Des O'Donoghue: Hi guys, Des O'Donohoe here from Fund Recs again and today I'm joined by Mr. David Heath from Circit. David, welcome.
David Heath: Hey Des, how are you? So yeah, today I thought I would talk about the financial audit in general. Tell you a little bit about what Circit does and then talk about FinTech in general and how that wave of FinTech is going to affect the audit over the next few years.
Des O'Donoghue: Okay. Sounds super. Let's go for it.
David Heath: Yeah. So Circit is an auditor request platform, at its core. We focus on what was the audit confirmation letter. Okay. So that was notorious for all the wrong reasons. It's a critical piece of audit evidence and it's required in order to sign off of financial statements. So this is where an auditor sends a letter to a counterparty to confirm information at a balance sheet date in relation to their clients. So it could be a bank, it could be a solicitor, it could be a broker. Okay, so we take the example of a fund audit. Okay, if I'm the auditor I send you, the fund administrator, I send you a letter. You then get the investment managers to sign off on releasing information. Okay. So that letter then comes back to me as the auditor. I then send it on to the different counterparties. I then receive it back and I've got my evidence I need in order to sign off the financial statements.
Des O'Donoghue: Okay. Get that.
David Heath: Okay. So, that is, if you imagine a hundred of those letters, throughout an audit and-
Des O'Donoghue: Labour intensive I would imagine?
David Heath: Yes. Yeah, and then 20,000 of those throughout a whole firm. Okay. So that's not only a lot of costs, but it's a lot of risk of fraud, potentially a lot of data security risk, unsecure paper environment. Okay. So Circit provides a digital platform for each of those parties to participate in the network. Everybody can track it at every stage, the auditor gets the evidence they need.
Des O'Donoghue: Right. So it just really puts a process on it. A very, I suppose, a great oversight on the process. Would that be fair to say?
David Heath: Exactly. Yeah. And this isn't a new problem; it's been around for a long time. Auditors have needed independent evidence for a long time, but conventional wisdom has kind of said, well, the banks in particular, won't participate in responding on a digital platform to that type of request. OK, So. But what we've seen is that there is a real drive for innovation within the banks at the moment. They really want to drive a digital customer experience. Yes, they want to reduce costs, but they also are open to collaboration with FinTechs.
Des O'Donoghue: Right? Because that is really, this whole idea of straight through processing. That's really what everyone is striving for at the moment. And that is where Fintech companies are playing a part.
David Heath: That's it. And that's what I suppose, driving the whole wave of FinTech at the moment is that previously siloed financial data, housed within a particular organization, has now been opened up and people can connect in a secure way to those systems and organizations can communicate securely. So, that's great for auditors. I mean, that's something they've never had before. And if you imagine, an auditor spends about 90% of their time looking at historical data, three, six, nine months in the past. Ok? And just in trying to establish the truth, fundamentally.
David Heath: A client or a fund administrator, doesn't want to be asked questions about transactions that happened that long ago. And to be honest, an auditor doesn't want to ask those questions really either, the best part of an audit is where the last 10% where you're advising the client, helping them grow their business, going forward. Yeah. So, Circit's mission, if you'd like, is to flip that around. We want to allow an auditor to verify what has already happened in that initial 10% of the time. And then if you imagine training every financial auditor into critically assessing forward-looking statements, we'd have a lot better businesses, probably a safer economy, you know.
Des O'Donoghue: It's just more efficient. It's quicker. But again, you have that oversight on the process as well.
David Heath: Exactly. Yeah. And all of these, there's highly qualified graduates going into auditing all the time and they're doing mundane processes.
Des O'Donoghue: Yeah. We would see exactly the same on the reconciliation side, you've got college graduates coming in and the last thing they want to be doing is reconciling data. So I would imagine it's very similar.
David Heath: It's exactly the same. It's widespread across financial services in general and I think there's a big wave of innovation still to come.
Des O'Donoghue: Yeah. So in terms of the future, is there anything that you see coming down the path? I mean, we see stuff all the time like blockchain and all those kinds of things. Are there any comments and you're smiling, you know?
David Heath: No, no. You mentioned blockchain this time. I was trying not to mention the 'B' word. But no, blockchain is a massive ledger and accountants love ledgers. Okay. So, there certainly are many applications that will come out of blockchain. And I think part of what Circit will do is look into those blockchains to allow an auditor to get that data very quickly.
Des O'Donoghue: Because I don't always like mentioning blockchain because of my own thoughts on the whole thing. But because it is a ledger, I thought it would be a good idea to see where it fit. Is it going to be helpful to you guys? Is it going to be disruptive to what you're trying to do?
David Heath: Yeah. It's right down on our street. In general, I think there won't be one blockchain to rule them all necessarily in terms of application, in terms of business. So, an auditor will still need to gain access to information. And that's what Circit wants to do, is to allow them one view to look at lots of different sources of data.
Des O'Donoghue: Oh, okay. All right. So it really will help you ultimately.
David Heath: That's it. Yeah. It's a bit away yet though.
Des O'Donoghue: Okay. Good. Absolute pleasure having you in. Thanks for taking the time.
David Heath: Thanks Des.