The audit industry is undergoing revolutionary advancements with the integration of Open Banking, which is considered a game changer by many. Once the Consumer Data Right (CDR) legislation was passed in 2019, Open Banking was widely adopted as it allows accredited auditors to access their client’s financial data digitally, well – given that they have ‘opted in’ [1]. This opens plenty of opportunities for innovative products and services through providing reliable third-party evidence that can be instantly analysed by auditor’s algorithms.

Below, we investigate three common audit tests to see exactly how Open Banking improves on them by driving better outcomes for auditors and (most importantly) their customers.

“The fraud test”:

Traditionally, auditors manually review bank statements to identify odd or large transactions that may indicate potential fraud. It is evident that this process can be time-consuming, especially when printed bank statements are involved.

With the introduction of Open Banking and data analytics, auditors can completely automate this process [2]. Algorithms can raise flags on one-off transactions, transactions with specific keywords, large amounts, or irregularities such as eleven monthly payments in a year.

Creditors Completeness Testing:

Creditors completeness testing is a crucial aspect of auditing to ensure accurate accounting for outstanding payments. It involves reviewing bank statements to identify which payments are made after the year-end but have expenses relating to before the year-end. For example, a payment made in January that has a description relating to “Dec” or “Christmas” should be treated as a creditor. However, this manual review process is also time-consuming and error prone.

By leveraging Open Banking and analytical tools, auditors can efficiently analyse post-year-end payments and identify potential creditors based on transaction description. This approach ultimately saves time and provides stakeholders with greater confidence in the completeness of financial statements.

Revenue Completeness Testing:

Finally, revenue completeness testing verifies the accuracy of recorded revenue transactions in an organisation’s financial statements. Traditionally, auditors used sampling from past accounting records, which may not provide a comprehensive. Open Banking can now improve testing by providing auditors with reliable third-party evidence from bank statements. Auditors can cross-reference bank statements with revenue entries, and further data analytics helps identify anomalies and trends, improving risk detection and automating testing.

Overcoming Challenges and Looking Ahead:

While Open Banking presents significant opportunities for the audit industry, standardisation across companies remains a challenge. Variations in the quality and format of data obtained from clients' systems hinder a seamless integration with data analytics and substantive procedures. Collaboration between auditors, software vendors and accounting system providers is necessary to establish a standardised approach to data extraction [3].

Additionally, auditors must adapt to the changing landscape, acquiring digital and data analytics skills while retaining their expertise in performing standard audit procedures. While these challenges exist, efforts to bridge the skills gap and educate auditors on new technologies will pave the way for a successful transition.