Audit reforms will force rapid adoption of new technology

Konsolidator is an innovative consolidation software that is created by CFOs and auditors and Skov being one of them. Powered by new technology the software removes the complexity of financial consolidation and helps reduce audit costs through automation. According to Skov, reforms to the UK audit market must ensure adequate attention is given to the technology needs of accounting firms as they adapt to increased reliance on modern tech stacks.

With the 16-week consultation period for the UK’s whitepaper on reforms to audit and corporate governance now over, the government will have to decide how best to incorporate the concerns of market participants.

Skov believes the reforms need to consider the historically slow uptake of new audit technology and help firms to become fit for the future.

“There’s going to be this very rapid need to adopt technology, which is not always what practice does – adopt technology quickly,” he says.

“With the reforms, they’re going to have to systemise all those normal tasks. They will need to look at AI, cybersecurity, everything. So, they will have this rapid need to automate and reduce cost.”

Skov says the reforms, which included over 200 proposals, mean that there is heavy burden on auditors to automate as much of the audit process as possible or risk getting left behind the competition.

“If you haven’t got the tech to enable you to perform in a better way, you’re just going to be building more and more cost into your audit provision, and therefore you’re not going to keep up with the change of pace of the other firms,” Skov says.

Auditors will need new skills

As the incoming regulatory changes demand a greater use of modern technologies, from artificial intelligence to robotic process automation (RPA), that in turn necessitates a different skill set for audit teams, says Skov.

“Even just getting your head around AI and how you’re going to use it, it’s a completely different mindset to the auditor that has been working for the past 10 years,” he says.

“It’s a different way of thinking about it, about how you can take that technology and make it work within the practice and within your division.”

In 2020, a report by the Association of Chartered Certified Accountants (ACCA) found that moving forward, auditors would have to be more adaptable and comfortable with data analytics, while simultaneously being capable of maintaining those important human interpersonal skills that technology simply cannot account for.

Are two heads better than one?

Konsolidator was founded in Denmark where the audit market was, until fairly recently, using a form of joint audit. However, it was eventually scrapped because it ended up being just another added cost, Skov says.

“It was also because it didn’t really do anything to the financial scandals – they were still there,” he adds.

“I know you can think that two heads are better than one, but actually will it leave the top companies with little choice? I’m not sure the challenger firms will be ready to do the managed shared audit,” Skov says.

In addition, Skov worries it could take 10 years for full implementation of managed shared audit and even longer before the market starts to see any results. Tech firms like Konsolidator can help reduce audit costs through automation, which is invariably going to become more important, but there still needs to be a wider desire to make audit cost as competitive as possible, adds Skov.

A report by the Financial Times found that the reforms to audit and corporate governance could end up costing companies an added £430m every year, meaning the pressure to automate and keep costs down will only increase.

Skov argues that regulators and audit firms must better embrace technology to develop a stronger relationship that can keep costs low, encourage innovation, and plot a successful path forward.

“The more engaged with tech companies they can get, the better,” Skov says.

“That way, we’re ahead of the curve in terms of what we see the tech doing to support the reforms and making sure that the tech is able to deliver what the sector needs. The more proactive you can be in that process, the better.

“As a tech company, and as a company who supports audit firms with automated consolidation, we’re at the cutting edge of what’s possible with technology. We know what the art of the possible is, so let’s think about this within the reforms together and that way it’s a two-way conversation.”

Meet Konsolidator at Accountex Summit North September 20 & 21