For companies still struggling to get their arms around financial compliance, especially with respect to internal control over financial reporting, technology may provide the answer.

That’s the view of the latest research paper by Financial Executives Research Foundation, which summarizes interviews with internal auditors, public accountants, and software providers. The paper profiles examples where increased used of data analytics and continuous monitoring have helped companies build control environments that are both effective and efficient.

“Advances in technology, specifically the use of automated analytics, provide opportunities to improve the approach to internal control monitoring and audit verification,” says the paper, titled Data Analytics and Financial Compliance: How Technology is Changing Audit and Business Systems. Audit firms increasingly are using technology, in some cases replacing traditional audit sampling with automated reviews of entire populations of data or transactions. 

Automated monitoring also is growing, the paper says, with technology built into company operating structures and core internal control systems to not only improve controls, but improve business processes as well. That makes the assurance not only more meaningful, but also helps justify the cost.

“Technology can be used to analyze the populations and identify potential exceptions, anomalies and outliers rather than just those found within a sample,” the paper says. The paper approaches the topic from four separate angles -- understanding the software solutions that are available, how analytics are used by both external auditors and internal auditors, and what the future might hold in terms of how analytics could be used in the audit. Contributors to the report include internal auditors, external auditors, vendors, and the American Institute of Certified Public Accountants.

One of the challenges for the profession as it increases its use of analytics is staffing and training, FERF says. The accounting and auditing profession is already wrestling a shortage of talent, and the use of analytics requires new insights in terms of understanding the data and following up on the questions it might raise. “The analytics output is not the end of the story,” the paper says. “The individual consuming these insights needs to respond to them.”

FERF also raises policy implications to consider. “An important question for the regulators and the audit profession is how this might affect the auditor’s opinion,” the paper says. “Auditing standards and processes, many written before today’s technologies were invented, will have to evolve.”