Cloud technology for audit explained

Intro:
Hello, and welcome to the CPA Australia podcast, your weekly source for accounting, education, career, and leadership discussion.

Jana Schmitz:
Welcome to the CPA Australia podcast on cloud-based technology for audit. In this podcast, we explore how auditors have transitioned from working in a desktop and hybrid environment to a cloud environment. I'm Jana Schmitz, technical advisor for assurance and emerging technologies at CPA Australia. And I am joined today by Sarah Butler from CaseWare and Jason Croston from SRJ Walker Wayland. Hi, Sarah and Jason.

Sarah Butler:
Hi, Jana.

Jason Croston:
Hi, Jana.

Jana Schmitz:
Sarah is the head of audit and accounting at CaseWare. She has previously worked at PwC as an auditor and account executive before joining CaseWare in 2009. Sarah is committed to understanding what auditors and accountants need in their practice and is ideally situated to understand how technology impacts the audit industry.

Jason is the managing director and head of audit for SRJ Walker Wayland, which is the Brisbane member firm of Walker Wayland Australasia. He's a member of the Standards Committee for Walker Wayland Australasia and was the chair of this committee for nine years. In this role, he led the introduction of CaseWare across all of the audit firms in the network about 11 years ago.

Now, I would like to start our conversation by reflecting a little bit on the year 2020, which was obviously a very challenging year. Jason, how did your firm go with the move to remote working and in particular remote auditing?

Jason Croston:
Yeah, pretty well, Jana. I guess in some ways, actually, we're still remote working because during COVID, we actually decided to renovate our office and it's still going. So, we're already coming up to one year anniversary of remote working, but we did have to make a few changes because we were on the path strategically of moving our entire firm to the cloud, and it was probably more in our business services area where we have server-based applications that we had to move across to the cloud during the early stages of COVID and the way we communicated, implemented things like Microsoft Teams. But in audit, actually, it was quite seamless because probably for about two years already, we'd been using everything cloud-based. So, apart from some of the challenges of not being able to travel to places, it was quite a seamless transition to remote working for our audit team.

Jana Schmitz:
Yeah. So, that's interesting. So, you were an early adopter of cloud technology before COVID happened. That's certainly a benefit. How has the use of technology evolved in your practice in recent years, both in relation to the audit but also in relation to how the firm operates in general?

Jason Croston:
Well, I guess it's all become cloud-based now. So, the firm was using a lot of traditional, I guess, practice management software that was server-based, and also, I guess, server-based audit technology in the past, including CaseWare, which originally had the SmartSync function, which was, I guess, synced with our server, but we've moved everything now to the cloud. So, everything from our document management system to managing our workflow, doing our time sheets, and invoicing, and even collecting from our clients, collecting the invoices from our clients is all cloud-based now and digital. Probably the biggest change over the past 12 months has just been that communication and the introduction and the take-up, especially with our clients sort of doing things like video conferencing, and being able to communicate that way which has cut down the need to travel significantly.

Jana Schmitz:
Yeah, thank you for those practical insights, Jason. I want to talk a bit more about the clients and the collaboration, especially with the clients. But firstly, I would like to know from Sarah from the perspective of a technology provider, how the use of technology in the audit industry has changed?

Sarah Butler:
Yeah, that's a good question. It has changed fairly significantly over the years. Our particular company, CaseWare, we've been doing desktop software for, I think we're up to about 25 years in Australia and that's always the way auditors have used our technology. But in more recent years, us and a lot of other technology providers are heavily focused on developing cloud-only solutions. And in the audit space, that's always been a little bit of a tricky thing, I guess, to approach in that auditors are often offsite on the road, visiting clients and having to work on an entirely cloud-based piece of technology can be hit and miss.

If you can't get an internet connection, you can't audit. So, there was always going to be a trigger point we figured that people would be okay and more comfortable with working on cloud, but that has only come in the last few years. Up until then, it's very much been more desktop focused. But the other thing, and I think the reason auditors are becoming more and more comfortable and confident with cloud-based working is that there's so many unique and purpose-built applications out there that are cloud-based that they can create these really unique technology stacks of things they need to adequately audit their clients with. And so, they can buy all these purpose-built applications for those unique scenarios and have them talk to each other even too, being cloud-based, making that overall audit process far more tailored and efficient as a result of putting that stack together.

Jana Schmitz:
Thank you, Sarah. You have both mentioned the client. Now, from the client perspective, are clients now embracing more technology themselves, and is this actually having a positive impact on the audit process?

Jason Croston:
Well, yeah, I guess, from my perspective, they have. We've, over the last probably three or four years now, used the portal that CaseWare provides in their cloud to, I guess, get the information from the client. So, I guess from my perspective, an audit, when you boil it down, comes down to us asking the information that we want and the client providing it to us. So, what I really like about what CaseWare did originally was that they provided us with the portals integrated with the software very seamlessly in a secure environment where we could provide the client with a checklist, which initially we would provide a questionnaire that was tailored to each client where they could just drag and drop into the portal. Now, with their extend checklist, that is very much a cloud-based drag and drop, very easy process, and we found a quite seamless take up with that amongst our client base.

Of course, there's some that have challenges with technology here and there, but for the most part, they've been quite open to taking that up. And actually, even just yesterday, I actually, I had someone who was glowing about how easy it was for them to give us the information that we need and was very clear about what we needed, and that sort of thing. Probably the other thing this year has just been that clients have been far more receptive to having meetings on Microsoft Teams, and the like, which is made it very easy for us to, I guess, keep that communication and regular communication done with the clients without the need to travel and that sort of thing. So, yeah, it's been a lot easier.

But what we found you need to do is really have those conversations with the client upfront about this is the way we got to do things and your engagement letter, for example, is going to get delivered on this piece of software so when it comes, it's not some scam email or anything like that. It is safe to click on that and you can digitally sign it, and all those sorts of things to, I guess, alleviate those concerns upfront.

Jana Schmitz:
Yeah. So, Jason, you talked about the collaboration with the clients via the cloud or on the cloud platform.

Jason Croston:
Yes.

Jana Schmitz:
It sounds like that is going very smoothly. I was just wondering whether the transition to cloud technology has gone smoothly as well, or whether there have been any hiccups from a client perspective, but also from an auditor or from a firm's perspective?

Jason Croston:
Look, I found the only hiccups that we've found is where there's been a lack of communication at our end about what the clients going to be expected. So, there's a bit of training and a bit of, I guess, stepping them through that collaboration and the use of the technology, particularly, in the first year when you take it up. But that investment in training and taking them through it in the first year pays a lot of dividends in the future years when you get to the second and third year. I think sometimes we get caught in the busyness of trying to get the audit done as quickly as possible, and don't step back and say, "Okay, well, if I take some time and really educate my clients about how to use this technology, then that's going to really make my life a whole lot easier down the track." So, you really need to do that.

Sarah Butler:
Yeah, and I can chat to that too, actually, Jason. That's exactly a really common feedback point. We've heard that auditors are looking for the efficient way to help their clients. Cloud offers it. But it's been an education piece for everyone involved and, in particular, I've heard the stories of clients on... Perhaps the man that manages the local club, he doesn't even have an email address so you can't send him an electronic checklist to help you out with the documentation you need for your audit. So, that group of people, thankfully, is getting smaller and smaller, I think now. But that has taken time, that transition, I think, with perhaps that smaller end of the audit, the group of audits that our clients are looking at. But I think we're sort of past that.

The other element of it all, though, that is part of the education piece is helping audit clients understand that the cloud is a secure place to collaborate with their auditors. Again, it might depend on the client in particular, but we've found that being able to put something in the cloud and understand that it is absolutely safe and secure to do so has taken some time for a number of clients to get to. If as soon as I send that off via email, I know it's in your inbox, they think that's potentially more secure than putting it in a cloud environment. So, that's an interesting challenge that I think most audit clients have now worked through, which is good.

Jason Croston:
Sorry, I agree with you there, Sarah. I think we've actually used the security aspects of the portal as a reason for clients to go to the portal compared to using email, which we've explained to the clients is completely insecure and puts the risk and the privacy of their documents at risk. So, we've found it's been a good leverage point for the discussion to, I guess, drive them towards the use of the portal.

Jana Schmitz:
Yeah. I think the security concern that you have raised is a very, very important issue, especially in this current environment. And at CPA Australia, we've heard about cybersecurity concerns or data-privacy concerns, especially from small and medium-sized enterprises, so from SMEs. But I am learning a lot here about the security of cloud technology. So, I would like to talk a bit more about the evolution of cloud technology, so to say. My understanding is that cloud used to be just a storage file alternative for auditors. But over the last years, we have seen a steady increase in cloud-based technology and app development. Now, Sarah, I'm wondering, why are providers like CaseWare and others now offering tools in the cloud?

Sarah Butler:
Sure. There's a few key reasons I think for it, and I touched on one briefly earlier in that when an application is cloud-based, there is an opportunity to have that application talk to another. It's near on impossible to do that through desktop software, or I shouldn't say impossible, but it's a challenge. But when you're on the cloud and others are on the cloud, that direct integration you can set up can be invaluable, especially in an audit scenario because that takes out that human error potential or the, whether accidental or on purpose, playing with bits and pieces that are being provided to the auditor. So, direct integration takes that risk out. That's a big benefit of it.

Sarah Butler:
But the other thing that some people don't often think about that we notice is the improvement in the general performance of technology on cloud can be significantly different than if you're working on a desktop piece of technology. When you're desktop, you are relying on the power and the space of your hard drive. And so, you might be competing with all sorts of other things on there. If you're working on a network, same scenario. Even though it's network-based, you're still competing with your colleagues who are also on that same network and working. On the internet, the cloud that you are working on is supported and CaseWare uses Amazon Web Services as our cloud-platform host. And so, that is a scalable piece of technology that you're just a blip on that huge, big server that they're running for us.

Sarah Butler:
So, the performance of things and having things run for you can be done in a split second, whereas on a hard drive, it would take a lot longer. So, that performance aspect is critical. Of course, we need to get our audits as done as efficiently as possible so that's a huge aspect of it. And then as we've touched on, that security part is also an extra thing. Even if you are on a hard drive behind a password, two-factor authentication is something that's being introduced more and more by providers, but having that into a cloud environment that in itself is supported by all sorts of certifications and accreditations, and that extra layer of security makes it that much better.

Jana Schmitz:
Yeah. Thank you very much, Jason and Sarah. Once we are back, I will ask Sarah and Jason about potential downsides of cloud-based technology and their views on the future of audit techniques.

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Jana Schmitz:
Welcome back, everyone. I am here with Sarah and Jason, and I'm going to ask Jason about potential downsides of using cloud technology for audit. Jason, your firm utilises a lot of cloud-based technology. Has that had any potential downsides or are these downsides insignificant compared to the benefits of using cloud technology for audit?

Jason Croston:
Well, Jana, I guess for the firm as a whole, I'd say one of the difficulties or the downsides is the sheer choice of applications out there. And I think that you can waste a lot of time going down rabbit holes looking for different solutions, especially when you're a slightly larger firm. It's quite difficult to do that. And I think to some extent you're going to pick and stick and really do your sort of due diligence upfront, and then make a decision and stick with it, rather than switching from this app to that app, or whatever it might be. And the other aspect, and I know that there are also security concerns, but the other aspect for me has been extracting the most value you can or the capability out of the software and then training your team, especially when you've got quite a large team across the board implementing your systems.

So, what we found was that we've used some of the tradition kind of practice management software systems. And what I've found is that the team was trying to do the same kind of processes that they were before, just replicating that in a cloud-based environment, rather than looking at this as a blank canvas, and maybe we should redesign the way we're doing things to actually take advantage of the efficiency. So, they kind of didn't get the efficiency initially because they were just trying to do the same as what they did before but in the cloud, rather than using the software as it was designed to be used. So, I guess that's probably what I've seen so far.

Sarah Butler:
I can talk to that one too. That's a really interesting observation, Jason. I think as a development business in this space, that's something that we fight ourselves against sometimes in that we've got our desktop solution that's been around for a long time, and we have released in the last year or two a cloud-based solution. So, we have two audit offerings now that both offer a really quality audit when they are used and applied, but we have made sure that we aren't just trying to rebuild our desktop technology in the cloud. And so, when we have an existing user of our technology say, "Where's this button that I've currently got in Audit System, our desktop product, in Agile Audit, the new cloud one?" And we've had to push back a little bit, both on ourselves and clients that are looking for us to just replicate what we've done and what we've always had in the cloud.

We've sort of approached it that the cloud is a line in the sand time for us. Let's look for modern, innovative ways to do things better. And, for example, automation can be a little bit easier in the cloud than it can be on desktop too, in some cases. So, we are looking for better ways to build a similar thing. And we've got a bit of a mantra internally that it's same-same but different. An audit's an audit at the end of the day, and the outcome's still got to be the same, but we want to make sure that the technology is keeping up and sticking with what's happening in the industry. We don't want to start just rebuilding stuff because that's what we've always known.

And so, that can be a little bit of a challenge for developers in the space, as well as users. You have to sort of be open to innovation and open to better ways of doing things, which can be a challenging thing, and that's an education thing We also have to deal with, as a provider in the industry, helping our clients understand why we haven't built something a certain way and where the technology is going as a result. We've got to be forward-looking as we develop too that we don't box ourselves in and limit the application in future from doing something even better again.

Jana Schmitz:
Yeah, very interesting, Sarah. I want to touch on a couple of things that you just mentioned, but I also want to pick up on what Jason has said regarding the multiple providers of cloud technology. Jason, if you don't mind me asking, what is the advice that you would give to audit firms that have not yet adopted cloud technology, but are planning to do so? Based on which criteria should they choose the provider?

Jason Croston:
I guess it depends on the functionality and the function that you're trying to achieve. But I guess the way that we've approached it is that we've done a lot of our own research into the different options that are available. And we set a criteria or a decision matrix, I guess, with the key factors that we want to make our decision based upon, and part of that's always going to be looking at firms who've already been there and done that. So, I'll have some discussions. I'll reach out to people so I can talk to them about how they found the implementation of the software.

Look, we're only really scratching the surface still on the capability and what we can do out of the software. And that's what I'm always looking at is what else can I get out of this software. And an example there is that we took up the use of doing our time sheets in CaseWare, which is one of those boring things that all accountants and auditors hate doing.

Sarah Butler:
Six-minute intervals, right, Jason?

Jason Croston:
Six-minute intervals, yeah, exactly. Those administrative things just take our time and take us away from doing our audits, and my focus has been on how do we minimise to the absolute nth degree that amount of admin time and those frustrations around doing time sheets, and doing bills, and doing that backend stuff. And what we found that when I was just searching around, was that CaseWare's got this time sheet thing there and it basically just records it when I'm working on the file. Well, that's interesting. So, we just decided to have a go and we used it. So, we're using that now. And at the moment, Sarah, that's free still, isn't it?

Sarah Butler:
It is.

Jason Croston:
So, we record all of our time based on our use of each file. And so, it's a very, very simple process. You don't have to do anything. You just have to work. And then at the end of the day, you just review your time sheet, click on it to say, "Yep, that's right," or adjusted here and there rather than interim six-minute units which is the bane of an accountant's existence.

Jana Schmitz:
Yeah. That's very good advice. Thank you very much. Apart from cloud technology, I believe that analytics is also a very helpful technology for auditors. What are your thoughts on the use of analytics in audit, and do you see it being a valuable tool to have and the auditors to look at?

Jason Croston:
I'm going to say depends. So, if the analytic tool can efficiently, I guess, import that base or the data that it needs to analyse, then it's of use, and it can design the tools... I'm sorry, the analytic tests or whatever efficiently then I do think it's of use, and it's necessary to have analytics as part of your audit.

I guess why I say it depends is that in the space that we audit in, is I guess, in the SME level, and to some extent, the data that goes into those analytics tools is not the greatest quality always so you do end up with variations and things that come out of that, which are really just data entry errors, or those sorts of things that sort of becomes an inefficiency to get the data in and analyse things that are really just because the client just has a poor accounting system or an inexperienced accountant entering the data. Whereas I can see if it's a more sophisticated client who's got better controls and a more experienced accounting team or a finance function then, absolutely, having that data and using the technology is going to increase the efficiency of doing that process, which is, for me, is the most important aspect of it is how do we, as quickly as possible, get to the answer that we need.

Sarah Butler:
Yeah, and just on that, that is a really important point, I think, worth elaborating on slightly that we've got a couple of analytics applications as well. But at the end of the day, they're only useful provided you can get good, quality, reliable data from your clients. And that is the number one hurdle our clients are continually coming up against that the client uses MYOB, and as long as they can get an export out, yes, you can import it in, but you will then have to map that into the analytics tool to be able to then work on it. But if they're on a really unique application, that process isn't often as easy. And I talked earlier about being cloud-based allows direct integration. That's only good, at the moment, for a few of the bigger packages out there that have that ability. So, for example, CaseWare, and I'm sure a lot of other providers as well, are directly integrating with things like Xero and QuickBooks, but that might be just about it.

And so, over time, I'm sure that list will grow as to other providers offering that. And that takes out a huge amount of manual intervention that's still currently required. Otherwise, your clients are exporting things out of their system and handing it to you in an Excel spreadsheet. But the amount of time it takes to then manipulate that to get it in the analytics tool is potentially not worth the benefit, at this point. So, I think we're sort of in a period of transition at the moment where, as the providers are getting that integration ability enabled, hopefully, that will start to become a more efficient and more worthwhile process for auditors.

Jana Schmitz:
Yeah, that's very insightful. Thanks, Sarah and Jason. I feel that there is a lot of conversations about technology and the usefulness of technology for the audit. And some technologies I would argue are probably a bit over-hyped or at least, it hasn't really been examined to what extent they can actually increase the efficiency, effectiveness, and the quality of an audit, at the end of the day. So, I agree to what you both have just explained regarding analytics. Now, Jason, I am wondering whether your firm is using any other technology? So, for example, AI or robotics process automation, or any other existing technology, or what they call emerging technology, drone technology, and so on, or whether your firm is planning to adopt such technologies?

Jason Croston:
Not anything like AI or certainly not drone, although that could be useful, I suppose.

Sarah Butler:
I think stocktakes.

Jason Croston:
Stocktakes, yeah. I guess it depends on the airspace and the type of client, or whatever. But yeah, I guess at this point in time, my focus is on extracting the most use out of the existing technology that we've got in place. So, I guess a few years ago, the process that I went through is I sat with my senior team in audit and we went through a process of saying, "Okay, well, let's call this a blank canvas. And if I was going to set up an audit practice today, what would I use and what would I use to run this?" And so, what we did was look at what we're using and other pieces of software out there. And we use a piece of software called Active Campaign for our marketing and sales pipeline.

So, what I would like to do is to use that technology to automate some of the communication processes, particularly around how we onboard clients. I find, getting clients on board and that sort of client relationship piece of dealing with clients is a bit inconsistent and clunky and results in all of the different data and things not being captured in the way we want it to. So, I'd like there to be automated things like automated questionnaires going to clients to capture the data that we need to help manage the relationship we have with them, and even during the audit process. We know during the audit process that there's quite regular, repetitive questions they get asked year after year. So, I'd like to design questionnaires and automate the release of that to clients so that it happens at a particular point in time and happens consistently across my entire client base.

I'm consciously aware though of how there needs to be a human element in that too, though. I think we need to make sure that technology is used really just to augment or to assist us with the human element, which is audit is looking at a client in the eyeballs and that profession of scepticism you can't get from having an email conversation or an automated completion of a questionnaire. You need to look at them in the whites of the eyes and see what you can see. So, I think that's a really important point to make. Another piece of technology that we've used is another software called Practice Ignition, which we use to deploy our engagement letters and then automate the invoicing and collection process. My experience in the past has been that that sort of time-based billing, invoicing, collection, dealing with the query process is an enormous drain on my team's time so I wanted to take that away.

And we've been successful in doing that by using that software for the past three or four years. We agree our fee with the client upfront, send them the engagement agreement, they digitally sign it, and then it's processed from there. So, my focus has really been around how do I remove as much of that unnecessary, basic administrative aspect of being an auditor from my team so that they can focus on the relationship, doing the human parts of the audit, and doing things like understanding the fraud and understand the getting out there and seeing the client, and those sorts of things.

Jana Schmitz:
Yeah, Jason, just to reiterate what you said about the human element. I picked up from a webinar that I recently attended that technology is the enabler, but the auditor sits in the driver's seat, and the human element is needed, and technology and auditors are working hand in hand. One does not take away the job of the other, basically. So, I found that I found that really interesting. Now, we are coming to an end of our podcast today, but before I let you go, I would like to ask both of you about your views of the future of audit technology. So, where do you believe audit technology is heading and what would you like to see it facilitate or offer to auditors?

Sarah Butler:
Good question. I think I'll probably leave the back half of that question to the auditor on the call today. But I guess from a technology aspect, and to piggyback on what you've both just said really about that human element to an audit, the technology and the innovations happening in the audit space, in particular, are pretty exciting, even for a nerd like me.

And so, it's definitely, we're getting closer and closer to that concept of a data-driven audit engagement, that the files are built and automated based on the data that is ingested instantly from a system, and that's where the auditor starts. Rather than the auditor spending time, like Jason said, doing all of that manual processing of setting up files and engagements, and having the technology help with that so that they can focus their attention and their professional judgement on the risk assessment. Is what the technology telling me sound right? Do I go with that? And then, obviously, that client interaction and the face-to-face, and the scepticism elements of quite important to that process, but we see the technology helping support that sceptical auditor in the role that they will continue to have to play in audit. We're definitely not going to be automating the entire audit and the magic one click and the audit's done. So, I think that's probably where the technology's heading. But Jason can probably put a better spin on that as an auditor than I can.

Jason Croston:
I guess, for me, a couple of aspects from the audit itself, probably a more tailored, I guess, audit programme or approach. I guess there's a lot of basic sort of tick boxes that need to happen in a sort of templated audit. So, using the technology to really get down to what's relevant to the specific client and doing it that way, which I know that that's something that CaseWare has done quite a bit of already, with your optimisation and all that sort of stuff, but further advancement of that.

Another thing for me, which I know I've spoken to Sarah about, is probably around the management of the audit and things like capacity planning and workflow management, but within CaseWare cloud. For me, it's about managing resources and making sure that I've got my projects delivered on time, and all of those kinds of things. At the moment, we're using a piece of software outside of CaseWare, but in an ideal world, if that was integrated with our time, and we could see how we are progressing with our audit versus our budgets and all of those kind of running the business kind of type things, I'd like to see that moving along myself.

Jana Schmitz:
Yeah. Thank you very much, Sarah and Jason. That was great. Thanks for sharing your expertise and experience, and using cloud-based technology for audit.

Sarah Butler:
Not a problem. It's been great fun.

Jason Croston:
You're welcome.

Jana Schmitz:
Thank you. Be sure to visit our show notes on the CPA Australia podcast webpage for links and more information on this week's episode. Thanks for listening.

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