The IT Audit Gap
As businesses increasingly rely on technology to manage financial data, IT audits have become critical to financial audit and assurance exercises. The role of technology in financial reporting is undeniable. While the International Financial Reporting Standards (IFRS) do not explicitly mandate IT controls, they are essential for ensuring the accuracy, integrity, and reliability of financial data. IT systems are critical for processing, storing, and reporting financial information, making IT audits a vital component of financial audits and assurance exercises. Without strong IT controls, financial reporting may become inaccurate, incomplete, or misleading, leading to non-compliance with IFRS.
By incorporating IT audits into financial audits, organizations can enhance the reliability of their financial statements, reduce the risk of non-compliance, and provide stakeholders with greater confidence in their financial reporting. Reel Informatics’ IT Audit and Assurance as a Service (ITAS) supports organizations in achieving these goals by delivering comprehensive IT audits that strengthen financial reporting processes and ensure compliance with IFRS. Our team of experts works closely with financial auditors to deliver an integrated, high-assurance service that meets the highest international standards.
This blog explores the key areas where IT controls support IFRS compliance and highlights how Reel Informatics’ IT Audit and Assurance as a Service (ITAS) can help financial auditors improve their audits and assurance.
How IT Audits Support Key IFRS Standards
While IFRS does not explicitly mention IT controls, their importance in ensuring accurate, reliable, and secure financial reporting cannot be overstated. Effective IT controls support IFRS compliance by safeguarding the financial reporting process, ensuring data accuracy, protecting data integrity, and securing systems against cyber threats.
IT controls indirectly but significantly impact several IFRS standards. Here are some examples of IFRS requirements where IT audits can play a crucial role:
- IFRS 7 – Financial Instruments: Disclosures
IFRS 7 requires entities to disclose detailed information about financial instruments’ significance and associated risks. Given the complexity of financial instruments and the high volume of transactions processed by IT systems, effective IT controls are necessary to ensure accurate disclosures. Reel Informatics’ ITAS helps verify that the systems in place are reliable, ensuring the correct classification, measurement, and disclosure of financial instruments, which allows companies meet IFRS 7 requirements.
- IFRS 9 – Financial Instruments
IFRS 9 governs financial instrument classification, measurement, impairment, and hedge accounting. Financial institutions and corporations rely on IT systems to process and store vast amounts of data related to these instruments. Reel Informatics IT audits enable clients to assess whether the IT systems function correctly, ensuring that financial instruments are classified and measured accurately according to fair value calculations. We support organizations to reduce the risk of errors and inconsistencies that could lead to non-compliance.
- IFRS 15 – Revenue from Contracts with Customers
IFRS 15 provides a five-step model for revenue recognition, which can be complex for companies with various contracts and performance obligations. IT systems often track these contracts and ensure revenue is recognized appropriately. Strong IT controls ensure that the timing and amounts of revenue recognition are correct, even when automated systems handle complex data. Our audit of these systems as part of financial audits ensures that revenue is correctly reported in compliance with IFRS 15.
- IFRS 16 – Leases
Under IFRS 16, companies must recognize almost all leases on the balance sheet as liabilities and corresponding assets. IT systems manage the data related to lease agreements, making IT controls essential for ensuring that lease-related financial information is accurate and up to date. Our IT audits review these systems to confirm they correctly capture lease data, handle modifications, and ensure compliance with IFRS 16.
- IFRS 17 – Insurance Contracts
IFRS 17 introduces new principles for measuring insurance contract liabilities, making IT systems essential for tracking premiums, claims, and other relevant data. These systems handle complex calculations, such as risk adjustments and the recognition of contract modifications. Our audit of IT controls ensures that data related to insurance contracts is processed accurately, supporting compliance with IFRS 17.
- IFRS 10 – Consolidated Financial Statements
For entities that consolidate financial statements from multiple subsidiaries, IT systems are critical for gathering and reporting financial information across the group. IT controls ensure that data consolidation is performed correctly and consistently, supporting the accuracy of consolidated financial statements under IFRS 10. Our IT audits evaluate whether reliable systems adequately support consolidation processes, ensuring all entities are correctly included.
How Reel Informatics’ ITAS Enhance Financial Reporting Integrity
IT systems play a foundational role in managing the financial information that companies rely on for IFRS-compliant financial statements. Therefore, IT controls are integral to ensuring that financial data is accurate, secure, and reliable. Here’s how our IT audit and assurance as a service (ITAS) contribute to this process:
Ensuring Data Accuracy
IT systems process vast amounts of financial data daily. Without proper controls, the risk of errors or inaccuracies increases. Our ITAS verifies that financial data processed by IT systems is accurate, complete, and timely. By auditing the processes and controls around data management, companies can reduce the risk of errors in financial reports.
Maintaining Data Integrity
Data integrity ensures that data remains accurate and consistent throughout its lifecycle. IT controls ensure that financial data cannot be altered intentionally or unintentionally. Our ITAS reviews controls around data processing, storage, and transfers, ensuring that integrity is maintained at every step.
Restricting Access to Financial Data
Access control is one of the fundamental principles of IT security. IT systems that manage financial data must have robust access controls to ensure that only authorized personnel can view or modify sensitive information. Our ITAS assesses the effectiveness of these controls, reducing the risk of unauthorized access that could lead to fraud or errors in financial reports.
Ensuring System Reliability
Reliable IT systems are crucial for continuous and accurate financial reporting. Disruptions in IT systems can delay reporting or result in incomplete or inaccurate financial data. IT audits ensure that systems are designed and managed to minimize downtime and that appropriate disaster recovery plans are in place to safeguard financial data during system outages.