Advancement in Technology and Audit Quality

This paper discusses the issues highlighted about quality of audit in various articles and considers particular means through which restructured Code might be helpful in the provision of quality audits which meet the interest of the public. It also explores how technology, such as AI, visualization, and robotic automation, can improve audit quality. The paper identifies poor audit by big 4 firms and the conflict of interest as the main problem leading to poor audit quality. The restructured Code of Ethics is also discussed as a means to improve audit quality.

Running head: ADVANCEMENT IN TECHNOLOGY AND AUDIT QUALITY 1
Advancement in Technology and Audit Quality
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ADVANCEMENT IN TECHNOLOGY AND AUDIT QUALITY
Introduction
The recent years have experienced increase in the emergence of technological
advancement, and many have held that such technologies might assist in quality of audit
improvement. According to former ASIC chairman, Greg Medcraft, the quality of audit has
remained an issue for decades. Greg has warned for inevitable conflicts of interests in the
profession of auditing whereby spectacular implosion was never reported. The corporate
regulators begin to expose the audit inspection of a specific firm and further makes the big four
consulting companies ashamed over quality of their audit. Via the advancement in technologies,
entities can still have a range of gains as such technologies encompass AI, visualization, robotic
automation, among others. Companies are making some efforts to improve audit quality and
execution. The report by ASIC shows that a need exist for additional efforts alongside
improvements as well as implement better initiatives to improve quality. This paper thus presents
a comprehensive discussion of the issues highlighted about quality of audit in various articles
and consider particular means through which restructured Code might be helpful in the provision
of quality audits which meet the interest of the public.
Issues Identification and Discussion
1. Poor Audit by Big 4 Firm:
According to the excerpt by Edmund and Tom (2019) which appeared on Financial
Review on August 7, ASIC report shows that the big 4 audit companies including EY, KMPG,
Deloitte, alongside PwC are not doing enough to improve their work's quality to ensure there are
restatements of relevant financial statements and adjustments and all kinds of pertinent
disclosures of financial statement to serve the public interest Edmund & Tom, 2019. Moreover, it

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reveals that the Big Four firms lack audit independence, and their auditors fail to do certain
fundamental services. This ASIC inspection supports criticism against the big four consulting
firms over the quality of audit (Edmund & Tom, 2019). The findings of the inspection by ASIC
indicates that the Commission will increase the frequency of audit inspection reports for yearly
publication hence publishing a more comprehensive array of audit quality measures to improve
audit quality Edmund & Tom, 2019. Whereas these firms have been implementing efforts to
enhance the quality of audit and audit execution consistency, ASIC's inspection outcome
indicates that further improvement is essential and these big 4 companies to regard novel
initiatives for quality enhancement Edmund & Tom, 2019. PwC reacted to the news by
voluntarily revealing its outcomes whereas Deloitte confronted the Commission's inspection
regime as "not fit for purpose" and extremely explosive in its defense but further revealed its
outcomes (Edmund & Tom, 2019).
According to Ryan (2019) article that appeared on ABC News on August 6, Greg
Medcraft (former ASIC chairman) while warning about the poor audit quality, identified various
issues with big consulting firms that lead to poor audit quality. The main problem is the conflict
of interest which has the potential to spark Enron-kind corporate collapse. The chairman
attributed poor standards of auditing and conflicts of interest to scandal of Enron and cited the
United States giant spectacular implosion in the year 2001 following extensive fraud and
corruption ensued undetected nor unreported (Ryan (2019).
The blame is on audit firms failing to detect even a big corporation collapsing without
detection by auditors. The auditors were likened to gatekeepers in the case of Enron case by the
former chairman. Thus, this information demonstrates a typical case of failure big auditors due to
the often conflict of interest between the audit business of Big Four companies and consulting

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firm (Ryan (2019). Thus, there is a need for an investigation into auditing following the big 4
accounting companies including KMPG, PwC, EY, and Deloitte evading inspection at financial
services royal commission after carving out from reference terms. The quality of 25% of audits
had attracted questions on whether the auditors had sufficient evidence to back their judgments
and opinions (Ryan (2019). Auditing firms face the big challenge of staff coming into their
firms, yet they really wish to move to the consulting company where they can make money as
fast as feasible hence perpetuating poor audit quality. Thus, the auditors do not serve the public
interest due to the consulting attractiveness (Ryan (2019). The former chairman suggested
increase competition instead of regulation to ensure that audit firms avail transparent and
accurate advice to firms and eventually, stockholders. Poor audit quality has also been blamed on
ASIC, which critique believe has been extremely cozy with firms; it is regulating and slow to
prosecute their misconduct (Ryan (2019).
Based on the Commission's report, the PwC released Australia's first audit quality
scorecard reacting to the findings. As had been highlighted in the report, PwC confirmed the
problems of adjustments as flagged by ASIC and held that adjustments remain an essential and
critical portion of the process of quality audit. PwC confirmed that it noted six adjustments in
2018 in financial statements of listed firms and made sure their suitable treatment prior to being
finalized for publications (PwC, 2019).
PwC further confirmed that non-audit services and independence were a problem despite
the Corporations Act prohibiting many kinds of assistance from being executed for a customer
by their external auditors (PwC, 2019). While PwC mentioned that it had detailed internal
policies to ensure independence (PwC, 2019), ASIC flagged out this problem correctly. The
ASIC findings thus remain a critical constituent of audit quality and must be taken seriously by

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all the big four firms for the public interest. The lack of restatements was also a major issue
leading to poor audit quality as identified by ASIC. PwC stated that there existed no cases of
relevant financial statements requiring restatement to market in the case where audit results were
recognized by internal inspections of PwC or ASIC for public firms (PwC, 2019).
2. How Technology Will Help Improve Audit Quality
Artificial Intelligence:
According to the excerpt by Boillet (2018) that appeared in EY on July 20th, 2018, AI
remains a sprouting technology which is a game-changer for many businesses, and the animation
of EY has extensively explained how AI will be adding significant value to audit. AI is
increasingly applied currently in many fields, including driverless vehicles, investment portfolio
management, alongside home energy systems, and Boillet (2018) hold that AI will significantly
affect accounting and auditing. AI allows the data on full population analysis and can
acknowledge the exceptions and outliers.
Thus Boillet (2018) argues that AI covers many interrelated technologies like machine
learning which can be used in accounting and auditing to code accounting entries automatically.
Auditors can further improve the detection of fraud via the creation of sophisticated machine
learning-oriented models saves to AI (Boillet, 2018). Moreover, deep learning that is another AI
type will transform audit by analyzing unstructured information, comprising posts on social sites,
emails alongside conference call audio files. Specifically, the contact view is an example of AI
which applies to the audit. The tool of machine learning further enables humans to quickly
analyze a significant contract amount, including leases within short while compared to traditional
manual review (Boillet, 2018).

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AI tools have been utilized in the recent pilot to precisely extract info from various lease
contracts via pre-determined criterion in various cases-a high level of precision compared to the
ordinary human assessor can manage (Boillet, 2018). Thus, AI makes it feasible for auditors to
perform smarter and better thus assisting auditing in optimizing time, permitting them to utilize
own human decision in analyzing a more in-depth and broader data set alongside documents
(Boillet, 2018). AI further allows auditors to ask useful queries and interrelate better with CFOs,
company boards, and audit committee. They are hence adding desired value to the audit process.
Thus, AI might contribute significantly to better-quality audit provision-and, thus a promising
auditors’ future (Boillet, 2018).
Thus with the tremendous level of unstructured data which has continue to grow in leaps,
AI will systematically mine such unstructured and internal sources and acknowledge all red
flags, whether a contract with clauses that breach particular nation's regulations or a transaction
by a vendor which might have certain suspicious features and was initially overlooked (Insight
Team, 2019). AI shall further monitor sources of external data, including TVs, social media, and
audio and video sources for extra info that might enhance comprehensiveness of audit (Insight
Team, 2019).
Advanced Technology Might Improve Quality of Audit
According to the article by Forbes dated March 4, 2019, the Insight Team held that many
finance executives indicate their external audit significantly gain from the utilization of cutting-
edge technologies including AI, cloud besides data and analytics. Indeed, the team cited recent
Forbes Insights/KMPG survey of two-hundred and fifty corporate finance executives that saw
over 94 percent agreeing that such technologies enhance the audit quality. The Insight Team held
that auditing companies spend to the tune of five billion every year on technology, and audit

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improvements are never merely incremental. Technologies shall augment auditors’ work and
eventually go a long stretch towards audit quality improvement (Insight Team, 2019). The
following primary tools are being used by auditors present to improve the audit quality:
a. Visualization: The visualization data technology is premised on a simple foundation:
graphical data representation remains a better means of absorbing info (InsightTeam, 2019). For
example, thinking of inventory, a chart instantly permits a person to view the trend in year of
price, while observing the same amount highlighted in a table might need additional time to
acknowledge the pattern, where a person might discern any amongst the values. Identically, in
audit, interactive graphs, heat maps, bubble charts alongside other visuals make it increasingly
easier to genuinely comprehend all structured data firms have on hand (InsightTeam, 2019). This
has influenced auditors by providing them frequently insights into systems, transactions,
alongside trends. This permits auditors to make quality judgments alongside decisions,
culminating in improve work quality to serve the public interest (InsightTeam, 2019).
b. Robotic Process Automation (RPA): This technology utilizes software hence
transactions’ capture and interpretation, data manipulation, sending standardized responses, as
well as communication automation with new processes (InsightTeam, 2019). RPA has broadly
been deployed in advisory as well as tax services and is exponentially being embraced in audit
because it is capable of streamlining enterprise operations alongside direct audit's workforce to
increase value-added activities (InsightTeam, 2019). RPA remains increasingly suited to
reconcile revenue-oriented transactions and routine activities thereby allowing auditors ample
time to emphasize on their clients, data analysis, as well new insights gained from the
information of enterprises (InsightTeam, 2019). The accounting profession is readily adopting

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RPA-oriented audit procedures with the potential of improving the effectiveness and efficiency
of the audit (Insight Team, 2019).
3. How Restructured Code of Ethics Will Help Improve Audit Quality
According to the IESBA (2019), the restructured Code shall significantly impact the
standards. The work by Financial Management Network through its informative program
featured the IESBA chairman (Dr. Stavros Thomadakis) of Greece alongside two members of
IESBA (Mr. Ian McPhee of Australia and Ms. Caroline Lee of Singapore). The Code entails
extensive restructuring alterations, and the Code encompasses substantive, which include
conceptual framework (CF).
The CF explains how every professional accountant is demanded to apply the Code to
adhere to the fundamental principles of ethics, and when appropriate, stay autonomous. In this
regard, the restructured Code will significantly assist in improving the audit quality by
eliminating the problem of lack of auditors' independence (IESBA, 2019). This is because the
restructured Code has led to the enhanced conceptual framework, strengthened accepting and
offering inducement linked to provisions, comprehending facts and circumstances at the time of
taking professional judgment as well as improved material in adherence to the principles of audit
and accounting standards (IESBA, 2019).
The restructured Code is useful since it is principles-based Code, wholly re-written and
restructured for clarity improvement, perfect difference between application materials and
requirements, enhanced prominence on fundamental independence and ethical principles. The
Code has a substantive revision which ensures more transparent and more robust CF, safeguards
provision clarified alongside better aligned to threats of independence; strengthened extended

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association provision and NOCLAR standards all of which will enhance audit quality (IESBA,
2019).
This restructured Code remains exceptionally significant contribution to professional
accountants’ ability to sever in the interest of the public as well as maintain as well as enhance
trust in the profession of accountancy (Helliar & Bebbington, 2004). The restructured Code
further facilitates its acceptance and implementation and hence imperative for others to adopt
enhancements as well as take necessary actions, thus supporting its acceptance alongside
operational implementation (Sikka, Filling, Liew, 2009).
The restructured Code brings in relevant bodies like IFAC, NSS, member agencies
alongside regional accounting companies, regulators, organization alongside additional
authorities, educators and other people who all have an essential role in ensuring it is
implemented for audit quality enhancement and guaranteed public interest. The implementation
of the restructured Code will be easy since over 120 global firms have adopted the earlier Code
version and this will make earlier-adopters to swiftly shift to the new version and hence
improving auditing quality due to its improved features to serve the public interest (Sikka, 2009).
Thus, the restructured Code remains an excellent podium for change alongside “future-proofing”
in the changing and dynamic globe (IESBA, 2019).
Conclusion
The fundamental points from the inspection by ASIC are that there is no restatement of
relevant financial statement as well as lack of adjustment and all kind of pertinent disclosure
both of which need to be availed in the financial statements. The report further identified the lack
of certain non-audit services and audit independent, which need to be provided by auditors and
their clients, respectively. Some of the fundamental restructured Code of ethics which shall help

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improve the quality of audit identified include enhance conceptual framework and strengthening
acceptance alongside offering inducements linked to provision. Others include understanding
facts and circumstances at the time of taking professional judgments as well as how the material
in compliance with the principle of accounting and audit standards improves audit quality. The
discussion has shown that the big 4 firms are aiding poor quality of audit as they have conflicts
of interest. It will be appropriate for the ASIC to frequently inspect the audit work and publish
the results and name and shame these firms that have continuously connived with the consulting
business to deny the public the services they deserve. Moreover, more still need to be done by
the Commission to ensure that it is never cozy with firms it is meant to audit and fast-track the
prosecution of the auditors and auditing firms that fall short of the expectations. This is because
the improvement in the quality will not only help the public but also the investors who want to
know the true position of the firm before investing their money. Quality audit will thus ensure
rational investment decisions as stockholders will have the required useful information to reach
informed decisions.

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References
Boillet, J. (July 20, 2018). AI is an evolving technology that promises to be a game-changer for various
industries. Our animation explains how it can add value to the audit. EY, 1-5.
https://www.ey.com/en_gl/assurance/how-artificial-intelligence-will-transform-the-audit
Edmund, T., & Tom, M. (August 7, 2019 — 5.44 am). ASIC to name and shame big four consulting
firms over audit quality. Financial Review, 1-5. https://www.afr.com/politics/federal/asic-to-
name-and-shame-big-four-consulting-firms-over-audit-quality-20190806-p52efr
Helliar, C., & Bebbington, K. J. (2004). Taking Ethics to Heart. Institute of Chartered Accountants of
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InsightTeam. (Mar 4, 2019, 09:30am). How Advanced Technologies May Improve Audit Quality.
Forbes, 1-4. https://www.forbes.com/sites/insights-kpmg/2019/03/04/how-advanced-
technologies-may-improve-audit-quality/#24b661785632
International Ethics Standards Board for Accountants (IESBA). (February 18, 2019). How the New
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gateway/ethics/discussion/how-new-ethics-code-will-affect-your-standards
PwC. (May 2019). PwC releases Australia’s first balanced scorecard on audit quality. pWC, 1-5.
https://www.pwc.com.au/press-room/2019/pwc-releases-balanced-scorecard.html
Ryan, P. (August 6, 2019, 9:44 am). Audit firms' conflicts of interest could spark Enron-style corporate
collapse, former ASIC boss warns. ABC News, 1-3.
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medcraft/11388164

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