The impact of the digital tools on the expectation gap in the external financial audit

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The impact of the digital tools on the expectation gap in the external financial audit

Results of the qualitative study

A thesis submitted of partial fulfilment of the requirements for the degree:

Economics and Business Economics (Specialisation in Accountancy and Control)

Supervised by:

I. (Indranil) Bhattacharya MSc

Coordinated by:

Dr. P. (Pouyan) Ghazizadeh

Faculty of Economics and Business University of Amsterdam Date of submission: June 28, 2022

Name: Oliver Klus Student number: 12806773 Word count (plain text): 5720

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Statement of Originality

This document is written by student Oliver Klus who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

Signature:

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Abstract

The objectives of the study are to identify and compare the automated techniques in data analytics of the “Big 4” auditing companies. Considering the ongoing concern related to occurring scandals in the auditing field, the paper reintroduces the definition of the expectation gap and questions the potential improvements brought by digitalisation. To support the ideas and underlying arguments, a literature review of the topic related papers was conducted. The paper presents the analysis of the data analytical tools characteristics promoted by the companies to confirm the self-beneficial target setting, which comes as a cost to the interest of the potential stakeholders. The emphasis is put on the negative effect of the prevailing expectation gap allowing for the discussion about the moderation of the digital innovations by the regulatory bodies to improve the efficiency of the misstatement detection and minimize the asymmetry in audit comprehension between service providers and the public. According to this discussion, the digitalisation has the potential to solve the issue if the environment is designed to incentivize the auditing firms to exploit the tools in benefit of the stakeholders.

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Table of contents

Statement of Originality 2

Abstract 3

Table of contents 4

Introduction 5

Methodology 7

Conceptual Background 8

The source of the expectations asymmetry 8

Materiality 9

Digitalisation EY 9

Digitalisation Deloitte 10

Digitalisation PwC 11

Digitalisation KPMG 12

Discussion and analysis 13

Biases of the research 17

Conclusion 18

Reference list 20

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Introduction

Stakeholder theory conveys a strong message about the corporate social responsibility and in contrary to shareholder theory prioritises the full range of the potential financial statement users. (Smith, 2003) To build up on idea of the population-wide use of the financials, the statements need to be considered credible and reliable. The existence of the external financial auditing provides the potential users with the assurance to create the trust in capital market. Such a trustable and well-functioning market in combination with the banking sector are fundamental determinants for the economic growth and wealth within the society. (Langenbucher et al., 2020) The condition of trust within the market, is what allows for the broad investor participation. To give the market participants a sufficient assurance about the data presented in the financial statements, regulatory bodies across the countries adopted a compulsory public disclosure of the financials and their examination by the independent certified institutions (the differences in rules per country may occur based on the local legal setting and enforcement). (Brown et al., 2014)

However, due numerous reported and failures on high level of corporate environment (Iwanowicz & Iwanowicz, 2019) the external financial auditing faces a turbulent trustworthiness and reputation. Despite imposed regulation, such as Sarbanes-Oxley Act (Zhang, 2007) (Kaplan et al., 2007) (obligation for the publicly traded companies to receive an evaluation on efficiency of the internal controls) or the imposed maximum duration period of the engagement within the EU, the expectation gap remains present, and the audit hardly matches the anticipations of the market participants (Widmann et al., 2021).

Despite the scandals and the discredited reputation, audit remains non-substitutable, however offers space for innovation. The growing trend of digitalisation allowed for the gradual change of the auditing paradigm. (Byrnes et al., 2018) The increased use of the technology is related to the increased demand for transparency by the users. (FAR, 2016) However, as its raising influence and a change of the reporting standards takes place, it shall be questioned, whether the implementation of the digital tools does increase the efficiency in detection of the misstatements (in extreme cases frauds) and therefore narrow the expectation gap. In the light of the digitalisation of the auditing procedures, the pressure is put on auditors to gain the adequate technical skills to process the large-scale data analysis and operate the new analytical tools. (Turley et al., 2016) These tools cause a structural adaptation of the auditing profession and related regulations. “One thing we know for sure, our time is not near what the future will be” (FAR, 2016). In past, auditors relied on samples of transactions chosen from the general ledger and subledger. Yet, the technology allows the transition of the whole data set (all transactions) into the auditing engine. However, not to be misled by the first impression, the dataset is

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the boundary between the data to be examined and the data with relatively low value with respect to revenues/assets (the parameter is to be chosen by the auditor based on the type of business). To synthesise the mentioned topics, the following research question is introduced.

RQ: How do the automated techniques in data analytics impact the expectation gap of the external financial audit?

The aim is to evaluate the impact of the automated techniques on auditing procedures, describe the potential change in expectation gap and the possible improvements to related regulations. The emphasis is put on positive outcomes for the stakeholder. Meaning the technology shall not only mean the relieve in work of the auditor, but it should also be used to increase the confidence of the market participants and reapproach the problematics of the expectation gap.

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Methodology

The digitalisation is in process and some of the auditing procedures have undergone a transformation, therefore the study is aimed to be explanatory and convey a methodologically normative message. The effects of digitalization on auditors’ tools and working methods (Karlsen and Wallberg, 2017) study was used as a fundamental guidance. However, in contrary to the original study the materiality concept is to be examined as a particular driver of the expectation gap. For this purpose, related literature and documents from competent institutions was gathered and analysed. As the source of the tools, companies from the Big 4 were used.

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Conceptual Background

The source of the expectations asymmetry

According to IAASB, the function of the financial audit is to provide the users of the financial statements with a reasonable degree of confidence. The auditor expresses an opinion on the compliance of the financial statements to the local accounting standards and the absence of the material misstatements. (IFAC, 2007).

The term “reasonable assurance” is an important milestone in this description. In particular, it means that the according to the International Standards on Auditing (ISA) 240, paragraph 5, an auditor is only expected to gather enough evidence to provide with a reasonable assurance, not the assurance of an absolute absence of the misstatements originated by fraud or error. (IFAC, 2009) Another supporting definition published by the Statement of Auditing Standards (SAS), section 200, No. 122/123 states the obligation from the auditor to provide a reasonable level of assurance when examining the financial statements (AICPA, 2011). Recalling the stakeholder theory, the aim is to reasonably limit the information asymmetry not only between the managers and principles, but between the preparers of the financials and any potential users (stakeholders) (Jensen & Meckling, 1976). However, the elimination of the asymmetric information issue between the management and the stakeholders does not vanish the risk of the misstatement, the responsibility for the misstatement is transferred to auditor so the principal- agent resists (Kornish & Levine, 2004). For this paper, it shall be assumed, that the auditor is not trying to exploit the principle-agent issue, but rather the attention is put on how the technological innovations influence the asymmetry in expectations between auditors and the public regarding the duties and responsibilities conveyed by audit outcome through the concept of materiality. The owner of the company hires the external auditor to examine the financial data of the management, which gives the sense of a controlling body being involved and this creates false expectations of the issue-free financial statements. One of the reasons is lack of transparency of the auditing services, which are not observable by the owner. (Baiman, 1979) Nonetheless, according to ISA, the responsibility for the fraud prevention and detection remains in possession of the entities governing body and the management. (IFAC, 2009).

Since the absolute responsibility for the absence of misstatements is transferred to auditor, who by definition is only obliged to provide a „reasonable“ level of assurance and is not legally responsible for the misstatement detection, the expectation gap occurs. This expectation gap is therefore related to the level of assurance which must be provided by the auditor.

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Materiality

To discuss the auditing procedures, it is necessary to define the set of rules, which the auditors face. In this section, the concept of materiality and its application is to be discussed. In a very comprehensive manner, the term implies the following: “There is no need to be concerned with what is not important or with what does not matter.” (Bernstein, 1967) The aim of the audit is to ensure the fairness of the financial reporting at the satisfactory level and its compliance to the local reporting standards. However, it is never economical or necessary to provide a 100% assurance. The auditor faces the time constrains, which allows only for certain amount of data to be examined in detail.

The previous paragraph opens a room for discussion, does the use of the enhanced technologies allow for the increase in assurance or is the expectation gap resistant. In other words, the potential users of the financial statements and regulatory bodies shall require the auditing firms to adjust the demarcation line of what is and is not material according to the technology implemented. The technological switch in gestalt shall be seen as a potential improvement to the assurance level and not only the increase in pace and ease to work of the auditor.

Digitalisation EY

To introduce the new advanced tools implemented into the agenda, we will consider the instances from the four leading accounting firms (known as the Big 4: Deliotte, PwC, EY and KPMG).

The fundamental element of the digitalised audit processes brought by the EY was the introduction of the cloud-based platform EY Atlas. This digitalised tool embodies a digital library and provides the auditor with the research and technical data. This includes the templates for the certain analysis and the description of their utilization. However, this is to be considered as a guidebook and an archive of the useful documents. (EY (a), n. d.)

The game-changer in connectivity between the client and the audit service may be considered the implementation of the EY Canvas into the EY Digital Audit, as this was the world’s first digitalized solution of this type and enabled the improved transparency and the improved project management.

Since then, the clients were offered to use the Digital Client Portal to receive the data requests and monitor the progress of the auditing processes. The solution is offered on a cloud basis and allows the auditors to elaborate the provided data both online and offline. The documents and communications are saved and allow for tracking of the activity. Moreover, this engine allows for the more efficient risk recognition. Since the implementation, the auditors were required to use the smart forms to fill in the observations, which helped for unification in document format and led to an easier and more efficient inspection by the statutory auditor. (EY (b), n. d.)

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These improvements required the new Digital Global Audit Methodology to create the consistency of the auditing procedures and enforcement of the new technological tools. The new methodology is adjusted to the use of new automated techniques and software. (EY (c), n. d.)

The technological advancement allowed for the discovery of the data analytics tool EY Helix.

This driver of the digital transformation allows for the examination of the entire datasets across the financial operating cycles. According to EY, the use of analytics is not about tools to detect the issues but rather the consideration of the analysed data means and its implication to the audit outcome. This allowed for a deeper understanding and an easier interpretation of the client’s financial and business operations. The additional feature of the EY Helix is the possibility to examine the invoicing activity and the credit memos. Moreover, the implementation of such an engine allowed to overcome the limitations related to the size of the analysed dataset. Yet, the auditing team can approach the whole scope of the general ledger and subledger. For each group of related data, the EY Helix offers a dedicated tools such as the Trade Payables Analyser or Inventory Analyser, which are designed for the account- specific data. According to EY, the innovation brought a greater confidence, better comprehension of the business operations within the audited company and a higher efficiency to the client. (EY (c), n. d.)

At the same time, EY invests into more advanced technologies, such as the artificial intelligence and the blockchain. However, these automations are not yet to be implemented and are considered to be a pilot project. (Deldag, 2020)

Digitalisation Deloitte

According to the ranking published by Statista Research Department, Deloitte yield the highest revenue among the Big 4 companies in 2021. (Statista Research Department, 2022) However, the main revenue stream for Deloitte were the advisory/consulting services due to the switch of focus in Deloitte’s strategy. The company is no more primarily focused on the assurance and provides the clients with other types of services. However, the company still plays a significant role in the field of auditing and introduces innovations to its auditing methodology. According to Deloitte, their automated data analysing systems allow for the comprehensive planning, transparency, and agility. In particular, the company promotes the data aggregation (ability to examine large amounts of data), automation of the processes and the analysis of regressions and risks. Namely, the Icount and Iconfirm tools were designed to collect, store and deliver the data. Similarly, to the concurrency, Deloitte develops the ways to implement the blockchain technology into their assurance services. (Deloitte (a), n. d.)

Alchemy, the system used in the Central European branches, developed to serve the SME size

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difference between the approach of EY and Deloitte may be spotted. On the one hand, EY aims for the unified automated tool served globally and on the other hand Deloitte aims for the solutions with the emphasis on local features. The deviations in strategies of the firms cause the conflict of interests, which aim shall be considered as the more significant criteria. Unification of the standards offers the comparability and a simple setting of the rules for analytics, which would not put into consideration the vital adjustments to the methodology carried by the client/region specific characteristics. However, the evaluation of the approaches is not in scope of the paper and shall not be investigated any further.

(Deloitte (b), n. d.)

During the planning phase, the auditing team determines the risk areas through the Risk Matrix tool to account for the inefficient internal controls, non-reliable monthly reporting, or the risk in management. Deloitte Connect is another platform allowing the communication data sharing between the client and the firm.

After the planning phase and receiving the data, the engagement team gets to start with the analysis. For this purpose, the company presented the integrated analytical application Spotlight, which offers account specific modules to provide with the dedicated analysis and testing. These outcomes can be immediately compared with the results from previous years, which allows for the examination of the data patterns and detection of the suspicious developments. If such a development is present, it needs to be explained and documented. The tool allows for the further visualisation of the outcomes, which are then presented to the management and are charged with the governance. (Deloitte, 2020)

Digitalisation PwC

According to the data provided by the Statista research Department, PwC’s revenue stream from the assurance services was the highest among the Big 4 companies in 2021. (Statista Research Department, 2022)

Due to the implementation of the automated techniques in combination with the professional’s decision making, PwC presents its auditing services as the “Tomorrow’s audit, Today” (PwC, n. d.).

According to their campaign, the combination of such promotes the transparency, precision, and efficiency. The transparency is achieved by the constant availability ensured by the Connect platform.

Through this platform, the client monitors the progress of the audit and communicates with the service provider (PwC). The communication is being stored on the digital remote cloud and allows to browse the archived activity.

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The features promoted by the PwC include the use of the Aura and Halo platforms to deliver the risk and business process inefficiencies recognition (Richardson et al., 2021). In other words, the tools help to recognise the most relevant financial reporting risks. The targeted audit plan involves the specification of the audit specific control reliance and substantive testing. (PwC, n. d.)

The efficiency is advertised as the reduction of the time spent on manual tasks and streamlining work. As the instance, the analysis of the cash and accounts receivable accounts is presented. For these accounts, the deep expertise and advanced tech tools encourage the time efficiency and minimize the last-minute data requests.

PwC’s global ERP system Aura allows to provide the services matching the global and local requirements. Among the main advantages, the possibility to automatically identify the related risks.

The systematic risk-based approach enhances the understating of the business operations. The system offers the large-scale accessibility from mobile devices from anywhere at any time. (PwC, n. d.)

Digitalisation KPMG

The main technological innovation introduced by KPMG was the implementation of the KPMG Clara powered by Microsoft Azure. The platform offers the automated techniques in data analysis, their safe cloud-based storage, and tools for the visualisation of the outcomes. KPMG Clara allows the consistent communication between the client and the auditing team. (KPMG (a), n. d.) Therefore, the client is kept updated about the engagement status and possess the direct communication stream to target the specific findings, risks, and insights. KPMG promotes the globally consistent execution and an increased transparency baked by the implementation of such analytical tool. In comparison to the competitors mentioned above, the engine offers the full-scale automation in one package. The utilisation of such engine allows for the analysis of the whole data set and an easy transition of the observations within the environment. According to KPMG’s Dynamic Audit report, the automated techniques allow use the historical data to make predictions about consistency and therefore detect the unusual activity in the financial and non-financial data. (KPMG (b), n. d.) The combination of the globally consistent execution and automated techniques allows for the creation of unified guideline and an easier planning, which serves as a supporting solution to the auditing managers. According to the survey provided by the KPMG (2014), 85% of the managers experienced challenges when deciding how to utilize the complex data sets provided by the clients (Earley, 2015).

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Discussion and analysis

Before the implementation of the digital tools described in the Conceptual Background section, the academic literature put the emphasis on the emerging reputation of the auditing services and the way to gain the lost trust due to numerous financial scandals leading to the turbulences in the market. The researchers underlined the need for the restructure of the auditing methodology (Chye Koh & Woo, 1998) and pointed out the expectation gap even before the term became widely recognised (Humphrey et al., 1993). It took two decades to reach the technological advancement applicable to the field, which allowed for substantial research on expectation gap supported by the occurred scandals (Dennis, 2003) (Ruhnke & Schmidt, 2015). Therefore, the field of audit and the related research experienced the so called “switch in paradigm” (Fotoh & Lorenzon, 2020) with the increasing use of the technology and automation. Some literature refers to this change as the Audit 4.0 (Cao et al., 2015). Subsequently, the companies aimed to exploit the potential of the technology, so the development in research lead to questioning on what consequences such a change meant for the auditing methodology (Brown-Liburd et al., 2015) and the expectation gap (Stevenson, 2019). The ongoing research hints, that the difference in expectations is still present. Therefore, this provides the characteristics of the digital innovations brought by the Big 4 companies to compare them and “sublimate” the promoted purpose.

Analysis of the described tools suggests the similar features with the slight deviation due to the location specific requirements. Based on the published targets set by the companies mentioned in the conceptual background, it shall be noted that none of the examined companies presented the change in application of the materiality concept or change in expectation gap as the aim of the new technology implementation. The goals are set to satisfy the needs of the auditing companies are a shared aim, such as the improvement in communication between the involved parties. Therefore, even after the implementation of such strong tools, the potential stakeholder does not feel the improvement in the application of the materiality or the analysis of all datapoints. The engines allow to examine extremely large to whole data sets, however, the assurance provided remains to be in “reasonable” means, which means the persistence of the expectation gap. There are no doubts about the benefits of the automated techniques and the data analytical approach to the audit. However, these benefits were used to increase the profitability of the companies and optimization of the time cost’s structure. According to the data provided by the Financial Times, all the Big 4 firms were able to increase the revenues from the auditing services between 2016 and 2018, except for EY who failed to outperform the previous year’s performance in 2017 (Tadros, 2019). However, the research does not possess the adequate data to evaluate how significant was the influence of the implemented tools on the increase in revenues. It may be as well questioned, whether the clients were incentivised to start using the services/retain because of the expectation gap in the digitalised procedures.

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The scandals still occur even after the implementation of the powerful analytical tools and the image of the Big 4 companies does not improve with the innovation. To introduce the example, the case of Wirecard will be used. The company filed bankruptcy in 2020 since the financial assets worth of 1.9 billion Euros were missing (Langenbucher et al., 2020). This precedent allowed to tag the external auditing procedure as questionable, as such a significant sum could not just go unseen. Wirecard’s external auditor EY provided clean (unqualified) opinion on financials in years 2009-2018. This was the period of the transformation of auditing tools. Therefore, even the use of the advanced analytical software did not allow to foresee the upcoming happenings. According to KPMG’s forensic report, the classification of the suspicions accounts was questionable under the IFRS setting, which gives a hint that the professional judgement of the auditor was one of the weak points leading to the misstatement (KPMG, 2020). EY announced, that the case carried the clear indications of the sophisticated fraud, which could not be uncovered even with the best accounting methods (Langenbucher et al., 2020). Yet, the question is, what role can the auditing technology play in the setting, where the professional judgment is violated. According to this intuition, even the implementation of the latest data-analytical tools cannot be completely relied on if the oversight of the auditing procedures is “corrosive”. This can be seen as a contra argument to the claim by Fotoh and Lorentzon (2020) which suggests that the implementation of the data driven analytical tools can enhance the fraud detection. The enhancement may only be assumed if the strict professional judgment is pertained.

So, is it the time to change the aim of the innovations to pursue the higher level or assurance, instead of benefiting the auditors? The markets and economics are built on trust and can only function well in a trustworthy environment. This is the main purpose of the auditing services. However, it is not the industry to be blamed since the legislation/regulatory bodies do not require the companies to execute the innovations in certain ways. It is the issue of the system/regulatory bodies, who were not able to exploit the potential of the change in gestalt. The companies developed the automatization to pursue their strategic goals and as every company maximize the value of the shareholder. It is important to emphasise, that the transparency mentioned by all the examined companies is related to the possibility for the traceability of the auditing process from the client’s side and the accessibility of the past documentations. Considering the principal-agent relationship between the parties, it appears to be a positive feature. However, one must account for the role of the auditor as the external controller and the client as the source of income for this controlling body. Therefore, there might appear the conflicts of interests and the transparency might not serve the purpose as expected. The firm which acknowledges the purposely initiated misstatements in their accounting records might not be interested in transparency of the auditing procedure or what more might use this feature as the indicator whether the auditor is on the path to identify the misstatements.

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On the other hand, the improvements in the auditing procedures are tangible and increase the quality of communication channels between the client and the auditor. This allows for the more efficient data requests and inquiry procedures. The documents are now directly attached to the assertions and allow for the easier processing. When analysing the received documents, the auditor knows exactly what to expect in the file and can examine the issue needed directly. Moreover, instead of using the email communication, which very often appears to be misleading and creates space for unintended loses of data, the shared documents are archived on the cloud and offer the instant access (in some cases both online and offline). This can be seen as a contradiction to the statement by Karlon and Wallberg (2017) who warned against the decrease in interaction between the client and the auditor.

Another improvement may be seen in amount of the analysed data. Auditing teams are now able to process the whole set of transactions and analyse the general ledger and subledger directly. Additional feature of the big data input is the numerous possible analyses of the data and its utilisation (Yoon et al., 2015). It is possible to create comparisons with the previous fiscal years (usually depends on the length of the engagement and previous experience with the client). Moreover, the data can be used to make the predictions and analyse the unexpected deviations (Sun, 2019). This used to be a major issue in the times when the audit was not digital. The accounting indicators were affected by the delay between the reporting and the date to which the analysed data was provided by the client (Ashton et al., 1987).

Nowadays, the technology allows to accelerate the auditing procedures and decrease the differences between the reported information and the up to data accounting reality.

According to the paper by Karlsen & Wallberg (2017), the future of the accounting professions without the technology is not sustainable. Considering this statement, the risk related to the professional judgment by auditor would be neutralized. However, according to Nearon (2005), the programmes cannot substitute the auditor completely. Moreover, the software will carry the risk of bias based on the individuals constructing such tools and the ones who execute the integration of the data.

The discussed technology used by the Big 4 companies is costly and requires highly qualified individuals to operate them. This is the concern small audit provider might face, since the software and the education might be too costly. Moreover, if the regulatory bodies accept the idea of tightening the rules related to the advanced technology to promote higher level of assurance, some of the small auditing companies might be pushed away from the market, as the requirements would become too hard to match without such and a technology. Therefore, the market would lose some of the participants and the concentration on the market would be spread among the strong established consulting firms. To support the idea, the following data by Deloitte are presented. The survey uncovered that only 7% of the auditing firms faced the advanced stage of implementation of the big data analytical tools, 24% identified

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themselves to be at the intermediate level. 55% of the respondents responded to be at the elementary phase and 14% confessed to be unsure or unable to conduct the big data analysis (Deloitte, 2018).

The paper by Turley et al. (2016) contains the discussion on what the skills (the author uses the term “pressure points” to conclude the set of skills and judgmental activity) brings the implementation of such technologies on the auditors. According to the ideas brought by the paper, the auditors ought to gain the deep understating of the examined business to correctly identify the business model and the related risks. In this case, the large-scale data play the significant role to ease the comprehension of the analysed entity and the risks are to the large extent identified by the automated procedures offered by the implemented software (Eilifsen et al., 2020). However, as mentioned in the paper, the auditor shall acquire the sufficient technical abilities to deal with the accounting issues and the valuation models using the “big data” from large complex and diverse entities. The universities, FAR or similar institutions shall be considered as sufficient source of the required skills according to Karlson and Wallberg (2017).

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Biases of the research

The main bias of the research may be seen in the professional history of the author of the paper.

The author has a personal experience with the work in EY’s auditing environment and a direct connection to the company. However, the paper is not aimed to rank or compare the analytical tools among the Big 4 companies. Therefore, the bias shall not bring any significant influence on the analysis or the normative nature of the work, as the paper is aimed to highlight the deficiencies considered from the perspective of the stakeholder and suggest the improvements to be taken by the regulatory bodies.

Another bias are the areas of the businesses for which the data were used in the research.

Moreover, as mentioned in the conceptual background, some of the firms (namely Deloitte and PwC) promote the local specific application of the data analysing tools, which carriers the inconsistency in the examined methodology. The inconsistency might mean the deviations in the end impact of the technology on the outcome, meaning, that some of the promoted features might not be applicable in specific locations and the full potential of the tools is not exploited.

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Conclusion

The advanced data analytical technology brings a higher unification of the auditing standards and promote the accessibility of both the communication and the analysed data. The auditing firms and the client are consistently connected, so the data requesting process is more transparent, faster, and secure. The safe storage of the provided documents is ensured by the cloud technology. The most significant feature of the modern tools is the ability to maintain largescale data, allowing for the deep analysis of the whole sets of the accounting data. Such a deep analysis allows for the more efficient identification of the risks and predictive estimation of the accounting development. These predictions may be then used to examine the deviations and to describe their nature.

The overall comprehension of the audited business is deeper, and the processes are faster.

However, these are the direct benefits for the audit provider and indirect benefits for the audited entity, as the acceleration of the process decreases the costs related to the audit on both sides. The auditor may have an easier approach to the company and use and less time to finish the analysis or use a smaller team than in previous. On the other hand, the audited entity faces the lower costs related to the time spent by the internal accountant/controller on cooperation with the auditing team (indirect benefit).

However, as mentioned in the discussion and analysis chapter of the paper, the automation shall be used to benefit the stakeholder as such, to tighten the expectation gap and increase their trust in the financial reports and the market. The responsibility for enforcement of the implementation of the data analytical engines and the prioritisation of the exploited features, which would benefit the stakeholder, shall be transferred to the regulatory bodies, who can create appropriate incentives for the auditing firms.

The idea is not to blame the auditors, but to create an environment benefiting all the stakeholders instead.

To conclude the paper, it is necessary to mention, that the expectation gap in the external financial auditing remains present despite the implementation of the automated techniques in the data analysis. One of the reasons is the aiming of the implementation, which is targeted to benefit the auditing firms, who have a full right to utilize the tools in their most beneficial method, since the development of such tools innovative tools is money and time costly. Additionally, the tools enlarge the set of skills possessed by the auditors and allow for the technological advancements in the data analysis and visualisation. However, when considering the impact on the expectation gap, other aspects shall be taken into account. The latest scandals are still resonating in the society and will be carried forward due to the decrease of trust into auditors’ professional judgement which will always play a significant role even in case of the auditing policy adjustment. Moreover, the trust into the auditing services, as well as into any other sphere is earned (Urban et al, 2000), which indicates, that the public confidence for the auditing

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for the current it shall be claimed, that the digitalisation might have the positive impact on auditing procedures, but the full potential has not been exploited, at least yet.

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