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Digital technology lighting the way through dismal accounting ethics tunnels

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SA should look to harnessing digital technology to improve transparency and underpin ethical practices in accounting and auditing. By Christiaan Steyn, CaseWare Africa

2018 proved to be another year laden with ethics-related challenges emerging across both state-owned enterprises and private sector organisations. These issues raised concerns about the state of ethics and professionalism in our sector, but also served to illustrate that the time has come for organisations to embed new technologies, standards and models into processes to underpin transparency and ethical practices. Fortunately, there is light at the end of the gloomy ethics tunnel, with the emergence of new standards and multiple advanced digital accounting and auditing solutions to support ethical practices.

So what’s to be done?

IAASB Framework for Audit Quality International Standard on Quality Control 1 (ISQC 1) and International Standard on Auditing 220 (ISA 220) are welcome measures for the auditing sector to address challenges facing the profession. These standards, facing their first refresh in around a decade, will go a long way to addressing accounting issues in a vastly changed environment. In addition, updates to SAICA’s own Code of Professional Conduct in line with the IESBA Code, also add impetus to efforts to ensure professionalism, accountability and ethics in the sector.

Cooling down the debate on ethics lapses

The reasons for lapses in ethical behaviour have been hotly debated. They may have arisen due to an increasingly flexible understanding of what constitutes ethics, professionalism and quality. But they may also have occurred because of the sheer volumes of data and transactions now requiring monitoring and processing.  Another contributing factor is the pressure on businesses to perform in a declining economy; and also to adapt to a fast-changing technological, political and socio-economic environment. Many local accounting and audit firms still rest heavily on manual and spreadsheet based solutions. As pressure increases to generate more revenue, and as the amount of data and number of transactions in question increase exponentially, it becomes increasingly difficult for senior personnel to interrogate every ledger and every transaction. This opens the door to fraud and simple, old-fashioned human error. Automation uses the information already being generated by the company’s ERP and other systems to perform an audit, reduces repetitive and time-consuming manual tasks, supports integrated reporting as recommended by the various King Reports, and ensures greater integrity of the data. This data can then be used to analyse patterns in near real time to identify suspicious activity, predict risk and ensure compliance.

Fresh new approach due to Analytics

Traditional methods of assessing a small sample of transactions are not effective when dealing with millions of transactions a day. However, with advanced analytics, auditors can not only interrogate all the transactions, but they can also spot anomalies and suspicious behaviour – for example, a single account manager regularly processing a particular’s client’s transactions on weekends, and always just under the authorisation limit. Real-time analysis could also be applied to the activities and holdings of directors, to highlight conflicts of interest or worrisome expenditure. Predictive analytics can add impact to the analytics arsenal, by helping organisations identify and predict emerging risks and opportunities.

Real-time auditing

Digitally-enabled real-time auditing is another advance likely to emerge to overcome the challenge of fraud that escalates throughout a financial year and is only discovered at year-end. By implementing real-time audit tools, auditing becomes a continuous process and auditors gain the ability to spot suspicious transactions or activities virtually as they happen.

Are you compliant?

Digital reporting tools also support compliance with new accounting standards such as IFRS 9, IFRS 15 and IFRS 16, which bring with them significant changes in reporting, which demands extensive preparation that could potentially divert focus from risk and fraud taking place. By embracing new standards designed to improve transparency and ethical behaviour, and by harnessing automation, analytics and other digital advances that take error- and fraud-prone processes out of the equation, the accounting sector is positioned to build ethical practices into the heart of all processes.
Brief Bio:
Christiaan Steyn, Assurance Product Manager, CaseWare Africa, a division of Adapt IT. Christiaan is an Associate General Accountant (SA), with extensive technical knowledge and a passion for technology.  He completed his articles at a medium sized auditing firm where he gained experience in various industries.  He was later appointed Template Developer and then moved to the role of Product Manager at CQS Holdings – which was subsequently acquired by Adapt IT and renamed to CaseWare Africa.