Winwood: Analytics crucial to future of audit

Winwood: Analytics crucial to future of audit

Paul Winwood, head of audit at BHP says the ability to drill into numbers in an intelligent manner will shape the future of the industry

Winwood: Analytics crucial to future of audit

The key factor behind BHP’s audit team’s success at the British Accountancy Awards in September was their use of analytics, says Paul Winwood, head of the firm’s audit team.

The firm has offices based in a number of cities in the North of England including Chesterfield, Sheffield, Leeds and York, and operates in the mid-tier accountancy market, and Winwood says that BHP are among the first in this market to use data analytics in this scale.

This meant that BHP has been able to offer the comparable analytical services in their audits previously only offered by the larger firms, while still giving their clients the benefits of working closely with a firm that can give them high levels of service and quality.

Introducing a new managerial role to oversee the implementation of the firm’s digital transformation was key to the firm’s success.

“We’re probably one of the leading firms in the mid-sector on this in terms of where we’re at with analytics and how far we’ve integrated it into our team,” says Winwood. “We moved someone into a specific role out of the audit team into a managerial role to run that implementation project.

“The result of that came in the form of great client feedback and better conversations with clients because of new insights that we didn’t have before.

“The momentum we have built up and the increased profile of BHP in the market has led to us winning new work. A significant factor has been the ability to show we can offer comparable audit analytics to firms much larger than we are.”

In 2018, BHP decided that they would use audit analytics software called Inflo across all their audits. However, introducing new software to a firm is never as easy as flicking a switch, and requires significant investment in both time and money, and requires everyone to be on board.

Winwood says that BHP took the decision to make this investment earlier than other firms operating in the same market, and therefore have given themselves an edge.

“We could see early on where the industry was going,” he says. “Data was becoming more and more important and clients would start to expect to see audit firms using it. Eventually you’ve got to decide to invest or not. I think we’ve been a little bit quicker in reaching that decision, than perhaps other firms.”

He puts much of the successful implementation down to the creation of the specific data analytics manager role to lead the process of introducing the new software.

“Creating the data analytics manager role meant that someone has been solely focused on implementing and getting the best out of Inflo rather putting pressure on fee-earners who already have busy day jobs working with clients, and staff. We thought there might be a danger of the project losing traction,” Winwood explains.

“We’ve been able to create traction by having someone in that dedicated role, driving the project through for us. Other firms will take a differing approach, but for BHP, that was the way we thought we’d get the most bang for buck over a short period of time.”

BHP initially introduced Inflo into the audit team in pilot phases to avoid spreading themselves too thin. This allowed employees to learn the new software, gain interest, build momentum and fully understand where the added value could be achieved in the audit.

Winwood says that the increased access to data and elements of automation means BHP staff are manually entering less data. “That means you’ve got more time to make judgements or interpret what’s being produced. We’re also interrogating clients in a slightly different way as we’re able to look at the whole data set and run tests. It’s often an example in this field – we can see what’s posted, at what time of day and what type of transactions they’re posting.

“Previously, that would have been quite an arduous task to do the Excel manipulation to get that data, but this is able to do it a lot quicker.”

Despite the increased use of automation, the new software has not replaced jobs at BHP, and with the creation of new data roles, has even created more.

The adoption of new software was not done with primary objective of efficiency savings. Rather, Winwood says it was done to enhance audit quality.

“He took the view that if it enhances audit quality as a first step, then that’s great, and if it enhances the client experience, then that’s great as well,” he says. “Once we’ve got it embedded within the business, then we start to look for efficiency savings, in terms of what we can automate, what we can take out because we’re able to do the testing in a better way.”

Greater data analytics has given BHP the ability to have more in-depth conversations with clients to give them peace of mind, Winwood says.

When dealing with SMEs, it’s of real value to a business to hear everything is working as it should be which we are able to show them with the analytical insights

“There’s not always going to be a fraud to find,” he says. “We learned quickly that projecting a good news story is positive for the client.

“The fact that we’ve not been able to find anything, or that everything has been working as they have designed it, is actually a really good positive story for the client. We shouldn’t be spending hours looking for something that might not be there, and it’s actually about being proportionate and giving that good news story to the client.”

Changes in the audit industry

Speaking about the wider audit industry, Winwood says that there’s a danger that audit could become stretched over a number of different business aspects.

This stems from recommendations made in recent reports into the UK audit industry, as well as a review announced by the Financial Reporting Council (FRC), regarding companies and auditors giving more information about environmental impact in reports.

“There’s a danger that things become quite diluted because audit is having to be stretched across a number of objectives – environmental, controls, financial statements,” says Winwood. “If you read a PLC set of accounts and its 150 pages long, how much accountability does all the reporting actually give to the shareholders and investors.”

Referencing the report by Sir Donald Brydon however, which called for the definition of audit to include all forms of audit and not just the audit of financial statements, Winwood says: “Brydon pointed towards auditors needing to step out of just being financial statement auditors and having a wider set of skills to meet the changing needs of stakeholders. Which I think to an extent I would welcome.”

“As ever when there are wider ranging recommendations – there’s the danger that these are eventually diluted and do not have the full impact they were intended to have there’s being seen to be doing something, and then there’s making actual structural changes for the better. We need to do the latter.

“It looks like the big four are trying to do the structural reform on their own terms at the moment – trying to pre-empt what the Competition and Markets Authority (CMA) or the Department for Business, Energy and Industrial Strategy (BEIS) might require them to do.”

The Brydon report also suggested a separation of audit from the accounting profession, creating a new stand-alone audit profession, something Winwood would welcome. “I think that’s a good idea,” he says. “If the audit spectrum is getting more diverse, having skills in data, internal controls, financial statements and reporting and other things that might become relevant like other technology, Artificial Intelligence and behavioural economics – becomes important. It means the profession can respond to what the market wants.

A recommendation made in an earlier report by Sir John Kingman was to create the Audit, Reporting and Governance Authority (ARGA) to replace the FRC. “ARGA has got to work with the ICAEW and other institutes. The institutes must set the template with what they want the auditor to look like in 10 years’ time,” says Winwood.

“They’ve got to work with the training bodies so that they can build the curriculum that is going to deliver the future auditor. But then also, reskilling the existing profession.”

A key question that he would want answered is whether this new form of audit would also include SME audits, and what this would mean for firms like BHP that have a different relationship with clients to the relationships auditors of listed businesses have.

“Rightly or wrongly, firms in our sector – regional firms – have a different relationship with clients, than the likes of the big four. The nature of how we work with clients is very much alongside them, but still being independent objective auditors,” Winwood explains.

“Whereas as a listed business, you are more at an arm’s length and you can only provide certain non-audit services per the ethical standard. Despite the ethical standard having reigned in some of the non-audit services we can offer our clients, such as contingent fees, there is still room for the relationship to be built with the client, and the type of clients we deal with aren’t systemic to the economy, so that feels right.”

“If an audit’s an audit and that trickles down, then there’s going to be cost implications for the medium to large businesses that will require an audit that covers the basic principles that Brydon is proposing. Will owner-managed businesses see the value in this and be willing to pay higher fees for it?”

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