Robotics Process Automation and Audit – A transformation

Business Value Proposition of RPA:

RPA technology adoption leads to providing superior service quality, exceptional ROI, matchless process automation, enhanced compliance, upgraded business agility, and towering total business value.

1. High volume and value of transactions: Transactions occurring at substantial scale.
2. Limited exception handling: Clear, predictable standardized workflows without erratic edge cases.
3. Stable environment: Operating environments and underlying IT systems that remain consistent over time.
4. Frequent access to multiple systems: Scenarios requiring frequent data movements across ERPs, spreadsheets, and portals.
5. Ease of breakdown into defined and small processes: Modularity that allows breaking procedures into atomic, sequential actions.
6. Clear understanding of manual processing cost: Transparent metrics on time, headcount, and financial expenditure incurred manually.
7. To involve a significant amount of human effort to execute them: High human labour hours expended on mundane data entry or extraction.
8. To be repeatable at the interval: Recurring weekly, monthly, or quarterly reporting rhythms.
9. The solution is based on a clear set of rules: Unambiguous logic trees without subjective human discretion.

Core Capabilities and Tasks Executed by RPA Software Bots:

4.1 On the Road Towards RPA-Based Audits (Implementation Methodology)

RPA robots are a hidden gem for the audit profession as they can change the role and responsibility of an auditor by shifting the focus from data collection, testing, and analysis to complex and high-risk areas of control testing and exception scrutiny. An auditor for yielding the maximum profit from RPA bot employment must address the following points:

• a) Process Recognition: The first and foremost step for an auditor is to identify the process capable of automation. The process is a series of tedious, manual, and repetitive transactions and requires minimal decision power, most importantly, it should be rule-based and can be automated.
• b) Defining Steps for Automation: RPA workers follow the pre-embedded conditions built in the small steps of an audit process that executes the task as a human being would perform. For example, for performing the simple task of checking unread e-mails, a software bot follows a series of commands to open the browser, log in with their credentials, identify and read e-mails. Thus, the next vital step for an auditor is to select those audit procedures having the potential of breaking down within the process into narrow categories and define the steps for software bots who can execute the task in series to accomplish the perfect results.
• c) Data Standardization: Data is the root of an auditing function. For the software program to successfully interpret the inputs (data attributes) in the auditing compilations, it should essentially be in a structured format. Audit data is voluminous and gathered from various and different sources. There is a possibility that collected information lacks uniformity. For example, one report might label sales while the other report might label revenue. Such contradiction may puzzle the robot and create challenges in decoding and portraying the required results. The solution to this problem is simple—to standardize data in a structured format to get the best results of RPA implementation.
• d) Selection of Audit Procedures for Automation: Several audit procedures may be rule-based and seem to fit the criteria to be automated by preliminary analysis, but it may not be beneficial to automate them all. Each audit procedure chosen further needs critical study and scrutiny on the following parameters for the final selection:
  • Possibility of collection of data inputs digitally or can convert the data in a digital format quickly and accurately.
  • Perform cost-benefit analysis by comparing and evaluating the value to be added over its life to the cost to be incurred for setting up operations and any further anticipated maintenance cost.
  The auditor must evaluate and choose the process that has readiness in digital format and gives the maximum payoff.
• e) Prototyping and Experimentation: After identifying and selecting the audit procedures to be automated, the next step that pops up is designing a prototype; whose implementation would award the desired outcome of successful automation. Prototype implementation would start from configuring the steps to be performed by software bots, followed by running the project by feeding sample data, evaluating the results, diagnosing the errors and deviations, and finally debugging and rectifying them. The procedure validates the pre-programmed conditions to mitigate any detour.
• f) Evaluation and Feedback: The audit environment is dynamic by having many amendments and reforms. After the RPA tool has been successfully launched and implemented in real-audit engagements, there is a need to regularly update and refine the embedded rules and instructions to match the right outcome.

• a) Audit Confirmations: Confirmations are a necessary tool of an auditing procedure that aids in increase of the reliance on the period-end balance. They support optimally mitigating the audit risk. Traditionally, sending confirmation is a manual process where letters are prepared and sent to period end titleholders, namely, banks, customers, and vendors requesting to confirm the balance. Implementation of RPA bots relieves the auditor with its ability to cover the entire population in no time, reduces the time and energy spent in the process, and ensures mailing of prompt and timely reminders in case of non-receipt.
  The RPA Confirmation Workflow: Builds in automation starting with logging the system to extract the list of account holders in conjunction with their period-end balance and communication address to send the confirmation. Next, the RPA worker prepares personalized confirmation letters for each recipient based on the model format. Then all confirmation letters are posted via online correspondence, replies received are downloaded and compared with, and finally the discrepancies are highlighted. Thus, the entire process gets automated, leaving just digging reasoning for inconsistency as a manual process.
• b) Audit Reconciliation: Reconciliations are an essential auditing technique to find out questionable, problematic, and undependable transactions. Working with software bots makes the entire process automated; they can easily perform the tedious task of studying and matching two jumbo sets of data tirelessly with accuracy and give exact results.
  The RPA Reconciliation Workflow: The RPA worker enables the reconciliation process by performing a series of tasks to push away manual labour, originating from logging into the system, downloading all the statements for reconciliation, followed by vigorous matching, and comparing the transactions in every data set. This performance works with the help of unique identification, for example, invoice number or voucher number. Lastly, it terminates with perfect and detailed identification and compilation of the mismatched entries to formulate the entries to be posted in the ledgers.
• c) Audit Testing & 3-Way Matching: Transaction testing is a vital auditing technique to look after the assessment of the risk of a material misstatement, done by performing analytical procedures, internal controls, and substantive testing. This technique comforts the auditor to get assurance on the effectiveness of client operations and established internal controls including verifying management’s assertions of existence, completeness, and valuation.
  RPA robots excel by thoroughly testing the entire population of millions of items to assure the auditor about data veracity. The RPA robots refine the workflow by enabling the management team to focus their in-depth audit lenses on exceptional items. RPA isolates about 60–70 odd transactions to be examined by the management for discussion and comments. Software bots can be easily programmed to automatically perform a 3-way match testing of the invoice, purchase order, and shipping documents for the entire population eliminating sampling risk.
• d) Audit Documentation: Documentation is a storehouse of the grounds and scenario that enabled the auditor to form its opinion. All the data gathered from varied sources are compiled together and stored as audit evidence. An auditor needs to maintain it properly to support its conclusion whenever required in a review or scrutiny. The exercise demanding manual work can turn out to be burdensome for auditors.
  RPA robots assist in regularizing the activity of audit documentation by fashioning the mode of collecting audit evidence by taking standardized data from each of the different sources and combining them into one audit report with minimal effort. As a result, the records maintained are well-organized, systematic, and precise.
• e) Audit Quality: A clear-cut intent of the client and the integral pressure for the auditor is to maintain the quality of an audit. Robots stimulate clients by gifting them a methodical, dependable, and standardized audit process flow by gathering data in a reliable and consistent format. Further, they potentially permit a means to design a robust process-oriented auditing approach by a complete analysis of the financial position by RPA auditor and focus on vital management decisions by human auditors.
  RPA robots can effortlessly evaluate the quality of the auditing data in any system. For example, concerning master data files, they take care of the completeness of all fields together including diagnosis of all duplicates and their validation. The RPA-based system can automate data collection and classification operations identifying core trends as a medium of the annual risk assessment process.
• f) Audit Progress Tracking: An audit plan not timely tracked can prove to be a disaster. Manual progress tracing not done dutifully may doom the assignment and reputation of an auditor. RPA robots excel when used to track the progress against the annual audit plan. In other words, they work efficiently to track and monitor key risk indicators (KRIs). RPA workers can automate by identifying open items, sending electronic mails to responsible parties, conducting regular follow-ups with escalating concerns when due dates spill over, and documenting remediation status.

Model 1: Revenue Audit Automation

Revenue by default is one of the most high-risk areas in audit engagements. Revenue reconciliations and transaction testing are the best audit measures to provide comfort. They are most suitable to be performed by RPA robots being manually repetitive and do not require complex reasoning. RPA worker simulates the job by performing the following operations:

• Revenue Reconciliation: Software bots perform the reconciliation process, starting by logging into the client secure file transfer protocol (FTP) server, extract transaction listing, compile and compare total sales as per the trial balance.
• Analytical Procedures: RPA robots retrieve the total revenue amount from previous years’ records, compare with the current year, and generate an alert when the difference exceeds the 5% threshold of materiality.
• Revenue Testing: If no difference comes across, the RPA bots can test internal controls and substantive testing by accessing and extracting audit evidence in the form of purchase orders, invoices, and shipping listings provided by the client. After comparing all three factors, they flag discrepancies. Thus, using RPA expands coverage and empowers the auditor to focus time and energy on risky areas.

Model 2: Stock Audit Automation

Testing inventory is the most crucial area in auditing a financial statement. It is the most time-consuming and requires manual checking; thus, RPA becomes the best choice to unburden the auditors. RPA employees can be a handy asset for inventory management involving automation through the following operations:

• Stock Reconciliation: RPA robots log into the system and extract the stock quantity outstanding on the closing date along with the stock quantity physically verified by management from e-mail. Then effectively compares and reconciles the stock quantity escalating the variances.
• Stock Verification: RPA software bots extract the date of receipt of each item from the customer’s inventory system and retrieve the delivery date by searching for the tracking number on the goods carrier’s website. Next, it compares the two sets of data to determine the accuracy of the receipt date.

By offloading routine manual tasks to digital workers, audit professionals can redirect their intellect toward professional skepticism, forensic probing, internal control evaluations, and high-level advisory engagements—advancing both the standard of audit quality and stakeholder trust.