Perspective Chapter: Audit Digitalization – Key Impacts on the Audit Profession

Abstract

The rate of technological advancement has influenced existing digitalization programmes of audit processes. The adoption and use of emerging technologies in audit digitalization programmes present numerous opportunities for innovation and improvement. These opportunities come with many threats to the current ways of working, which impacts the audit profession, audit process, and auditor. This study is based on two qualitative data sets to identify the impact of digitalization on the audit industry and audit profession, specifically big data analytics, blockchain technology and artificial intelligence. Existing literature was used to identify areas where the biggest impacts were experienced. Based on the themes identified, semi-structured interviews were conducted in the financial services sector in South Africa to gain insights from industry lived experiences. The interviews focused on the impacts experienced and the realized and potential benefits. Data collected was synthesized to address the research questions of how the adoption of emerging technology will impact the audit industry and shape the audit process, audit profession, the role of an auditor, and aims to define the auditor of the future.

1. Introduction

In a world where every facet can be digitally enabled through emerging technologies, enterprises in all industries will need to adapt to keeping pace and prosper or will ultimately risk unplanned obsoletion [1]. Advances in emerging technologies have the potential to impact and disrupt the audit industry, most notably in big data analytics [2, 3, 4, 5], artificial intelligence (AI) [6, 7] and blockchain technology [3, 8, 9]. Audit firms cannot simply be familiar with emerging technologies any longer [10], as these principles and concepts have the potential to integrate with their existing processes and skills or replace them [11, 12]. As manual labor was replaced by machines during the industrial revolution [13, 14], from big data [15, 16], audit procedures can be codified in machine learning (ML) algorithms [3, 17], and ultimately the use of AI for cognitive tasks [7, 18], such as audit opinions and judgments. The introduction and use of blockchain technologies in financial services, specifically accounting, has led to the rise of triple-entry accounting that would negate the need for transaction level auditing [19, 20].

These technological advances can be regarded as disruptors to the audit industry, or they can be harnessed by audit firms and used as opportunities [7]. Opportunities that can change the audit industry, the audit profession, and the role of the auditor [3] to better assure stakeholders while increasing profitability and maintaining or creating a competitive advantage in the marketplace [21]. Therefore, the purpose of this study is to identify the impacts of digitalization on the audit industry and was guided by the research question “What is the impact of digitalization on the audit industry considering the new advances in technology, specifically focusing on big data analytics, AI, and blockchain technology?” The impacts identified were themed and tested in the South African financial services industry to uncover how these impacts have materialized in the market. Furthermore, to gain insights on the lived experiences of the changes to the audit process, audit profession and the skills required by auditors. Organizations can use the results of this study to plan and prioritize their digitalization strategies and programmes and obtain a view of the skills required by auditors in a digitalized audit environment.

The rest of the chapter is structured as follows: Section 2 describes the background to the study and the research methodology is presented in Section 3. Section 4 describes the data analysis and findings and Section 5 the contribution. Section 6 concludes the chapter.

2. Background

The initial studies that focused on the impact of technology, specifically automated auditing, were completed by Vasarhelyi [22] over 35 years ago. Although this was a theoretical paper focusing on future impacts of audit automation, it did conclude on three anticipated impacts that have materialized today. These are the physical location of the auditor, audit timing, and the audit’s dependence on technology [22]. More recent studies have indicated that audit automation leads to significant reductions in time and productivity gains [2, 23]. The key drivers for audit automation were identified as the ongoing changes in the regulatory landscape [24, 25] and the increased complexities in the financial system and financial products [23]. In addition, further studies have revealed that audit automation will impact the entire audit industry and that the impacts are not limited to internal or external audits or any specific type of review [23]. Since these pioneer studies, there have been dramatic advancements in technology enabling adoption and changes in all industries, including audit. The adoption of these technologies has impacted the audit industry [3]. Different ways of working were required in the audit industry to leverage the benefits posed by digitalizing old audit processes [3].

2.1 Audit and the audit process

According to the ISO 19011:2018 standards, an audit can be defined as a “systematic, independent and documented process for obtaining audit evidence (records, statements of fact or other information which are relevant and verifiable) and evaluating it objectively to determine the extent to which the audit criteria (a set of policies, procedures or requirements) are fulfilled”. An audit involves an independent evaluation of information with a view to express an opinion on whether the information being represented is reliable, understandable, and relevant [26]. There are many types of audits, mainly financial audits, operational audits, statutory audits, or compliance audits. Audits are generally carried out by either internal audit or external audit teams [27]. The standard audit process can be followed for all audit types and consists of three main steps, namely: audit planning, audit execution and audit reporting. The audit follow-up process takes place after remediation of issues and exceptions noted have been remediated by the audit client. This assures that the risks identified during the audit have been addressed [26].

Internal audit has a broad scope related to the stringent control over all company business practices and risks, including assurance of the authenticity of financial records and the efficiency of the operations [28]. An external auditor is responsible for providing an independent opinion on an organization’s annual financial statements. Therefore, providing reasonable assurance that the published financials are a true representation of the financial position reported [29, 30]. Any misstatements in the financial statements identified or breaks identified in the control environment that might lead to a material misstatement of the financial statements are reported to the shareholders and the public [31].

2.2 The application of technology in auditing

Digitalization of audit processes started as continuous auditing [2, 32], audit automation [2, 3, 23] or computer-assisted audit techniques [33, 34, 35] with tools or toolsets. These studies highlighted the following advantages and benefits of adopting these techniques as faster execution times, wide scope coverage, consistent execution of audit tests, full population testing rather than sample testing [2, 33, 34, 36]. The above studies were completed in industries, including telecommunications, mining, and the financial sector, specifically banking [2].

Research completed specifically focusing on the impact of audit automation of accounting practices and financial auditing indicated significant productivity gains and a reduction in labor cost [37]. The automation of repetitive tasks has made teams more efficient, allowing them to focus on the outcomes rather than the execution itself [2, 37]. There was a significant spike in the repetitive nature and the need for these tests with introducing the Sarbanes-Oxley Act of 2002 (SOX) [38]. It increased the defined scope of internal audit functions and the responsibility and accountability of external audit firms leading to staff and skills shortages in the market and increased audit costs [39]. Introducing SOX regulation served as a catalyst for organizations to adopt automated audit techniques [40]. In recent years, the continued introduction of new acts focusing on specific topical areas such as data protection, information security, open banking services and payment security added pressure on organizations to comply and audit functions, both internal and external, to assure compliance statuses to the relevant regulatory bodies.

2.3 Emerging technologies and audit

Many emerging technologies have revolutionized industries. As this study is focused on the impact of digitalization on auditing, the study was limited to key technologies that have impacted the general automation of processes and digitalization of processes. The most notable emerging technologies considered are big data, AI and blockchain technology. Due to massive advances in storage technology, costs have tumbled, and in line with increased computing power, the amount of data generated has seen an exponential rise [3]. The term big data refers to datasets that are too large to manage and process with standard tools. In many cases, the data is from multiple sources, in differing formats and fulfills different objectives; therefore, it is not generally stored in a structured/controlled way [41].

The four-V paradigm is used to describe big data, and these are volume, velocity variety and value [41]. Of the four metrics, the most pertinent is value, and the biggest concern, finding value in these large datasets and not wasting resources and time is important [3, 41]. Big data analytics is the utilization of techniques and technologies to gain insight into these large, unstructured data sets. Audit traditionally will focus on financial data, which is well-formed and more easily understood and interrogated; this can make analytics on big data potentially counter-intuitive for the audit industry [42]. The techniques and technologies, however, can be applied to the more structured financial data, and testing of all data is possible rather than the more routine sample data approach [3, 42]. Links between financial data and external non-financial sources from a big data source can be found; potential sentiment analysis might be an option [42]. Linking what is said on social media with an increase in transactions or trying to determine a value of reputational risk following a negative article being published are options that did not exist before [43]. The risk lies in not understanding these large unstructured datasets. An auditor must make sure that they understand the content and value of the dataset [3]. Another risk lies in trying to link disparate datasets (structured and unstructured) in a simple and reproducible way. Domain knowledge will have increased importance, and the skillset of the auditor will need to include several technologies in the future [3].

AI denotes that a computer can be utilized to accomplish more complicated tasks that require a human operator and skill set [44]. AI, and ML, a branch of AI, is used for the automation of tasks that require decision making rather than a linear progression that was the focus of the industrial revolution [18]. Most AI solutions are focused on language recognition, logical problem solving through iterations and visual pattern recognition [45]. For auditing purposes, the most common use for AI is for the identification of irregularities in accounting data [3, 18, 45]. As financial markets and products become more complicated, so does the process for identifying fraud and financial crime; this can be achieved with ML. It is noted that some companies are using AI for data collection and validation during the audit execution phase [45]. While the use cases of AI are still being identified, the full utility of AI in auditing is not codified. The World Economic Forum, however, predicts that 30% of audits will be completed with AI by the year 2025 [46].

A blockchain is a decentralized database that chronologically stores information about transactions of any kind [47]. As it is decentralized, a public blockchain does not have the weakness of a normal database that it can be modified or, without proper disaster recovery, data can be lost. Every member that has access to the network has an identical copy of the database, and every new transaction is validated by each member of the network [47, 48, 49]. As it is available to all parties on the network, there is an exponential increase in transparency, and this itself helps illuminate or prevent financial misdeeds.

A potential use for a public blockchain has been floated as a new way to transact and eliminate the current system where a financial institution (most commonly a bank) is the central authority in verifying and overseeing financial transactions [49]. Since auditors validate the accuracy of financial transactions and financial reporting, their role in this system would be greatly reduced [3]. It is highly doubtful that all enterprises will prescribe using a public blockchain and will prefer the security and safety of having a private blockchain, then allowing for the skills required, auditors will still be needed to validate the accuracy of the transactions [3, 49]. The regulations are currently unclear regarding regulating and the use of blockchain technology in financial systems. Hence, full-scale adoption has not occurred, and risks and benefits of using blockchain in auditing have yet to be discovered [48, 49].

3. Research methodology

The research philosophy used to identify the impacts of emerging technology on the audit process, audit profession, and the role of an auditor is interpretive in nature [50]. The researcher aims to understand, analyze, and interpret the participants’ everyday experiences in specific situations [51]. A qualitative approach was followed, which was based on two qualitative datasets. This allowed the researcher to gain a rich understanding of how impacts on audit were experienced by participants and how these experiences changed over time to support the chosen research philosophy [50]. Data collection for this study was done with a structured literature review (SLR) and semi-structured interviews. An SLR is a process whereby literature is identified and selected based on predefined search criteria designed to address specific topics. It is a comprehensive and transparent search that can be replicated to provide a balanced and impartial view of existing literature coverage based on the search criteria [51]. The SLR was used to identify the impacts of digitalization on auditing from existing academic literature. This is a “comprehensive pre-planned strategy” to identify and review existing literature concluding on what is known and not known in a specific field or covering a specific topic [51]. Thematic analysis was used to identify themes from the outcome of the SLR. These themed impacts identified were used as focus areas, which were further synthesized into detailed questions during the formulation of the interview guide. The semi-structured interview guide was used during the semi-structured interviews for the collection of the second qualitative dataset used for this study.

Google Scholar was used for the identification of academic literature for this study. The search included “audit AND blockchain”, “audit AND artificial intelligence”, and “audit AND big data” as keywords. The search was refined by limiting the search to return only articles where keywords appeared in the title, which reduced the search results to 403 matches (145, 83 and 175, respectively) that were selected to be read first. After an initial investigation, the search was further refined to exclude citations and limit considered literature to English articles, excluding popular press and non-peer-reviewed publications. The total number of matches was 242 (80, 54 and 108 respectively). A screening was completed of the 242 articles, after which 107 studies were identified as eligible for this research. An abstract review was completed on the 107 articles. Preference was given to papers that focused on the impact of digitalization on auditing after or during the implementation and use of these technological capabilities, specifically blockchain, AI and big data analysis. Of the 107 eligible articles, 52 were selected and included in the full article review. The papers were analyzed, impacts identified and themes were created by grouping related impacts. Appendix A depicts and extract of the detailed analysis dataset.

The themes identified as an output of the SLR, were then considered and included in the interview guide created for the semi-structured interviews. Each of the themes was supported by 2-4 questions. Questions were derived from the detailed impact identification from the SLR. Semi-structured interviews were conducted to obtain the second qualitative dataset to assess if and how the themes identified in the SLR have materialized in the South African context. The interview guide consisted of three sections, the respondent’s professional and demographic information, followed by baseline questions, with the last section focusing on the themed impacts of digitalization on auditing as identified in the SLR. The interview guide was used for each interview, and all themes identified were covered with each participant. Flexibility was allowed in the conversation to identify the lived experiences of participants [51].

Purposive sampling was used for the participation selection. Purposive sampling allows the researcher to apply judgment when selecting participants for a study [51]. All participants that participated in this study were selected based on their industry sector, job level, specialty, and experience. Only candidates that work in the financial services sector in South Africa, with a job level of Executive or Senior Management, working in either Internal Audit, External Audit or Risk Management with at least 10-years’ experience, were eligible for this study. Prospective participants were screened based on the information available on LinkedIn. Each prospective participant was contacted with a telephone call to confirm the accuracy of the information obtained. After a prospective participant was confirmed to be eligible for the study, the purpose of the research was shared, and the prospective participants had the opportunity to inform the researcher if they would like to participate in the study. Participants that took part in the study were contacted via email, and interviews were scheduled. A total of 12 interviews were conducted [52]. Informed consent was obtained and all interviews were voice recorded and transcribed. Amidst the COVID-19 pandemic, interviews were conducted via collaboration software, Microsoft Teams.

4. Data analysis and findings

Fifty-two papers were identified as relevant for this study. Each paper was reviewed to identify the impacts that the adoption of emerging technologies might have on the audit process. In papers where the impact was not specifically stated but the benefits of adopting emerging technologies, a thematic analysis was performed to identify the changes required within the audit process and profession.

Table 1 shows the frequency count of impacts identified from the SLR (detailed analysis extract in Appendix A). Note that in most cases, more than one theme was identified in an article due to the relationships that exist between elements in each theme.

Table 2 shows a summary of participants’ professional and demographic information referring to each participant number. The participant number serves as a reference point and is used in the next section as part of the interview analysis.

A detailed analysis of the transcribed interviews are presented in the next section.

4.1 Audit process

All participants indicated that the automation of the audit execution step had had a significant impact on their teams, with the main benefits as less time required from auditors for mundane, repetitive tasks during the audit execution phase. Time is spent on exception investigation, opinion-forming and audit judgment. This has improved the overall quality of audit deliverables and client relationships. Typical audits consist of three main phases: audit planning, audit execution or testing phase, and the audit reporting phase. Audit opinions and judgments are formed during the reporting phase based on the outcome of the testing performed during the execution phase [27].

Participant 7 described his experience as:

“This is where we have experienced the biggest impact on our traditional audit testing approach whilst on the audit automation journey. The biggest impact which has led to the biggest benefits. The relieve of specialist auditors to perform mundane tasks and allow them more time for analysis of the output produced to form audit opinions.”

There was a consensus from all participants that automation of the audit execution phase is where they have experienced the biggest benefit through time saving and the speed of execution. Participant 8 highlighted a unique issue that emerged in their organization as they progressed on their digitalization journey in that auditors would require guidance on how to spend the time saved by automated audit procedures to best serve the end-to-end audit process. Table 3 provides a summarized breakdown of responses received per participant.

Themes	Description	Frequency Count	%
Audit Process	Change required or impact expected in the end-to-end audit process, specifically annual planning, audit planning, audit execution (manual versus automated) and audit reporting. Literature echoed the increased frequency of audits, reduced audit execution times and ultimately better assurance as to the main outcomes and benefits in this category.	51/52	98%
Auditor’s Professional Profile	The adoption of emerging technologies requires audit teams to ensure their skills remain relevant. Skills to implement automated procedures to utilize these new technologies and techniques and skills to interpret the output of automated audit procedures. This was specifically evident in literature covering big data analysis (BDA), which contributes 45% of the frequency count. Literature indicates that a shift is required from the traditional audit skills to a multi- or cross-skilled individual to allow audit teams to embrace and benefit from the adoption of disruptive technologies.	33/52	63%
Audit User Perceptions	The readers of financial accounts and audit reports are the customers of the audit profession. These include the shareholders, stakeholders, and regulators (not an exhaustive list). With the move to automation, these customers will have to rely on and trust the outcome of automated procedures and automated reports. This trust relationship between customer and auditor, specifically the trust of judgments by auditors on automated procedures, will be impacted.	22/52	42%
Auditor-Client Relationship	Audit clients are the individuals or teams being audited or auditees. The shorter execution times and the potential to increase the audit frequency will impact the current audit costing models in use.	11/52	21%

Table 1.

Themed impacts identified.

Participant number	Job level	Function	Specialty	Internal /external audit	Years’ experience
Participant 1	Senior Management	Audit	IT Audit	Internal Audit	16 or more
Participant 2	Executive	Audit	Financial Audit	Internal Audit	16 or more
Participant 3	Senior Management	Audit	Financial Audit	Internal Audit	16 or more
Participant 4	Executive	Audit	Financial Audit	Internal Audit	16 or more
Participant 5	Senior Management	Group Risk	Risk Management	N/A	16 or more
Participant 6	Executive	Audit	IT Audit	External Audit	16 or more
Participant 7	Senior Management	Audit	IT Audit	Internal Audit	16 or more
Participant 8	Senior Management	Audit	IT Audit	External Audit	9–12
Participant 9	Executive	Audit	Financial Audit	Internal Audit	13–15
Participant 10	Executive	Audit	Financial Audit	External Audit	16 or more
Participant 11	Senior Management	Audit	IT Audit	External Audit	9–12
Participant 12	Executive	Group Risk	Risk Management	N/A	20 or more

Table 2.

Participant summary table.

Audit execution automation—common themes per respondent	Response count
Automating of the audit execution phase leads to significant time saving and shorter lead times between audits.	12
Allow auditors to spend more time on exception investigation, root cause analysis, opinion-forming, judgment and client engagement.	12
The results experienced are richer, better quality audit reports and improved client relationships.	7

Table 3.

Audit execution automation—Summary.

All 12 participants indicated that automating the audit execution phase resulted in the biggest impact with the most benefits. This allows auditors more time to apply their audit skills on opinion-forming and judgment. Seven participants indicated an enhanced overall assurance service to the clients.

The interviewees also reflected on the anticipated or lived changes of the auditor’s role in the audit team and the organization, specifically focusing on the role of the auditor potentially shifting from classic auditing to a consulting role. The feedback from participants was not consistent for this question. The inconsistencies noted were mainly due to the different definitions of what a consultant is and the different interpretations of a consultant’s role. However, there was a consistent element in all responses from all participants in that the role of the traditional auditor will not be replaced as the need for opinion-forming and judgment will remain a human action.

Participant 1 indicated that the time saved during audit execution might be applied in a consultant capacity. However, this remains a gray area due to the need for auditors to remain independent and objective. These consultant services provided might lead to “[…] auditors marking their own homework down the line […]” if they are involved in the design and operation of certain controls and required to provide assurance at a later stage. Table 4 provides a summarized breakdown of responses received per participant.

Auditor lived experience impact – common themes per respondent	Response count
The role of a classic auditor will remain due to the need for opinion-forming and judgment.	12
Performing consultant services might be possible but not advisable due to the need for the auditor to remain independent.	6

Table 4.

Auditor lived experience impact – Summary.

Diverse opinions were obtained for this question due to the participants’ perception and definition for a “consultant”; however, all participants indicated that the role of an auditor would remain due to the need for opinion-forming and judgment, and six highlighted the potential lack of independence should auditors be assuming the role of a consultant in an organization.

4.2 Auditor’s professional profile

Overall, all participants agreed that there would be a shift in the skillset required of the auditor. In summary, audit teams will consist of cross-skilled individuals that are tech-savvy to complement their existing audit skillset and understanding of risks and controls in the financial services market. All auditors would not need to be IT experts but should understand what capability emerging technologies provide and how these technologies can be used in the automation process.

The lived and anticipated changes were described by participants based on where they are on their individual digitalization journeys, with Participant 1 describing the anticipated changes as “[…] updated tech-savvy skillset and an inquisitive mind would define the auditor of the future oppose to the traditional box ticker or a cookie-cutter mindset.” Participant 9, which had the least exposure to automated auditing, shared her upskilling journey. She specifically highlighted the need to analyze large data sets, including trends analysis and pattern identification. These skills were obtained through completing online Udemy courses, specifically focusing on data analytics. She emphasized the need for all new auditors joining their firm “[…] to have a basic understanding of data analytics and data visualization.”

Participants that have made the most progress on their respective audit digitalization journey are provided insight into their current recruitment practices. Such as Participant 4, who responded:

“Being in a digital organization, the auditors we have recruited over the last two years all have an IT background or moderate to strong IT knowledge and understanding of the capabilities and use of emerging technologies.”

Follow-up questions revealed that the ask is not for all new hires to be IT specialists, but a moderate understanding, use and applying emerging technologies (specifically data analytics) in the audit process have become a standard requirement. These skills were described in the context of auditors still having their specialized audit knowledge and experience. Table 5 provides a summarized breakdown of responses received per participant.

Skillset required of the auditor—common themes per respondent	Response count
The auditor of the future will need to understand technology, specifically, how the technology can be used in the audit process.	12
Data analytics will be a required skill for all auditors irrespective of their field of specialty in an audit.	10
All auditors need not be IT specialists and understand the underlying technologies, just the use thereof.	6
Existing recruiting processes require auditors to have data analytical skills, and strong IT background is a plus.	6

Table 5.

Skillset required of the auditor—summary.

All participants expect a shift in the skillset required of an auditor with 10 participants highlighting the need for data analytical skills as a key requirement. Although the participants were asked their expectations for the future, six participants indicated that data analytics is already a required skill for all new joiners in their respective audit teams. In terms of adoption of emerging technologies, most participants are expecting an impact on the balance within audit teams with the ongoing adoption of emerging technologies. Eight participants expect the balance in audit teams to shift leaning towards more IT auditors than financial auditors. However, follow-up questions led to diverse views from some participants.

Participant 1 does not expect a change in the balance in audit teams, as the skills required from both financial auditors and IT auditors will remain. He describes the expected change as “[…] the forming of more rounded auditors with a balanced skillset between auditing and IT skills.” He highlighted that in his view, “[…] auditors with stronger business acumen to provide correct contextual judgements based on automated audit activities […]” will be required. The increase of data points consumed by automated auditing will provide “[…] much greater insights to the control estates and the risks to the business,” which will require auditors with institutional knowledge of the organization to understand and correctly interpret the outputs for opinion-forming and judgments.

Participant 8 agreed with the views of Participant 1 that the existing members of audit teams will need to upskill and obtain a more balanced skill set and that the need for the original team compositions will remain. He, however, describes the required shift in team composition as:

“[…] current audit teams are made up of financial auditors and IT auditors, where the latter is focused on the auditing of IT. The need for these skills will remain and should be supplemented/supported by data analytical skills. The introduction of a new capability is required, audit with IT. This is a team that focuses on digitalization and automation of audit procedures.”

This is a team of emerging technology specialists focused on “[…] codifying existing audit procedures and institutional knowledge […]” and driving the digitalization journey. He describes this as the key contributor to all the progress they have made to date. Therefore, the team balance in his organization has seen a dramatic shift with the restructure. Table 6 provides a summarized breakdown of responses received per participant.

Auditor skills profile—common themes per respondent	Response count
The existing balance between financial auditors and IT auditors that make up audit teams will be impacted.	11
The team balance will be impacted as the need for IT auditors will increase.	8
The team balance will not be impacted as both skillsets are required; the continued adoption of emerging technologies will lead to cross-skilled individuals. No shifts expected in the team.	1
The need for IT auditors will reduce as automated auditing will provide indirect assurance over ITGCs.	1
The current teams will remain, new specialized teams will be formed to drive automation.	1

Table 6.

Auditor skills profile—summary.

The collective response from other participants highlights the increased need for data analytics skills in the teams to support their respective initiatives. Adding these specialized skills will impact the team balances leaning towards the IT auditor being more dominant in the composition of the audit team.

The consensus among participants is that the professional profile of the audit profession will be more attractive for young professionals. The audit profession will become “[…] funky and sexy […]” as described by Participant 2 and “[…] glamorous and exciting […]” as described by Participant 9. All participants agreed that the impact would be positive and that the audit profession would be more attractive for young professionals. Participants 8 and 12 believed the profile has started to change and will continue to change as the adoption of emerging technologies in auditing matures in South Africa.

The discussions that flowed from this question varied between participants. The researcher allowed for the flexibility to gain insights covering topics, such as what the updated auditor profile will mean for the audit profession, the type of individual that the profession will attract, and the additional skills these potential new auditors will require.

Participant 2 suggested that the title of the auditor will change to better reflect the changing audit environment. He explains that “[…] the title auditor suggests that you, as the person, is the process, and you go in and audit by looking at transactions or working through files […]” however, this will not be the case. The role of an auditor will be to focus on the output provided by an automated procedure or work through exceptions noted. Therefore, as the expectation of an auditor will change to focus on “[…] root cause identification, risk assessment, reporting, client engagements […],” the title of the profession should change. He suggested a “[…] Strategic Assurance Analyst […]” would be a better fit which will lead to an improved and more attractive profile in the job market.

Participants 6, 9, 10 and 11 all noted their concerns around the slow rate of change in university auditing degrees and diplomas to include more comprehensive coverage of technology principles and emerging technologies in current curriculums. Exposure to and using data analytics in the audit process was raised by all four participants as a shortcoming they have noted in newly graduated professionals. Participants 6 and 9 indicated that organizational training paths had been defined, focusing on data analytics short courses, for the upskilling of new graduates joining their organizations. Table 7 provides a summarized breakdown of responses received per participant.

Auditor’s professional profile—common themes per respondent	Response count
The adoption of emerging technology will have a positive impact on the professional profile of audit in the job market.	12
Concerns raised that the rate of change to current curriculums of university degrees and diplomas are not keeping up with the rate of change in the IT environment and the rate of adoption of emerging technologies in the audit industry.	4
The skillset of newly graduated audit professionals does not meet the requirements demanded by organizations.	2
The job title of the auditor is not appropriate for the function served by the auditor of the future. The robot auditor will perform the audit; the human will interpret the output; therefore, the suggested future title is Strategic Assurance Analyst.	1

Table 7.

Auditor’s professional profile—summary.

All participants agreed that the adoption of emerging technologies would make the professional profile of an auditor more attractive in the job market. The field of auditing will require individuals skilled in technology principles, a general understanding of emerging technologies and using data analytics. This raised the question of whether the current curriculums at the university level have changed at the same pace with the changes experienced in the audit industry.

4.3 Audit user perceptions

All participants agree that audit users will trust automated audit procedures more than manual procedures; however, trust comes over time (all participants). Most participants indicated that the initial trust levels were low. Participants 2, 4 and 7 shared that the first audits supported by automated audit procedures took significantly longer than similar audits supported by manual audit procedures. This was due to the lack of trust in the automation capability within the audit team, the automated testing procedure itself, and, as noted by Participant 2, “[…] the lack of human interaction with the audit client made them feel left out of the process and not involved in the execution […].”

Participant 3 noted that “[…] population testing by means of automated auditing […]” rather than “[…] sample testing during manual audit procedures […]” eliminated sample risk. This was noted as one of the key contributors to increasing the trust levels in automated auditing and “[…] realization of value […]” by the audit clients. Like Participant 2, Participant 3 highlighted the need for client engagement as:

“There is still the need for an auditor to play the role of a trusted adviser to interpret results and maintain the auditor-client relationship. Maintaining the relationship is a key ingredient to build and maintain trust during these engagements.”

Participant 7 added that automated audit procedures remove the subjectivity from the audit procedure and audit bias during the audit procedure execution. The removal of the human element during audit execution improves the overall quality of the audit deliverable. This improved quality and value provided are the ingredients for building trust. Table 8 provides a summarized breakdown of responses received per participant.

Audit user perceptions – common themes per respondent	Count
All participants believe that more trust will be placed in automated audit procedures.	12
Most participants experienced low trust levels in automated audit procedures during the initial phases of their automated audit journeys.	9
Some participants indicated that the first iterations of automated audits took longer than the manual procedures.	3
Participants noted the importance of the human element in auditing, the client interaction and client engagements during the audit process.	3
Some participants indicated that the trust must not be placed in the tool or the technology used but rather in the application thereof.	3
Client inclusion and consultation are important during implementing automated audit procedures as this helps the initial building of trust in the automated audit process.	2
Reducing sample risk and auditor bias contribute to the trust in the automated audit process.	2

Table 8.

Audit user perceptions—summary.

All participants believe that more trust will be placed in automated audit procedures. At first, trust levels will be low, but as the audit department progress on their digitalization journeys, trust levels improve. It was noted that the inclusion of the audit client in the audit automation journey promote trust levels and assist audit teams in reaching a state of digital maturity quicker.

All participants indicated that the impact would be the ability to form better audit opinions and judgments. This was mainly supported by the “[…] move from sample testing to full population testing during audit execution […]” (all participants) also, “[…] the fact that more data points are consumed by automated audit procedures, specifically in case where principals of big data analytics are applied and used […]” (Participants 1, 4 and 8). Therefore, the coverage of multiple full population datasets provides the opportunity for the forming of better audit opinions and judgments.

Sample risk (Participant 3), subjectivity and auditor bias during audit execution (Participant 7), human error and oversight during manual testing (Participant 9) are all factors that affect the quality of the testing outcome, which audit judgments are based on. The removal of these factors improves the testing outcomes and better informs the audit opinion and judgment. This was best described by Participant 4 as:

“[…] the major change is how the opinion or judgement gets informed. In our current environment, most of the fieldwork in the audit process is a data-enabled body of evidence. Gone are the days to manually understand controls and sampling. The auditor needs to understand the digital process and step back and interpret the output and ask, “what does that mean?“ Therefore, audit judgement and opinion will be better-informed.”

Table 9 provides a summarized breakdown of responses received per participant.

Audit user perceptions of automation – common themes per respondent	Count
Audit automation using emerging technologies will lead to better audit opinions and judgments.	12
Rationale for better audit opinions and judgments: Audit opinions and judgments are formed on full populations of multiple datasets.	12
Rationale for better audit opinions and judgments: The removal of the human element during the execution phase of the audit. No human errors and oversight, elimination of sample risk, reducing of subjectivity and auditor bias.	4
Using automated audits allows auditors to spend more time on opinion-forming and judgment resulting in better quality audit reports and audit outcomes.	3

Table 9.

Audit user perceptions of automation—summary.

The adoption of emerging technologies supporting audit automation projects and programmes will enhance auditors’ ability to provide better, informed audit opinions and judgments. This is supported by the increased coverage of automated audit procedures. This is not limited to the automated audit procedure that can test the full population but also the fact that multiple datasets are included in the design of these tests. This allows for exception and theme identification that is not possible with sample testing. Furthermore, with using automated audit techniques, human errors and oversight during audit execution are removed, and sample risk, audit subjectivity and auditor bias.

4.4 Auditor-client relationship

In general, most participants agreed that continued adoption of emerging technologies in the digitalization of auditing would have an impact on the current pricing models but not necessarily the cost of the audit opinion and judgment.

Participant 11 started his response by highlighting the sensitivity around “[…] pricing of assurance services […]” and highlighted the “[…] legal liability that comes with audit opinions […].” He pointed out that the “[…] legal liability on both the auditor and audit firm […],” and the “[…] auditor responsibility towards the director, shareholders and stakeholders […]” remain unchanged. Therefore, the cost of the audit opinion or judgment should remain the same “[…] irrespective of the approach followed to conclude […].” He indicated that “[…] the current pricing requires a revamp as it based on hourly charge-out rates, which will not be as relevant going forward due to the reduction in audit execution time […].” Similar views were shared by Participants 4, 6, 8 and 9, with Participant 4 explaining:

“The cost will not change; the quality of the assurance will improve. This is evident with the automation we have already implemented move from sample to population testing. So, the quality of your view, opinion and judgement is exponentially better. Therefore, for the same price, a client will get a much better quality of audit.”

Participant 2 shared similar views and agreed that the current pricing models should be adjusted to consider the quality of assurance. However, he suggested that a hybrid model should be considered. He suggested that audit departments should “[…] start with calculating the cost of automation of a single audit test. This should be extrapolated across all data-driven audit procedures that can be automated to get a view of the total future investment. This should consider all costs such as research and development, licencing cost, procedure maintenance, staff upskilling […].” These are the elements that should make up the calculation for the cost of quality. Table 10 provides a summarized breakdown of responses received per participant.

Auditor-client relationship – common themes per respondent	Count
Most participants indicated that audit pricing models for professional fees would need to be changed or revamped.	11
Some believe the cost of assurance services will decrease with the increased adoption of emerging technologies in auditing.	4
Some believe the cost of assurance service will increase with the increased adoption of emerging technologies in auditing.	3
Some believe the cost will remain the same, the quality of the assurance will increase.	5
Some believe the cost will increase as the quality of the assurance will increase.	2

Table 10.

Auditor-client relationship—summary.

The consensus is that pricing models must be adjusted in time, but there will not be an immediate cost saving for the audit client and audit user. Clients will receive better assurance deliverables, better quality audit reports, better-informed audit opinions and judgments on a more frequent basis at a similar or higher cost. The expectation from some participants is that there might be reduced costs in the future after the initial investment costs have been depreciated. However, as the technology and risk land space change there will be a need for different assurance that will introduce new costs.

During the interview introductory questions, it was established that none were currently using or are planning to use blockchain technology as part of their audit digitalization journeys. Participants 4, 6, 9, 11 and 12 indicated that they know little about the technology other than the relationship with cryptocurrencies such as Bitcoin. They chose not to provide an opinion. Both Participants 2 and 3 indicated that they know little of the technology itself and the different applications thereof, but they both shared the view “[…] as with the introduction and use of all new technologies, there will be a shift in the risk landscape or the introduction of new risks, therefore, the impact on audit and the audit process will be the need for assurance over this risk resulting in a higher demand for audits […].” Participants 7 and 10 agreed that the need for audit would increase, and at no point will audit not be necessary. The expected change is only a shift in focus of the auditor.

Participants 5 and 8 shared their understanding of triple-entry accounting made possible by blockchain technology. They noted the advantages and efficiencies this approach has over the double entry accounting principles currently in use as “[…] it will fundamentally improve accounting and address the current transparency and trust issues that exist.” Both participants concluded by stating that if accounting is enabled by blockchain technology, the need for audit will just increase, and it will focus on different controls and risks. Five of the participants chose not to share a view or opinion due to their limited knowledge of blockchain technology. The other eight participants highlighted that using new technology such as blockchain will change the risk landscape and introduce a new set of risks and controls, therefore, different focus areas for audit. Two participants indicated that the need for audit might even increase. None of the participants aim to use blockchain technology as part of the audit digitalization journey.

5. Discussion and contribution

The aim of this study was to investigate the impacts of audit digitalization and in this section the findings are discussed.

5.1 Current state of audit digitalization in audit in South Africa

Although the focus of the initial data collection for this study was focused on the impacts big data, AI and blockchain technology had on the audit industry, none of these technologies is actively used for auditing services by South African audit teams and departments that formed part of this study. The data indicates that 100% of the sampled participants are using technology as part of their audit processes, and 84% of these organizations have formally initiated their audit digitalization journeys. Of the 84% of organizations, 50% have made significant progress. These participants have successfully implemented end-to-end automated audits. These are referred to as ‘click-a-button’ audits, ‘on-demand’ audits, ‘audit-as-a-service’ engagements, and real-time auditing.

All participating organizations are currently using some form of data analytics during the execution of the audit process. This is achieved with a wide range of tools and techniques implemented to best suit this audit test. These analytical capabilities in use ranged from basic data analysis in Microsoft Excel to advanced functions built-in Microsoft Azure. The 84% of organizations that have moved past mere data analytics have implemented RPA to codify all audit steps required for a specific audit test. This combination allows for end-to-end audit automation with the robot logging onto multiple systems, extracting all required information for a specific audit test, and executing the audit test based on the predefined audit procedure. This is possible for all data-driven audit tests. The organizations that have made the most progress on their digitalization journeys (16%) were in a proof-of-concept state with an AI solution to address a wide range of audit tests that were of a predictive nature.

Most participants (75%) indicated that they expect that AI, specifically expert systems and neural networks, and blockchain technology, will fundamentally impact the audit industry.

5.2 Digitalization and the audit process

The standard audit process can be followed for all different audit types and consists of three main steps, namely: audit planning, audit execution and audit reporting. All participants that have moved towards audit automation indicated that the biggest impact was experienced in the audit execution phase, which also resulted in the most benefits gained. The impacts were described as a complete redesign of the process as the execution of the audit tests were no longer completed by human auditors. This led to significant time saving, shorter lead times between audits, faster audit execution and wider audit coverage. These outcomes allow auditors to spend more time on exception investigation, root cause analysis, opinion-forming, judgment and client engagement, which results in richer and better quality audit reports and improved client relationships.

An industry view was obtained regarding the potential shift of an auditor’s role within the audit team from being a classic auditor to a consultant within an organization. Although diverse opinions were obtained, all participants indicated that the role of an auditor would remain due to the need for opinion-forming and judgment, and 50% of the participants highlighted the potential lack of independence, and objectivity should auditors assume a consultative position in an organization.

With the advances in audit automation already evidenced in the South African market, industry views were obtained on the impact and need for interim- and year-end financial reviews. All participants agreed that the need for these reviews would remain. However, the nature of these audit engagements will change. Instances already exist where these reviews have been automated, where the execution of these reviews is no longer completed by human auditors. The change in the approach has impacted the audit frequency from bi-annual to monthly, it changed the auditor from human to electronic (or robot), and this can impact the audit department responsible for the review between internal audit and external audit depending on who developed the robot.

5.3 Digitalization and the audit’s professional profile

All auditors will require a good understanding of technology, specifically, using data analysis in the audit process. The expectation by organizations is not for all auditors to be specialists in the field of data analytics; however, the need to analyze large data sets, interpret the outcomes of audit tests based on data analytics and the ability to visualize data in an understandable and comprehensible way is required. This is supported by the already changing recruitment processes implemented in South African organizations that stipulate the need for ‘a strong data analytical background’ as a requirement for new joiners. This requirement has been added to all role profiles, irrespective of an auditor’s field of specialty, and it is regarded as a core competency. A general information technology (IT) background was listed as a plus. The organizations at the forefront of audit digitalization indicated that their recruitment processes have been updated and have been aligned to their digitalization strategies. All new joiners must have a moderate to strong IT background, data analytics is key, and understanding of new emerging technologies and the application thereof is a plus.

There is an expectation that the existing balance in audit teams between financial auditors and IT auditors will be impacted as organization’s progress on their respective digitalization journeys with the increased need for IT skills. The expected shift is not definitive as different variants exist to achieve and deliver digitalization strategies. The two extreme cases identified are a major shift from the traditional balance with more IT auditors than financial auditors or there will be no shift to existing teams, and the digitalization of audit processes is driven by a specialized team outside the audit department. In both these scenarios, the required skillsets of the audit team should be revisited with the increased need for cross-skilled individuals in audit departments to benefit from audit digitalization.

There is an expectation that the digitalization of audits will have a positive impact on the role profile for auditors in the South African job market. The role profile of a cross-skilled auditor will attract younger professionals, and it will also attract more individuals at a university level to move into the audit profession. The need for specialized technical IT skills in emerging technologies will also open the door for non-auditors to join audit teams to deliver audit digitalization strategies. These technical specialists are currently being used in the South African audit industry to codify the knowledge and held by existing audit team members.

Although market expectations for future graduates look bright, concerns were raised over the level of IT coverage and IT exposure current university degrees and diplomas include. It was noted that newly graduated individuals do not meet the minimum requirements to join audit departments due to a lack of IT knowledge and a general understanding of technology.

5.4 Digitalization and the audit user perception

More trust will be placed in the outcome of automated audit procedures than in the traditional, manual audit procedures. The increased trust levels will be based on introducing end-to-end process testing covering multiple data points, eliminating sample risk and human error during the audit testing process and reducing subjectivity and auditor biased. These benefits will lead to better, more informed audit opinions and judgments and better richer, more informed audit reports and audit insights. These were the combined views shared by all participants based on their lived experiences.

5.5 Digitalization and the auditor-client relationship

One of the key outcomes of the study was the expected, and proposed changes to the current costing and pricing models in use for assurance services and the impact digitalization of audit will have on these models.

At the time of the research, all participants in this study were still employing an hourly-based pricing model for assurance services that makes up the total cost of the audit opinion. Introducing emerging technologies and the ongoing digitalization journeys seen in the South African audit industry have led to shorter audit execution times. Audit procedures that previously took days or weeks to complete can now be completed in a few minutes, depending on the computing power available to the codified audit procedure (robot auditor). The assurance provided by the robot auditor can be completed monthly or even daily, whereas the manual procedures are generally scheduled twice a year or on an annual rotation basis based on risk. The coverage and assurance provided by the robot auditor are not based on sample testing but full population testing, leading to better assurance outcomes, as discussed in this paper.

Most participants (91%) indicated that the current pricing model used in South Africa is not fit for the purpose of a digitalized audit function, leveraging emerging technologies in their automated auditing capabilities. Participants proposed that a value-based costing model would be more fitting in a digitalized audit world as clients will receive better assurance deliverables, better quality audit reports, better-informed audit opinions and judgments on a more frequent basis. The expectation from some participants is that there might be reduced costs after the initial investment costs have been depreciated. However, as the technology and risk landscape change, there will be a need for different assurance that will introduce new costs.

The expected impact of blockchain technology on the audit industry is that the need for assurance will be different, and that it might increase. Although it is expected that blockchain technology will have a major impact on the financial accounting processes and principles as described by Penkin and Pehrsson [19], participants in this study believe that the assurance over a typical triple-entry accounting system will be different, and the need for assurance might increase.

5.6 The auditor of the future

Based on the research completed and the industry views and opinions obtained, the auditor of the future can be best described as a digitally fluent individual, cross-skilled to use a combination of IT and audit skills to deliver audits. Considering the four themes covered in this study, various aspects of the auditors’ ways of working will be impacted, including the audit process, the auditor’s professional profile, the audit user perception, and the auditor-client relationships.

Looking at the audit process, the audit execution will be the most impacted. The traditional audit steps of inquiring, observance and performance by a human auditor are falling away as audit processes are digitalized. Auditors will rely on audit steps executed by a robot auditor, and an auditor’s audit skills will be applied for opinion-forming, judgment, and client engagements. Based on the progress made in the South African context, evidence suggests that digitalization will result in richer and better quality audit reports and improved client relationships.

The need for cross-skilled individuals will impact the profile of the auditor, which suggests making it more attractive in the job market and at the university level for new entrants. The study highlights the role universities must play to ensure that degrees and diplomas remain fit for purpose, and in line with the skills required by the audit industry to equip young professionals. These changing requirements will also cast the net wider and allow for IT specialists and technologists to join audit departments as their specialized skills are required for the digitalization efforts within the audit industry to deliver organizations’ digitalization strategies.

Auditors will still provide assurance over the accuracy and completeness of financial statements and provide assurance over current and emerging risks. However, the way this assurance is derived will change, including the quality, frequency and focus area. This will result in a different value proposition to clients who will need a different costing model. The current hourly-based model in use in South Africa does not fit this new emerging value proposition, and this study suggests a value-based costing model for audit opinions derived from automated auditing or audits completed by robot auditors.

6. Conclusion

The study set out to identify the impacts of digitalization on auditing focusing on the audit process, the auditor’s professional profile, the audit user perception, and the auditor-client relationships. Data was collected in South Africa through an SLR and 12 semi-structured interviews. The biggest impact was noted in the audit process with implementing automated auditing levering emerging technologies such as Robotic Process Automation, which resulted in the execution phase of an audit being completed by a robot auditor shifting the focus of the human auditor to exception investigation opinion-forming, judgment, and client engagement. Digitalization in auditing has led to the need for moderate to strong technical IT knowledge by existing auditors, specifically data analytical skills. This had a positive impact on the professional profile of an auditor as it has opened the door for technical specialists to join audit departments to meet the skills demand required for delivering organizations’ digitalization strategies. In addition, there is an expectation that the professional profile of an auditor will be more attractive for young professionals and university graduates. The biggest anticipated impact identified is the need to define appropriate costing and pricing models for audit opinions in a digitalized audit environment. The study suggests a value-based costing model would be better suited as it will incorporate the benefits gained from digitalization. This would require further studies to define and validate.

By incorporating all the outcomes for each theme covered in this study, the auditor of the future can be best described as a digitally fluent individual, cross-skilled to use a combination of IT and audit skills to deliver audits in a digitalized audit environment.

Future research could include a focused study on implementing automated auditing using emerging technologies to confirm the impacts on auditing as identified in this study. Research can also be expanded to include the skills required by an auditor working in a digitalized audit environment compared to the skills new market entrants are equipped with after the completion of their auditing degrees or diplomas. This will address the concern highlighted in this study to provide a view of the alignment or potential misalignment between the demand and supply for IT and technology skills in the audit industry. As data was collected in the South African audit industry only, the data collection may be extended in further studies in order to generalize findings.

Conflict of interest

The authors declare no conflict of interest.

A1. (SLR output-extract only)

Impact(s) identified	Theme allocated	Title and Theme/Impact extract	Ref.
Change in the audit process required.; New set of risk and controls will emerge leading to new skills required to provide assurance.	Audit Process; Auditor’s professional profile	A Primer for Information Technology General Control Considerations on a Private and Permissioned Blockchain Audit.	[53]
Change in audit process required.; Changes required in all assurance services including Audit, Governance and Risk Management disciplines.	Audit Process	Technology Innovation Management Review: Is Internal Audit ready for Blockchain?	[54]