Tech companies encroaching on audit market

By Michael Cohn for AccountingToday.com

As technology plays an ever-larger role in the audit process, some tech providers like IBM are competing with Big Four firms, according to a new report.

The report, from Source Global Research, found that approximately one-third of audit clients are separating their audit process into separate parts, while 44 percent are considering doing so. In addition, 45 percent said the change would lead to more parts of the audit work going to technology providers.

“If you assume that some parts of the audit process will require more technology, and more technology know-how, than others, then, provided an auditor retains control of some part of the process, it would be logical to turn to technology specialists,” said Source Global Research director Fiona Czerniawska in a statement. “In short, it’s clear that breaking the audit process down will significantly change the rules of engagement for traditional audit firms. This simple change creates opportunities for non-audit firms to become involved.”

Technologies such as data analytics and artificial intelligence are increasingly being used by auditing firms to automate the process of examining huge volumes of financial transactions at their clients. However, the increasing automation of the audit process is also opening up opportunities for technology companies to play a bigger role in the audit process, prompting some companies to split the work between technology companies and the auditing firms that ultimately have to issue an opinion on the financial statements.

The report found the two primary technology companies in the eyes of audit clients are IBM (40 percent) and Accenture (18 percent), when executives were asked which technology services or software company they would be most likely to turn to for help in automating parts of the audit. After them came Capgemini (10 percent), Oracle (9 percent), SAP (9 percent), Infosys (4 percent), Tata Consultancy Services (4 percent) and Wipro (1 percent).

IBM’s AI technology, Watson, is being used by many companies for data analytics. IBM’s strong showing on the survey was boosted by U.S. clients, who were significantly more positive than those in the U.K., where IBM’s lead over Accenture narrowed from 29 percentage points to 8 percentage points. Large organizations in both countries tend to choose a wider range of firms, again narrowing IBM’s lead.

At the same time, just over half (52 percent) of clients identified Deloitte as the audit firm best positioned to deliver the technology components of an audit, followed by KPMG (22 percent) and then Ernst & Young (18 percent) and PwC (8 percent).

For the report, London-based Source Global Research surveyed 150 CEOs, CFOs and senior finance executives, 100 of whom were based in the U.S., and the other 50 in the U.K. Forty-nine percent of the organizations employed more than 5,000 staff, 58 percent were audited by the Big Four, and 39 percent had worked with the same auditor for more than five years.

The report found that nearly two-thirds (64 percent) of audit clients expect their reliance on outside help to increase over the next decade. A little over a third (36 percent) of clients said this was because they would need to access more specialized skills. Nearly a quarter of them (23 percent) said it was because they would need more access to innovative new tools.

That finding was reinforced by interviews Source conducted with audit clients. One finance director recently told the researchers, “We’re looking to our auditors to give us tools that will help us carry out our own analysis.”

The report predicts that traditional audit firms will find themselves competing more with tech providers. “Technology companies that might never have considered entering this market will be paying a lot of attention to the significant changes that our research has revealed are taking place right now in the audit market,” said Czerniawska. “When we consider the potential size of the new market that could be carved out of the existing one, it’s clear that this will be a huge opportunity for new entrants.”