Here’s what we’ve learned and what you should consider.
During my previous career at Deloitte Luxembourg as a junior auditor I spent (wasted!) around 40% of my time making physical copies of the client information we needed to audit — on site. This was summer 2009. Eleven years later, in the midst of a global pandemic I’ve just participated in and carried out a limited statutory audit with EY Switzerland — without a single physical document exchanged. At the start of my career this was something I could only have dreamed of even though the first steps towards digitization were already being taken, just not at anywhere near this scale.
It takes two to tango (and audit)
To carry out an audit completely digitally, both parties need technological readiness and trust in the technology that supports the process. While in 2009 I witnessed us as an auditor (Deloitte Luxembourg) moving towards more digital solutions and processes the core problem was that our clients, regardless of their size, were still functioning 100% on paper. And with good paper filing and organization, back then this process was something we were used to and would even have described as fairly efficient. But not so much now.
On the startup side
Today, as a startup, we made the decision to create most of our documents digitally first.
- All the documents we generate are digital (payslips, invoices, etc)
- Most documents we receive are digital, which we also save digitally rather than print
- Any important documents we receive on paper we scan and also save digitally (tax bills, important invoices, etc)
On the auditor side
You can only do a digital audit if your auditor is digitally capable as well. Their audit procedures have to allow for everything digital, which also means accepting scans and PDFs.
In the past , 90% of an auditor’s job was to go through paperwork. You’d set an audit period and the client would give you access to their paperwork so you, in person and on their premises, had access to all the information you’d need to do carry out the audit, making physical copies or scans of the relevant documents.
But today, to make the process digital, the auditor has to accept the information digitally, which implies they have complete trust in that digital information and in the technologies and platforms that enable it. Historically, there’s been more trust towards paper documents which were thought to be harder to cheat. But I believe cheating is a mentality — you can also cheat with paper after all!
To counter this, today we’re seeing more and more applications allowing a digital stamp — a digital ‘confirmation of validity’ — to be added to digital documents, increasing the trust in their legitimacy.
Half/Half can’t work
The worst case scenario — and likely the biggest disaster — comes when a company has a mix of digital and physical documents. This can create headaches and overheads to align all these documents in one format and place, making the entire audit much more laborious for everyone involved.
How do we assess ourselves?
We still have a mix of both. We receive and keep some invoices and administrative documents on paper, which we then scan as well as file, because from a legal standpoint we need to have paper evidence. From a system point of view, this puts us somewhere in the middle of the digital and analog worlds.
While it’s becoming increasingly possible for us to do everything digitally, we have to wait for the government to let that happen. Having said that, Switzerland (where we’re based) does ensure businesses can handle a lot of their administrative processes digitally — just not all. For us, this means we still keep a lot of paper documents as these are still the most trusted kind, a viewpoint we’ve been conditioned to believe for decades and decades!
But with the move towards digitization gaining more momentum comes proof that people and governments can slowly unlearn their default beliefs and collectively put more faith and trust in digitization.
Handling an audit remotely during Coronavirus
We’ve embarked on our remote auditing journey at a time of global lockdown thanks to coronavirus. Thankfully, the power of technology allows us to do everything we need very smoothly. We’ve used an extremely helpful external communication platform to relay documents with our external auditor — a platform where we document everything, and everything is tagged and categorised and discussed with the necessary stakeholder. As we had digitized versions of all the documents our auditor needed, we could carry on without delay.
The way it works is that per category, you invite the necessary stakeholder and you have a chat specifically for that.
In those times (COVID) — having the majority of our documents digitised means, we were able to handle this remotely — luckily all the documents they needed, we had digitally.
The digital audit checklist
- Be organized with your paperwork, whether it’s digital or analog. If you don’t have your documents organized and named correctly you could spend days looking for the right information. Digital or analog , a mess is still a mess!
- Rethink the processes that are analog in your company — can they be digitized?
- Have an defined communication channel with your auditors, complete with specific audit categories — this organizes information and targets the right questions to the right people.
- Voice communication over kickoff meetings and closing meeting.
- Make the signing process digital. Switzerland has impressive digital procedures to check the validity of your digitally signed documents. (https://www.e-service.admin.ch/validator/upload;jsessionid=8af85b602b26d6f6f34394a0f0bd?0-1.ILinkListener-languages-3-languageLink). Other resources for e-signatures include DocuSign, AdobeSign, SignNow — or having the auditor certify their signature with local authorities.
- As an auditor, prepare your questions well and give companies the time to prepare everything digitally for you too.
- If you’re a startup you ideally want your board of directors sold on the digital process as well. Our board has agreed that we can always sign digitally with our trusted providers — because ultimately we have trust in the technology.
Things you don’t get with a digital audit
A fully remote digital audit is undoubtedly a big leap in progress and removes many of the limitations that comes from audits carried out in person. But of course nothing’s perfect and there are still some things you don’t get when going digital.
As an auditor, it’s important to get a feeling for the company you’re working with — for its spirit and how healthy it appears — which you’d typically get just by spending time there during your audit. This is impossible during a remote, chat-based audit. In our case, we were lucky due to the longstanding relationship we’ve nurtured with EY Switzerland over the past four years — we may have been working together digitally and remotely for the first time, but neither of us was stepping into the dark.
Looking to the future
Today we’re standing somewhere in the middle of the road that will lead to fully digitized auditing. We firmly believe that the future of audit lies in the realm of blockchain with auditor firms like EY announcing their support for and investment into this audit technology. This would drastically simplify the process.
If all of a company’s transactions are on blockchain and the blockchain is certified, the audit is already done! The only thing you can’t do is manage the people processes. As long as people are involved in a company’s strategy and processes, they’ll need auditing too.
So, what have we learned about digital auditing?
- The auditor and client can be at home and still handle the audit from beginning to end.
- You don’t need a printer.
- You don’t need to exchange any physical documents at all, from the initial audit to the signed report.
All in all, it’s been quite an experience. And 11 years later after my auditor career started I’m amazed that we’re now able to carry out a 100% digital audit — from communication exchange to the signing of documents and the receiving of the audit opinion in a fully digital format. Everything we do as a business may well feel hard at the moment, but this also a time of opportunity and great progress.
Co-Written by Bara Caldova and Vincent Pedrini
