Agile Auditing: Benefits and Drawbacks Essay (Critical Writing)

Introduction

Agile methodology is one of the most unique methodologies used by organizations to undertake a project. The agile principles are based on organizing processes into smaller, self-organized, autonomous, and team-based sprints. Any organization is required to undertake an audit of its financial statements. Internal audit teams are required to perform regular audits within the organizations. In recent times, digitization has revolutionized the way conventional activities are undertaken within an organization. A prominent concept that has come with the digitization of organizational processes is the induction of agile methodologies in Auditing.

Objectives of Agile Auditing

Agile Auditing builds upon the fundamentals of the agile approach by allowing internal audit teams to focus on the needs of stakeholders. Furthermore, it helps increase the speed of audit cycles, improve the scope of the audit, and create efficiency in the audit process (Mkoba & Marnewick, 2020). The main objective of agile Auditing is to create a system of continuous audits that is timely and involves all the stakeholders. The collaboration and interaction between the various stakeholders, processes, and tools are important in Auditing.

It is important to understand that organizations have to deal with market disruptions and a dynamic business environment. As a result, internal audit teams are usually unable to predict the changing nature of organizations. Another objective of agile Auditing is the integration of software tools and proper documentation. Agile auditing methods, therefore, allow internal Auditing to be undertaken continuously without the need to define requirements explicitly. The flexibility of the agile principles makes the audits respond to changes easily. As a result, the audits undertaken provide credible and reliable audit results.

Difference between Agile Auditing and Typical Agile SDLC

The agile audit approach is adapted from software engineering principles. One of the most popular software development life cycle (SDLC) methodologies include the waterfall and agile approaches. The waterfall is traditional and uses step by step flow of activities. On the other hand, agile SDLC methodology is based on short sprints which adjust to changes in the requirements of the software. Agile project management includes scrum and Kanban implementations.

The conventional business processes typically follow the traditional business process (TBP) model. The TBP model follows a sequential flow whereby the business process execution is planned, and it follows a given set of steps. One of the business processes that have made use of TBP is Auditing. The internal auditors can examine the organization’s financial books through a detailed and sequential audit plan. However, the main challenge with this approach is that the audit reports are always late and could not keep up with the dynamics of business management (Subramanian et al., 2018). Typical agile SDLC is characterized by the building of a prototype before the final product is launched. Agile audits are also designed to come up with custom audit reports to ensure that interdependent tasks are achieved, but at the same time, risks are mitigated.

The software engineering organizations using agile principles realized that there was a tremendous impact on the output of the process when agile methodologies were used as opposed to linear and sequential traditional methods. As a result, this approach was adopted in the design, running, and management of conventional organizational tasks, including Auditing. Adoption of agile principles is based on the fact that Auditing requires the delivery of results within an environment where the scope is constantly changing. The deliverables of each audit keep changing, and the stakeholders are continuously shifting.

Agile Team Structure

A typical internal audit team is characterized by a hierarchical structure where roles are defined by specialization and division of labor. The members of the team play the roles of tax professionals, audit staff, managers, and audit partners. The internal Auditing is done by this team, and the allocation of roles is based on the skills of the team member. Typical agile project management seeks to break down project objectives into smaller tasks that are delivered iteratively to increase productivity. The deliverables of a project being implemented using agile methodologies usually change, and as a result, such projects need to have agile teams. An agile audit team is made up of auditors who can collaborate to provide reports within short sprints. The structure of such a team is therefore defined by the fact that agile audits are characterized by short bursts of collaboration and planning.

As a result of the nature of the execution of agile audits, the structure of an agile audit team is a flat hierarchy (Newmark et al., 2018). The team is structured horizontally to eliminate middle levels of management. This means that the main auditors actively collaborate with the other stakeholders during an audit sprint without layers of management. It is efficient to run small teams because they are flexible and provide higher productivity. Using the Scrum approach, the audit team is a small cross-functional team that works on short-term auditing projects. The teams are self-governing, and it is their mandate to determine the scope and deliverables. On the other hand, using the Kanban approach is almost similar to scrum, with the only difference being that the team manager determines the scope based on Kanban principles.

Challenges DBS Group Audit Faced in Implementing Agile Auditing

The main challenge of auditing a business entity is the lack of clear scope, which inhibits the ability to elaborate a relevant long-term audit plan. The auditing regulatory bodies made it a requirement for The Development Bank of Singapore (DBS) Limited Audit Group to increase the scope, sample size, and frequency of audits undertaken by the firm (Foo & Bhattacharya, 2017). Therefore, the group undertook digitization that included the use of computer-assisted audit techniques (CAATs), which enabled the undertaking of continuous and automated mandatory audits. The key challenge to the automation effort is that organizational change usually faces objections (Appelbaum, 2017). Nevertheless, its introduction made it possible for the group to eliminate manual steps such as manual data extraction.

Although the automation of processes improves the output of the audit group, there was still an issue with the efficiency of their processes. There was also the challenge of the inflexibility of the scope definition in their scope-bound approach. As a result, it would be hard to come up with conclusions due to the many layers of communication, planning, and management. In 2017, agile principles were integrated into internal audits after running a successful test pilot for the same in 2016 (Foo & Bhattacharya, 2017). DBS opted for an organization-wide scale implementation of agile principles.

The full adoption of agile Auditing at DBS faced several challenges during the transition. Continuous audits and indulging of more stakeholders were seen as policing and monitoring of the financial statements, which could expose them. However, after some time, the stakeholders were able to see the ability of the Group Audit function to predict risks and avert them using agile methodologies. Stakeholders increased their expectations of the Group Audit function. This risked their chance of failure and shutdown in case of a mistake. To avoid this, the audit team integrated the use of digital technology to analyze big data and increase the speed of predicting risk.

Primary Benefits of Agile Auditing

The adoption of agile Auditing at DBS was influenced both internally and externally. There was a need to continuously provide audits with increased sample size, frequency, and scope internally (Betti & Sarens, 2020). Externally, the business environment for big banks in Asia was on a changing course, and DBS had to act fast to deal with the dynamic nature of its environment (Foo & Bhattacharya, 2017). The audits undertaken were supposed to act as a line of defense for the company by predicting risks proactively (Appelbaum et al., 2017). The audit reports were supposed to expose any risks in interaction and engagement with certain transactions, and the bank audit team was expected to provide sufficient prediction of the risks.

The ability to predict risks was achieved by integrating data analytics and machine learning models to work through the huge amounts of data being extracted from the bank’s financial statements and those in the market. The adoption of the digital disruption was successful as a result of the integration of agile Auditing (Appelbaum et al., 2017). Therefore, the main benefit of the adoption of automation and agile methodologies was the opportunity for the bank to predict risks at higher speeds (Betti & Sarens, 2020). Furthermore, it allowed the undertaking of audits where the scope was hard to define over the long term.

The lines of defense for the DBS Bank Group were defined by business management as the first line, corporate oversight functions as the second line, and group audit as the third line. As the third line of defense, the Group Audit function provides adequate and reliable risk management procedures for the bank. After the DBS Group audit had changed their perception of the stakeholders as a reliable division instead of policing agency, their value proposition changed completely (Foo & Bhattacharya, 2017). They adopted the Audit Mobility Initiative, which was meant to improve productivity and enhance efficiency. This helped to reduce the resources required to undertake the increased number of audits.

Impact of Agile Auditing on DBS Group Audit and Its Objectives

DBS Bank Group has been an organization that has experienced exponential growth over the years. Flexibility to adapt to changes in the dynamic markets is an important attribute in the success of such businesses. As a result, such organizations need to endeavor to enhance the efficiency of running the business processes such as Auditing. The main objective of DBS Bank Group is to ensure the strategic and operation goal of effective control of risks of their business processes (Foo & Bhattacharya, 2017). This is achieved through an adaptive methodology capable of dealing with the changing nature of the business environment. Agile Auditing was the much-needed change that allowed the organization to be able to predict risks proactively. This is important as it allows the bank to remain in control of the ongoing changes.

The adoption of agile Auditing changed the whole structure of the DBS Group Audit function. The methodology allowed the bank to spend less time on the planning audits that were already spiraling out of control. Therefore, the results and findings of the audits are generated and shared early enough to initiate remedies in the event of risks predicted in the audit report. Furthermore, in a bid to run processes efficiently, agile Auditing has enabled the bank to increase customer engagement and confidence in the process (Subramanian et al., 2018). The audit sprints facilitate constant interactions with stakeholders, including customers.

An important fact is that instead of focusing on the long-term evaluation of results, the agile approach allows constant review of the financial standing of the business. There has also been the integration of digitized systems, which have revolutionized data processing and analysis with the use of artificial intelligence and machine learning (Dickey et al., 2019). This clearly shows that DBS Bank has remained true to its objective of responding to change through the adoption of agile Auditing.

Drawbacks of Agile Auditing

The successful adoption of agile Auditing provides the ability to help solve common audit challenges. Similar to software development, agile Auditing faces the typical drawbacks of agile principles (Nafchi & Gandomani, 2016). The first drawback is the lack of focus on a final delivery as the scope of the requirements keeps changing. The audit teams have the freedom and independence to determine deliverables at each sprint. However, as a result of a lack of general scope and deliverables, the teams at times tend to be easily sidetracked.

Another drawback of the agile approach is that long-term projects are bound to suffer from constant incremental delivery. The agile principle is designed on quick turnaround times with a deliverable at the end of each sprint. This can go on without checks and balances, leading to problems with changed objectives in long-term projects. Although this can be beneficial, as seen by DBS Group Audit, where they integrated risk prediction as part of their deliverables, at times, this could be problematic (Foo & Bhattacharya, 2017). In case the audit team is inexperienced, they might tend to run the risk of scope creep. Such an occurrence could risk an out-of-control demand for resources not anticipated. Agile audit teams need to find ways to measure progress to avoid frustration and scope creep.

The last drawback to the agile approach is the risk of losing the ability to maintain collaboration between teams. Agile audit teams come up with their deliverables, and in case there is poor communication between the teams, collaboration could be lost. There is a high demand for commitment in terms of meetings, stakeholder engagement, and change management in agile Auditing (Mkoba & Marnewick, 2020). As a result, a little deviation could lead to chaotic management and integration of the different sprints. It is important to improve communication between the various audit teams.

Conclusion and Recommendations

The adoption of agile Auditing has revolutionized the running and management of internal Auditing within organizations. Based on the case study of DBS Group Audit, it is apparent that agile Auditing is based on the objective of providing fast turnarounds. Furthermore, it allows the structuring of audits to feature short-term scopes of the financial statements of an organization. The structure of the agile team is based on the scope of the audit sprint. There are numerous benefits of implementing agile Auditing, including the ability to predict risks proactively. The main drawback of agile Auditing is the lack of long-term strategy. As a result, it is recommended that a hybrid approach is designed to integrate a traditional approach mechanism that provides a line of implementation. However, the actual implementation will be agile sprints that are guided by the main long-term objective. Furthermore, it is also recommended that the DBS audit group undertakes proper training of the internal audit team. This will advance communication and collaboration amongst themselves and the stakeholders, thus improving the outcome of the agile audits.

References

Appelbaum, S. H., Calla, R., Desautels, D., & Hasan, L. (2017). The challenges of organizational agility (part 1). Industrial and Commercial Training. Web.

Betti, N., & Sarens, G. (2020). Understanding the internal audit function in a digitalized business environment. Journal of Accounting & Organizational Change. Web.

Dickey, G., Blanke, S., & Seaton, L. (2019). Machine learning in auditing: Current and future applications. The CPA Journal, 89(6), 16-21.

Foo, S. L., & Bhattacharya, L. (2017). Agile auditing at DBS: Embracing the future. Singapore Management University.

Mkoba, E., & Marnewick, C. (2020). Conceptual Framework for Auditing Agile Projects. IEEE Access, 8, 126460-126476. Web.

Nafchi, M. Z., & Gandomani, T. J. (2016). Agile Assessment Methods and Approaches. In Emerging Innovations in Agile Software Development (pp. 165-174). IGI Global. Web.

Newmark, R. I., Dickey, G., & Wilcox, W. E. (2018). Agility in audit: Could scrum improve the audit process? Current Issues in Auditing, 12(1), 18-28.

Subramanian, A., Krishnamachariar, P. K., Gupta, M., & Sharman, R. (2018). Auditing an agile development operations ecosystem. International Journal of Risk and Contingency Management (IJRCM), 7(4), 90-110. Web.