These days, bank data feeds automatically import into software programs. We can set up transaction rules to auto code transactions and even generate reports that check that the dividend income received matches the dividends declared by the companies. Software generates exception reports that show when an imported data feed transaction has been manually changed to protect the integrity of the data. There are usually only a handful of transactions that need to be manually coded.

While automation is now being used to reduce the time taken to complete an audit, as yet a computer cannot replicate professional scepticism which is an essential component of a quality audit.

Professional scepticism is defined in the auditing standards as “an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence”.

While automation has changed our audit process, there is still a need for human oversight. Kasey MacFarlane, ATO assistant commissioner said recently, “What would concern us is if we see SMSF auditors not necessarily providing their skill and judgement, just relying on the automated process to do the finance checks, and then not actually turning their mind to the regulatory issues.”

The systemisation and automation of elements of the audit are now commonplace. Current computer programs can do the finance checks but they can’t assess whether the fund has contravened the SIS Act and regulations, which is the purpose of the audit process.

Additionally, SMSF auditing is a very competitive market, with pressure on price and turnover times. Auditors have had to streamline processes to remain competitive. The ATO is aware of this and have been working with SMSF software provides such as MyWorkpapers (previously Auditflow) and CaseWare to help them understand the impact their products have on the SMSF audit process.

These products have changed the way we audit. At Tactical Super, we use MyWorkpapers. It connects directly to the accounting software and imports a trial balance that is used to generate work papers. The preliminary analytical procedures are automatically calculated. The program then suggests what transactions it believes should be reviewed based on its materiality assessment.

The program, and others like it, allow the auditor to override its recommendations, but the basic audit plan is essentially completed automatically.

The overall implications for auditors of this kind of software is immense. Over the next several years, audits won’t be fully automated but they will focus on real time exception auditing and rely on the system to tell them what to review and where the potential compliance problems are.

Real time auditing is very much in line with the ATO’s new voluntary disclosure service for SMSFs. They want early engagement about unrectified contraventions. The ATO has publicly stated that they will take voluntary disclosure into account when remitting penalties.

Auditors who do not use these programs and tools as they become mainstream will find they cannot do a compliant audit in a time-effective way. In addition, risk managers will want to know almost immediately if there is a compliance or risk issue, and will not wait for months after the event. As with many software applications in all disciplines, auditing will not be able to continue with the highly manual processes used today.

Technology in auditing is here and will become even more fundamental to the way auditing is done in a few years.