The Future Of Compliance: Mitigating The “Busy Season”

Julio Dalla Costa

As a first-year external auditor at one of the Big Four accounting firms some 20 years ago, my initial assignment was to print out audit confirmations, add self-addressed envelopes, and physically mail the confirmations to banks, vendors, and customers. I remember thinking that there must be a better way to do this.

Fast forward to today: Many of the external audit firms now use automated software to magically push these confirmations out to banks, vendors, and customers with real-time notifications that the audit confirmations have been received, read, and signed!

External auditors and their clients still dread the “busy season” from January through April when auditors endure mandatory 60- to 70-hour work weeks to perform audits for customers with calendar year-end. But what if there were no busy season? What if we could use all the Big Data we now have at our fingertips, combine that with analytical insight, and have a real-time, continuous auditing process?

Companies would also benefit from continuous auditing. Instead of waiting for the auditors to evaluate a chosen sample data of testing areas, such as validating cash receipts for the months of June and October, companies can quickly test all 12 months with the touch of a button.

Big Data

With all our data instantly available and access to analytical tools, we can have a real-time, continuous audit process. External auditors can simply tap into the company’s servers and extract all the necessary data to validate processes and transactions. This reduces the need for auditors to send data requests for companies to manually select samples for testing. Employees no longer have to retrieve the information from a storage facility (usually offsite) and hand-deliver the sample data to the auditor. Today, the auditor can gain access to the virtual data-storage site and select a sample (or maybe even test 100% of the population) and retrieve images of the scanned documents – without company intervention beyond providing the appropriate access controls.

Real-time analytic tools and continuous auditing

By using advanced and predictive analytics, companies now have a real-time monitoring tool that can greatly assist with internal review and reporting. Thus, companies can proactively and continuously review and analyze all transactions in real time, thereby gaining visibility and early warnings to address and resolve irregularities almost immediately. This self-reporting can be presented to external auditors with a remediation plan.

External auditors can also use analytical tools to improve the quality of their audits. For example, when reviewing income and balance sheet statements of the year under audit, external auditors have traditionally needed to ask companies for reasons to explain the largest fluctuations and/or changes year over year. The use of advanced analytics now enables auditors to truly understand the dynamics of the company’s operations without too much intervention from the client! This also radically improves the ability of auditors to provide value-added insights for the company beyond just providing a “clean” audit opinion.

Agility for compliance with accounting changes

In recent years, most companies have been challenged by significant new compliance requirements mandated by changes to revenue and leasing standards accounting standards (ASC 606/ASC 842 and IFRS 15 and 16). Beyond the adoption of these complex standards, companies are faced with ongoing monitoring and maintenance, looking at large swaths of data to try to ensure compliance. Auditors have a similar challenge because they must sign off that companies have been correctly assessing and following these new requirements.

For example, in the adoption of the new ASC 842/IFRS 16 leasing standards, the main challenge is the completeness of the data. Once completeness is assured, the next challenge is determining the most efficient way to continuously monitor all this data and spot trends and changes that would require intervention and further analysis. Analytical tools enable companies to monitor all leasing data and drill into why something looks unusual, which leads to greater insight and allows management to address issues more quickly.

We have come a long way from manually sending audit confirmations via “snail mail.” The more we embrace the power of new technologies to manage and analyze large datasets in real time, the faster companies and auditors can understand and resolve issues. And the better they can comply with new accounting requirements and potentially reduce audit hours. Who knows, maybe these efficiencies will even lead to lower compliance costs. Maybe!

For more on real-time compliance, read Regulatory Reporting: A Thing Of The Past (Part 1).


Julio Dalla Costa

About Julio Dalla Costa

Julio Dalla Costa is the director of Technical Accounting at Bramasol. Julio has 20+ years of professional experience in technical accounting, financial reporting, and controllership. Julio began his career at KPMG, leaving as an external audit manager, and has progressively increased his responsibility at various Fortune 500 companies, mainly in the energy and telecom industries. Julio is a subject matter expert in technical accounting and has focused on revenue recognition and lease accounting over the last few years to assist companies in interpreting and implementing the new accounting standards. He is also a financial reporting expert, helping companies develop and implement effective financial controls and processes and streamline operations to drive growth while increasing efficiency. His expertise in finance and accounting includes technical accounting, financial reporting, operational accounting, internal audits, and internal controls.