more value from a digitally transformed audit while achieving greater transparency. My colleague Hermann Sidhu makes some specific recommendations around how they can prepare for a digitally transformed audit in his article, Is connectivity within the digitalization of the audit an overlooked opportunity?
What’s next?
The digital audit in financial services is evolving in line with the industry itself. Auditors are continually innovating to reflect technological developments in financial services, as well as other sectors. They understand the need to use technology to deliver the highest-quality service and react to changes in the broader business environment.
This evolution in the audit undoubtedly brings benefits for financial services companies. As auditors use technological tools to interrogate larger samples of data, they will be in a better position to understand a financial services company’s internal processes, use professional skepticism constructively, challenge management and assess risks better in order to develop a more effective and efficient audit strategy. To do this, they will also draw on new skill sets in areas, such as communication, critical thinking, data analysis and design.
Financial services companies are increasingly under pressure to build trust. The digital audit is one way to provide them with greater insights and perspectives on what they do.
Summary
The financial services sector is undergoing large-scale digital transformation. New technologies are revolutionizing the way financial services companies operate as well as how their audits are managed.