Management of data, finances and digital currency in cyber space is an emerging field. (Image Course: Pixabay)

— Written by Hanadi Khalife

The fourth industrial revolution has brought us the ubiquitous high-speed broadband, smartphones, AI, machine learning, IoT, and so much more. In the process, we have created a hyperconnected world where information is always accessible and within your fingertips.

And you can see that even more so today, as the world continues its battle with the COVID-19 pandemic. I cannot help but wonder how different things would have been if we had been hit by this virus 20 years ago, when the power of the internet was still nascent and also expensive, at least for developing countries like India. Smartphones were not mass-produced yet and the power of the digital age was still to be unleashed on the world.

The technology is allowing us to work from home and get past this pandemic. Among the technological advancements, developments around blockchain in particular will be truly transformative. Two recent developments which are of particular importance are China’s recent creation of the digital Yuan and Facebook’s Libra — both of which are expected to have far-reaching consequences across the entire world. But if any specific areas stand to be affected, these would have to be the fabric that integrates governance, finance, and the economy of nations and corporations, big and small.

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One of the consequences of emerging technologies such as these is that they will also lead to greater competition in digital asset innovation by both countries and organisations, among other things. These digital assets for example could themselves be assets, like say an organisation’s data or domain name for example, which can potentially reflect the ownership of another underlying asset.

The reality is that a newer generation of digital assets is emerging. These assets could be using AI, data analytics or blockchain at the backend. An example of this is ‘stablecoins’, a cryptocurrency at the base that is more stable, therefore offering more diverse opportunities for possible uses. As digital assets such as these become more mainstream, companies will find themselves with many interesting choices that can transform their businesses digitally.

Now take your average finance, accounting, and auditing (FA&A) professional. If they encountered a digital asset, such as cryptocurrency in a financial statement, would they audit it as cash, financial instruments or something else? Most FA&A professionals would not know the answer to this question – at least not yet. Not unless they are qualified digital auditors.

Digital Auditing

So, what is digital auditing? Well, for starters, new technologies are revolutionising the FA&A profession which is becoming much more strategic and operations-oriented. The evolving regulatory ecosystem is becoming more complex and is seeing CFOs and their teams embracing online platforms which allow them to monitor audit progress in the real-time from any location in the world. The evolution is helping FA&A professionals to ensure that authentic and relevant audit methodologies are applied consistently at each and every location.

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But, what is more relevant is the underlying base of data analytics which has become the bedrock of digital auditing. It is fundamental. Why? Because it is the first time ever that CFOs and their teams are able to consider a fuller suite of data instead of exploring the more traditional sampling of data and drawing statistically based conclusions.

With digital auditing, CFOs can now identify outliers with greater confidence and analyse shifts and patterns to close-in on potential issues in advance instead of noticing them too late, or even worse: missing them altogether. This approach can transform conversations with audit committees and regulators from simple speculations to more confident and better yet factual conclusions.

Riding the near-constant streams of data analytics, digital auditing can help FA&A professionals look at data from multiple perspectives, derive key insights, and share them with their teams. The new norm will become that of using remote, continuous, or forward-looking reporting which will facilitate:

— Dynamic risk coverage covering a dynamic risk universe, including strategic and emerging risks;

— Business risk partnership with colleagues and stakeholders thus enabling forward-looking guidance; and

— Built-in risk management as true risk owners, as opposed to relying on outsourced risk management advisory.

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The entire digital universe is expected to reach 44 zettabytes by the end of 2020 – that is 40 times more bytes than there are stars in the observable universe. As businesses handle more data than ever before, the risks too will grow. Data analytics have significantly altered internal auditing – transforming manual processes into automated ones, improving the accuracy of results, providing valuable insights to management, and increasing the ability to identify and address risks across the enterprise.

In a post-COVID-19 world, as businesses embrace even more digital disruption, CFOs will have their teams integrate digital auditing as a core function, encompassing all areas of the business. Consequently, FA&A teams will get a far more comprehensive view of the business; they will be well-placed to identifying risks earlier in the audit process, will take reduced time and effort due to greater levels of automation and finally ensure that their auditing costs are lower.

Generally, companies use technologies like big data, AI, and data analytics for digital auditing. A degree or certificate in these courses would be a right choice for those looking to pursue a career in digital auditing. Students with commerce background and an add on certification in digital technologies are also prefered by firms.

While digital auditing as a subject is relatively new, some institutes including IMA offers some of the popular and widely accepted developed digital auditing certifications certificates including ‘Next Generation Audit: Transformed by Advanced Technologies’, ‘Crushing Payment Fraud Risk’, ‘Why Data Analytics Are Vital ‐ to Your Enterprise and to You’, etc. Further, ICAI also offers certificate courses in ‘auditing software’, ‘cyberfraud’,  ‘information system audit’, ‘forensic accounting and fraud detection’. IIMs which are premium B-schools in India also offer certificate courses in digital fraud and new-age financing techniques among others. These courses are related and accepted in the industry.

— The author is senior director of ME and India at The Institute of Management Accountants (IMA)