**2. Background**

The initial studies that focused on the impact of technology, specifically automated auditing, were completed by Vasarhelyi [22] over 35 years ago. Although this was a theoretical paper focusing on future impacts of audit automation, it did conclude on three anticipated impacts that have materialized today. These are the physical location of the auditor, audit timing, and the audit's dependence on technology [22]. More recent studies have indicated that audit automation leads to significant reductions in time and productivity gains [2, 23]. The key drivers for audit automation were identified as the ongoing changes in the regulatory landscape [24, 25] and the increased complexities in the financial system and financial products [23]. In addition, further studies have revealed that audit automation will impact the entire audit industry and that the impacts are not limited to internal or external audits or any specific type of review [23]. Since these pioneer studies, there have been dramatic advancements in technology enabling adoption and changes in all industries, including audit. The adoption of these technologies has impacted the audit industry [3]. Different ways of working were required in the audit industry to leverage the benefits posed by digitalizing old audit processes [3].

#### **2.1 Audit and the audit process**

According to the ISO 19011:2018 standards, an audit can be defined as a "systematic, independent and documented process for obtaining audit evidence (records, statements of fact or other information which are relevant and verifiable) and evaluating it objectively to determine the extent to which the audit criteria (a set of policies, procedures or requirements) are fulfilled". An audit involves an independent evaluation of information with a view to express an opinion on whether the information being represented is reliable, understandable, and relevant [26]. There are many types of audits, mainly financial audits, operational audits, statutory audits, or compliance audits. Audits are

#### *Perspective Chapter: Audit Digitalization – Key Impacts on the Audit Profession DOI: http://dx.doi.org/10.5772/intechopen.109042*

generally carried out by either internal audit or external audit teams [27]. The standard audit process can be followed for all audit types and consists of three main steps, namely: audit planning, audit execution and audit reporting. The audit follow-up process takes place after remediation of issues and exceptions noted have been remediated by the audit client. This assures that the risks identified during the audit have been addressed [26].

Internal audit has a broad scope related to the stringent control over all company business practices and risks, including assurance of the authenticity of financial records and the efficiency of the operations [28]. An external auditor is responsible for providing an independent opinion on an organization's annual financial statements. Therefore, providing reasonable assurance that the published financials are a true representation of the financial position reported [29, 30]. Any misstatements in the financial statements identified or breaks identified in the control environment that might lead to a material misstatement of the financial statements are reported to the shareholders and the public [31].

### **2.2 The application of technology in auditing**

Digitalization of audit processes started as continuous auditing [2, 32], audit automation [2, 3, 23] or computer-assisted audit techniques [33–35] with tools or toolsets. These studies highlighted the following advantages and benefits of adopting these techniques as faster execution times, wide scope coverage, consistent execution of audit tests, full population testing rather than sample testing [2, 33, 34, 36]. The above studies were completed in industries, including telecommunications, mining, and the financial sector, specifically banking [2].

Research completed specifically focusing on the impact of audit automation of accounting practices and financial auditing indicated significant productivity gains and a reduction in labor cost [37]. The automation of repetitive tasks has made teams more efficient, allowing them to focus on the outcomes rather than the execution itself [2, 37]. There was a significant spike in the repetitive nature and the need for these tests with introducing the Sarbanes-Oxley Act of 2002 (SOX) [38]. It increased the defined scope of internal audit functions and the responsibility and accountability of external audit firms leading to staff and skills shortages in the market and increased audit costs [39]. Introducing SOX regulation served as a catalyst for organizations to adopt automated audit techniques [40]. In recent years, the continued introduction of new acts focusing on specific topical areas such as data protection, information security, open banking services and payment security added pressure on organizations to comply and audit functions, both internal and external, to assure compliance statuses to the relevant regulatory bodies.
