My first real job out of college — after my high school gig selling shoes — was as a financial auditor. I joined one of the so-called “Big Eight” accounting firms called Coopers and Lybrand, which has since merged with Price Waterhouse to yield PwC (now there are the “Big Four”). My first day of work was a cold January day in Chicago, and I was quickly assigned to the most exciting audits for the upcoming summer clients: government entities. So, I spent the winter months auditing small local cities and municipalities. Talk about drudgery.
I wasn’t particularly good at being an auditor and I couldn’t handle the monotony, so I quit after only 10 months. Following the old adage “those who can, do; those who can’t, teach,” I instead applied to get a PhD in accounting which launched my next career as an accounting professor.
My experience in the accounting profession is not a unique one. Audits are routinely painful for auditors and even more so for their clients. For the clients, it’s a time-consuming process that requires them to collect, manage, and organize hundreds of documents for their auditors. Then the auditor needs to verify many of the documents, contact financial intermediaries such as banks, and, if there are discrepancies, request additional information from their clients.
The result is that the accounting team at the client companies spend a huge amount of time gathering information for their yearly audits. And young accountants working on audits — like I was years ago — often leave the industry.
When I was in college, my audit professor said that he thought we were less than a decade away from that changing — someday soon, lower level auditing work would be automated. Well, today that still hasn’t happened.
Auditing firms struggle with high turnover at the lower levels and their clients still spend too much time and energy manually gathering information each year. Both factors are huge obstacles for banks, private equity firms, and other companies that regularly need external verification of financial transactions. A friend of mine at a major debt fund recently complained that he lost out on a $50 million investment opportunity because his firm couldn’t find an accounting firm that could do their required “quality of earnings'' audit on a timely basis. The “Big Four” now outsource the most tedious parts of the process to countries like India, but that has not been a panacea.
One of our new investments, AuditSight, is perfectly positioned to be a company that finally changes the game for the auditing world. AuditSight has created software for accounting firms that will help them streamline their audits, increasing their productivity and drastically improving the experience for their clients.
AuditSight is founded by an exceptional team that knows the market. The founders, TC Whittaker and Jonathan Womack, are both former auditors who then built a multi-million dollar SaaS business from scratch within the accounting firm PwC. I can’t imagine how hard it must have been to build a successful software business from within a juggernaut like PwC. Importantly, that business — called InsightsOfficer — provided automated bookkeeping services, which gave TC and Jonathan a front row seat to how tools like AI and APIs need to be used within the world of financial software.
In the VC world, we often ask ourselves ‘why now?’ Decades ago, many in the profession thought that audits were close to automation, but it never happened. So what makes this time different?
First, accounting software systems have finally been moving to the cloud, thereby allowing automated access to up-to-date information in the general ledger. Two of the larger companies in this space are NetSuite and Sage-Intacct. Even Quickbooks has moved to the cloud.
Second, and more importantly, there are new tools that automate the retrieval of financial information from third parties. One example of this is the company Plaid.
Finally, the advent of artificial intelligence allows a software system like AuditSight to learn from the transaction details over time.
With these tools in place, I believe AuditSight will be able to transform the auditing experience for both auditors and the companies that go through them— I’m excited to watch what TC and Jonathan are able to do over time.