The Hype Turns Real: How Analytics and Robotics Are Changing Finance

Big data. Analytics. Robotic Process Automation. Blockchain. CFOs have been hearing these buzz words in recent years, but there doesn’t seem to have been actual deployments and outcomes. Is it all hype?

Maybe not. “The companies I’ve spoken to are implementing data analytics, but it’s more an experimentation,” says Alan Young, Global Methodology Leader at EY. However, EY itself is investing heavily in analytics and looking seriously at robotics.

Young and Felice Persico, EY’s Global Assurance Leader, spoke to CFO Innovation’s May May Ho about how EY and its clients are deploying new technologies, the challenges and benefits, and other issues. Excerpts:

What is data analytics and how is it changing the work of auditors and consultants, and the management of your client companies?

Alan Young: From an audit perspective, we’re looking at taking management and financial information [from the client company] and analyzing it to identify if there has been any material misstatements within there, or whether there has been any issues within the transactions that management had performed.

“In a more traditional external audit, it was very much sample-based, and inquiries and observations. We can now capture all the data that the company has processed in the 12 months and we can perform analysis on that”

From the [client] management perspective, analyzing the data will be very helpful to inform decision-making responsibilities and help with forecasting. What we [on the advisory side] have been doing with some companies is help them manage the vast amount of information that sits within different systems and bring that together in a way that they have never been able to do before.

That’s really valuable for a company that’s got a number of legacy systems dealing with both financial and non-financial information.

Felice Persico: Analytics has been there for a long time. What’s new is big data. Once you know you can capture [millions of financial and non-financial data points], you open a new world. With big data you can do many things. You can analyze and then also automate.

Alan Young: For example, in financial services, there is a lot of effort goes in behind the scenes – manual intervention by people moving data from one information system to another, doing third-party reconciliations and checks. The advent of technology and big data analytics is allowing a lot of that to be automated.

You also have robotics software that is automatically moving information from one place to another and that could really streamline the process. This can cut costs in terms of reduction in headcount. That’s really only the start. The ability to implement those types of robotic activity will bring a significant change to business.

For companies that put off the big expense of replacing legacy systems with new systems, what robotics allows them to do is not necessarily replace those systems, but put a layer on top that does that automation. That opens up the opportunity for management to access information in a way they couldn’t before without significant cost to them.  

Let’s talk about assurance, both external and internal auditing. Is big data analytics enhancing the quality of your audits?

Alan Young: In a more traditional external audit, it was very much sample-based, and inquiries and observations. We can now capture all the data that the company has processed in the 12 months and we can perform analysis on that. We’re getting better insights and better assurance from the analysis of their performance because we are looking at the actual population.

Analytics also helps improve the relevancy of that audit by enabling us to bring more insights to management about their financial data that perhaps they have not thought about or understood. 

There’s a real opportunity to improve the quality of the internal audit, the views and analysis that they perform. For similar reasons [as in external audit], they are able to look at vast amounts of transactions and therefore be able to provide management with greater assurance as a result of the work they are performing.

There’s a lot of synergy if you like between what the external and internal auditors can be doing.

“Will the price of audit go down? Not at all. But the pricing of the audit will be different”

So can CFOs expect the cost of external audit to decline?

Felice Persico: Will the price of audit go down? Not at all. But the pricing of the audit will be different.

If we look at the audit as it was and probably still is, [the price] is a function of the labor cost, as audit is a very labor-intensive industry. With the introduction of technology, audit will move more in a balance between capital-intensive and labor. The investment in technology the audit firm has to make will be massive, and so the pricing will no longer be a function of pure labor. It will be a mix of technology and labor.

As business leaders in this industry, we have looked at other industries that have already gone into the same process. They have moved from labor-intensive to more capital, and we observed that they used the opportunity to pass on the cost to the final customer.

What challenges do you as auditors encounter as auditing evolves with big data analytics?

Alan Young: Technology has become cheaper to manage larger volumes of data, but we still have to overcome that challenge of taking our clients’ data and using data analytics on it. That’s quite a technology challenge.

Sometimes some companies are concerned about releasing data because of cyber security threats. They want to make sure they control it. That’s a challenge for us as auditors. We have right of access because we are auditors, but we also recognize we have to keep their data secure. We’re putting a lot investment in to ensure our clients’ data is kept very secure.

How will your work as auditors be affected by blockchain technology and the emergence of digital currencies like Bitcoin?

Alan Young: There will be more visibility into the transaction between two parties, which is what makes it more secure. But the substance of the transaction still remains outside of the blockchain.

So while blockchain can help from the financial perspective and helps security at the point of transaction happening, that something has really occurred, we still need to be satisfied from the audit perspective that the substance of the transaction is appropriate, that management is still accounting for that transaction or process. Those challenges will continue with this new technology.

Bitcoin is a good example of where blockchain is being used, but there still is fraudulent activity with Bitcoin. And so while there is a lot of hype around blockchain being more secure and so on, we’ve yet to see how that is really going to happen in practice. There’s still quite a journey to go before it really takes off as the normal way of recording financial transactions.

Bitcoin is a way of introducing a different way of trading in money. It doesn’t sit with any one country; it doesn’t sit with any one bank. It sits on the Internet.

That actually creates challenges for regulators as to how they manage that type of environment that is outside of their control within a given country. How do they manage this type of infrastructure? 

On the advisory side, are CFOs and companies in Asia asking you to help deploy big data analytics and robotics?

Alan Young: The companies I’ve spoken to are implementing data analytics, but it’s more an experimentation. It’s understanding what’s the capability.

If I think about our own business [in EY], we’re investing heavily in data analytics in the audit process. We recognize there’s a competitive advantage in using data analytics. It improves the quality of our audit process. It gives us an opportunity to add more value to our clients by bringing more insights.

We strongly feel that we want to be ahead on that; we want to be the firm that is driving that change within the profession.

“If you’re sitting in Singapore and you have people operating in all parts of the world, you can use analytics to help you understand what sort of activities they are doing . . . Are they following policies and procedures? Are they overworked or underworked?”

Are medium sized firms interested as well, or just the bigger enterprises and multinationals?

Alan Young: I think there are some opportunities for companies to actually start leapfrogging other companies. The companies that really mine their data and drive the benefit from the data are going to give themselves a competitive edge, whether they are small, medium or large.

In some respects you can argue that medium sized companies have more flexibility to perhaps introduce analytics in a way that larger companies can’t do because of their agility.

What do companies have to gain from overcoming the challenges and deploying big data analytics?

Alan Young: There’s a real opportunity for companies to think about how they can improve their decision-making process with information they have got within their various systems.

If they have customer information they are collecting through point of sale, how can they use that information to drive decisions about where they are locating their outlets and so on? It’s bringing those different pieces of information together.

You can also use data analytics to monitor what individuals within the finance department are doing. If you’re sitting in Singapore and you have people operating in all parts of the world, you can use analytics to help you understand what sort of activities they are doing. Are they following policies and procedures? Are they circumventing them? Are they taking short cuts?

Analyzing time of day when they are posting transactions, for example, is quite important to understand their workload. Are they overworked or underworked?  Are there opportunities there for efficiencies or do I need to put more resources in place or is there stress?

Do you think there will be a reduction of manpower when companies implement data analytics and especially robotics?

Alan Young: I liken this back to 20, 25 years ago, when we were talking about desktop computers coming in. There was all that talk about computers going to replace people.

Here we are 25 years later, and we have computers absolutely everywhere and we also have jobs everywhere.

I think what we will find is a redirection of human resources into more value added opportunities that are a more productive use of people’s time. There’s a survey that I saw [The Future of Jobs by the World Economic Forum] saying that 65% of children aged up to 5 today are going to get into jobs that currently don’t exist.

Technology could change what people do in a way that, at the moment, we can’t quite imagine. As human beings, we will continue to add value in a way that technology cannot. It’s just that the way we add value will change.

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