How Robotic Process Automation Helps Audits

by Dr. Sean Stein Smith, CPA, Lehman College – March 2, 2020
How Robotic Process Automation Helps Audits

Robotic process automation may not be as familiar to some as words like bitcoin, crypto or blockchain are, but may actually be a better fit for most firms — especially those that are focused on the audit and attestation side of accounting.

Cutting through the buzz and hype surrounding emerging technology tools and applications can be difficult in the best of times, but the current landscape compounds the confusion and anxiety that choosing a new tool can create. Especially with blockchain and the broader cryptoasset conversations continuing to dominate much of the headlines, firms and practitioners may struggle to find equally important but more applicable tools to adopt. Robotic process automation (RPA) is a tool all auditors should consider.

What is Robotic Process Automation

Technical definitions abound, but a working definition of RPA that is useful from an accounting and firm management perspective is that RPA is computer soft­ware that allows users to automate certain tasks or even entire tasks previously done by humans. This is different from an artificial intelligence system or platform, which in essence allows the software to learn and develop via a machine learning algorithm. RPA, conversely, is a software program or tool that can be programmed and implemented to follow specific sets of instructions and/or link together exist­ing processes and software to each other effectively. Since RPA is just software it is often mentioned interchangeably with bots; while both are software and may be of use to firms and clients it is important to distinguish which specific tool is best for the required role. For both internal conversations with colleagues as well as with external clients, pointing out the dif­ferentiation between these technologies is essential to having productive and effective conversations related to implementation.

How Can it Make Audits More Effective?  

It can be said without much controversy that the idea of a traditional annual audit, even supplemented with interim work and other communications throughout the year, seems out of sync with the rest of the business environment. Some have speculated that the audit will become obsolete or unimportant due to technology, but the reality could not be further from the truth. In fact, as organizations produce and attempt to make use of ever-increasing amounts of information, the need for processes and tools to attest to the accuracy of this data deluge will increase over time. Far from being rendered obsolete, audit processes and associated results will become more important as organizations adopt machine learning, software bots and internet of things tools. It is true, however, that in order for this rosy outlook to become reality, technology and automation must become comprehensively integrated into audit engagements including increased integration of tools such as RPA. Let’s look at a few of the ways in which an RPA tool can help practitioners develop a more effective and efficient audit.

  • Fewer errors, more confidence. A successful implementation at the client of an RPA tool or suite of tools can lower the occurrence of data-entry errors, assist with variance analyses and give client accounting departments higher levels of confidence in the financial statements. These internal benefits, by extension, can make both the interim work and work performed during the annual audit less mundane and allow both the client and auditor to focus on improving rather than correcting.
  • More data. Perhaps the clearest benefit of harnessing the power of an RPA tool for audits from the perspective of the audit team is the ability to examine a larger percentage, or possibly even 100 percent, of journal entries and associated data. Instead of hoping that the sample selections are representa­tive of the financial statements, the engagement team can leverage the RPA tool to analyze the totality of financial information. Auditing the entirety of financial information has long been a desire of both auditors and clients, not to mention the perception of what an audit is to the general public. RPA helps move this from possibility to reality.
  • Higher-value work. On top of helping with the initial analysis, exception rules can be set to narrow down what variances or unusual balances need to be flagged for addi­tional human review. This allows the engagement team to spend less time checking the work that is already completed and instead allocate that time to potential trouble spots or issues that require interpretation or nuanced judgment calls to correctly assess. With the numerous accounting changes that have been announced during the last several years, and more on the horizon, there are sure to be issues that require a second look.

The Importance of Internal Controls

RPA adoption by its very nature allows data and processes to be completed at an accelerated rate, but if clients have adopted a tool without properly review­ing, documenting and testing internal controls and workflows, this can result in faster processing but lower-quality outputs. Designing, implementing and maintaining the internal control envi­ronment is, of course, the responsibility of management, but that does not mean the external auditors have no role to play in this conversation. Both during interim work and work performed during the annual audit, internal controls — current and proposed — are vital to the accuracy of the information being audited. The adoption of RPA will, and already is, having an impact on how audits are per­formed, and these impacts are relevant for both the internal audit function as well as the external audit team. Realizing that no technology tool will fundamentally solve business, workflow or fundamental con­trol failings, RPA should be understood, embraced and leveraged by internal and external auditors to improve the quality and efficiency of audit work.


Sean D. Stein Smith

Sean D. Stein Smith

Sean Stein Smith is a professor at the City University of New York – Lehman College. Sean also is the chairperson of the NJCPA's Emerging Technologies Interest Group (#NJCPATech). He serves on the Advisory Board of the Wall Street Blockchain Alliance, where he co-chairs the Accounting Work Group. Sean is on the Advisory Board of Gilded, a TechStars ’19 company. He is also a Visiting Research Fellow at the American Institute of Economic Research.

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This article appeared in the March/April 2020 issue of New Jersey CPA magazine. Read the full issue.