By: Toffer Winslow, General Manager of Lavastorm Analytics
And then there were four…
To paraphrase Twain, reports of the death of the traditional financial audit are greatly exaggerated. But few would dispute that market for traditional financial audit services has largely been commoditized over the past few decades. Witness the consolidation of the industry: until 1988 we had the Big 8, which became the Big 6, and a decade later we had the Big 5 until Enron spelled the end of the road for Arthur Andersen. Since 2002 we have been in the era of the Big Four (all of whom have at least $20Bn in revenue and 140,000 employees) who handle the vast majority of audits for larger companies.
To avoid the death spiral of shrinking revenues and collapsing margins, the more innovative players in the market, including the Big Four and smaller regional firms, have tried to diversify their service offerings into higher margin, higher growth areas. Their efforts have met with varying degrees of success.
Searching for growth
One area that is emerging as a new growth driver for audit firms is business process analytics. Whereas traditional audits were preoccupied with the integrity of financial statements, business process analytics go several layers deeper into an organization to examine the operational data generated by underlying business processes. While these business processes eventually roll up into the financial data that is focus of traditional audits, there are typically many “operational air gaps” between these two data sets. As a result, to truly verify the integrity of financial statements, it is necessary to dig into the operational bedrock of a company to ensure there are no disconnects between the two.
While this truth may seem self-evident, the reality is that there has been a persistent disconnect between these two worlds. One of the major underlying causes has been a shortage of effective tools to unify and analyze the financial and operational data sets. Traditional business intelligence (BI) platforms have earned a reputation for being too slow and expensive to meet these needs. A recent Gartner study estimated that “70% to 80% of corporate business intelligence projects fail”, and went on to identify poor communication between IT and the business as the leading cause of these failures.
But what many people now realize is that fixing this communication gap may happen around the same time as we achieve global peace, reach worldwide consensus on tactics to reduce climate change, and all floss regularly. Instead, what the market is asking for are analytic tools and approaches that have built-in flexibility and speed – so called Agile BI. This approach acknowledges that IT and the business will probably never communicate all that well, and even if they did, the business environment changes so frequently that it is impossible to predetermine future needs. So why bother trying?
Today, what many innovative audit firms are doing is turning to a new generation of BI and data discovery software tools that have been purpose-built to accommodate the unpleasant facts that that data remains siloed, IT remains short-staffed, and business needs change rapidly. The Lavastorm Analytic Platform is part of this new class of agile, cost-effective tools, as are the likes of QlikView, Spotfire, and Tableau. Our recent
Back to the Future?
The trends towards audit firms supplementing their traditional revenue streams with new kinds of business process analysis makes me wonder if we might be getting déjà-vu all over again. Specifically, as the traditional audit firms are increasingly involved in business process analysis, can business process consulting services be far behind? And if so, don’t those firms start to look like the firms of 10 – 20 years ago that offered audit services along with a broad array of other consulting services? Those firms were eventually split apart (think: Arthur Andersen and Accenture – formerly Andersen Consulting), in part because of the potential for conflicts of interest that arose from offering both service types. Is that where the BI revolution is going to push the Big Four? What’s your take?
