It is safe to say that the audit industry is currently under quite a bit of scrutiny.

Through my conversations with a cross section of accounting practices across the UK, Europe and North America there is a general consensus that audits are getting more complex at the same time as fees are increasingly coming under pressure. The amount of effort required to complete an audit is increasing, as the regulations become stricter and the risk of penalties more likely.

It is not just the audit firms themselves feeling the pressure, regulators are also under fire. The UK’s Financial Reporting Council (FRC) has received plenty of criticism over the past year or so for its perceived leniency. An independent review by Sir John Kingman at the end of last year recommended that the FRC be replaced with an independent statutory regulator, accountable to Parliament, with a new mandate, new clarity of mission, new leadership and new powers.

This criticism has caused the audit watchdog in the last year to nearly treble its fines against audit firms. In monetary terms this is an increase from £15.5m in 2017 to over £43m in 2018. The number of fines rose from 11 to 27.

The FRC’s clear message to the audit industry has not just come in the form of financial sanctions. The watchdog struck off six individuals from memberships of professional bodies and increased non-financial sanctions almost 250% from 11 in 2017 to 38 in 2018. “The significant increase in the number, range and severity of sanctions sends a clear message that where behaviour falls short of what is required, we will hold those responsible to account,” said Elizabeth Barrett, executive counsel of the FRC.

What does all this mean for audit firms? To state the obvious, with regulations getting tighter and sanctions more severe and frequent, there is a need for firms to adapt to this changing environment. One area that can help improve audit quality is leveraging technology. Paul Winrow, Director of Professional Standards at Baker Tilly Global said “We believe that our member firms around the world will be able to benefit from software to deliver high quality audit work.”

Faster adoption of technology won’t make the regulators reduce their scrutiny of audit firms, but it will certainly help a host of partners sleep better at night.

As a guest speaker at a recent, global accounting network event I was very interested to hear a robust discussion focused on the subjective area of “materiality”. The unsurprising, and somewhat unsatisfactory, conclusion from the room was that determining materiality depended on a number of different factors, and that there was no “golden rule”. Not the preferred answer for a room full of accountants. What is clear, though, is that to determine materiality one must first of all calculate the numbers before judging what is material or not.

From a financial instrument valuation perspective, my take on materiality is slightly different.

The complex nature of financial instruments means that auditors cannot simply rely on the client provided valuations and use these to judge materiality. It is a big assumption that the valuations are, indeed, correct. Valuations need to be cross-checked to ensure the starting point of deciding whether they are material is valid.

There are two important points to remember with this. Firstly, banks are often the source of clients’ valuations and they can, and do, get it wrong. The disclaimer at the bottom of any counterparty provided valuation is testament to this. The message that valuations should not be relied upon comes through loud and clear. There is plenty of scope for human error in the process of calculating financial instrument valuations. We see it regularly, when we are asked to check valuations. Despite the disclaimers it is understandable that companies do actually rely on the valuations for financial reporting purposes, particularly small and mid-size companies as they often don’t have access to the systems to value these instruments themselves.

So, as an auditor, you need to check the valuation. If not, what might at face value be regarded as immaterial might in fact be quite the opposite. The correct valuation may well be material. Again, we have seen plenty examples of this. Auditors need to look at the underlying transaction. If the notional amounts are large, or maturing a long way out into the future, then you need to check the valuation. The correct valuation is unlikely to be small due to financial market volatility.

Interest rate swaps are a good example of this. They tend to be large notional amounts and maturing in more than twelve months’ time, sometimes out 10 or 15 years. Equally, with foreign exchange contracts you need to look at the maturity date and the notional amounts being bought and sold to be able to make an informed decision on whether the results are likely to be material or not.

If there is found to be a material difference in the financial instrument valuation, it is better to find it before the audit is complete, rather than after. No one wants to have that discussion with the CFO or Finance Director about having to restate the accounts.

So next time you get involved in that riveting conversation about materiality don’t forget to look behind the numbers.


We are excited to form a new Partnership with TreasuryXpress, a leader of on-demand digital treasury management solutions. Customers using TreasuryXpress’s platform benefit from easy-to-implement electronic payment workflows that helps automate payments and remove payment risk. TreasuryXpress and Hedgebook share a common goal – bring cost effective treasury tools to customers of all sizes. Combining Hedgebook’s risk management modules with TreasuryXpress’s treasury operations and cash management platform creates a unique, powerful and economic option for mid-market organisations that have been under-served. The Partnership focuses on opportunities in Europe and the US.

Read about the Partnership here:



Founded in 2011, in New Zealand, Hedgebook is a dynamic, international financial software company delivering innovative treasury management solutions to SMEs and their treasury providers – such as banks and foreign exchange brokers.

Its mission is ‘simple’. To provide analytical tools which make life easier for financial professionals. People who otherwise would still be grappling with spreadsheets to shed light on complex financial instruments. It’s a huge market. One that Hedgebook was first to identify, and quick to own.

The new breed of Treasury Management System

Duncan Shaw, APAC Client Relationship Director, explains. “Yes, there are other Treasury Management solutions on the market, catering for the top end of town. With big-business price tags to match. But there was no TMS in the SME space, just good, old spreadsheets…. this is the void that we are filling.”

“We’re not competitors to larger, traditional TM systems. Our competition is the old-fashioned, unwieldy spreadsheet. Finance professionals have struggled to find a viable alternative to spreadsheets, until Hedgebook.”

Ian Ross, Chief Technology Officer (CTO), sums up the Hedgebook approach. “The big thing we have achieved is simplifying the complex. We take technology out of the equation, whilst putting big-business functionality in SMEs’ hands –at a fraction of the cost.”

Since its inception, Hedgebook had been successfully delivering TMS via hosted infrastructure, until its migration to Microsoft SQL Azure in March 2018. So, what precipitated this significant transition?

The relentless quest for performance gains and cost savings

Inherently, Hedgebook is thirsty for innovation, always looking for new ways to improve the functionality enjoyed by its customers. But as Ian Ross describes, it was the specific need to better service its larger clients that led to the company’s move to the cloud.

“For the level of functionality we were planning to introduce for our larger clients and distribution partners – Hedgebook needed to be super responsive and super scalable, without investing a whole lot of money upfront. Microsoft Azure quickly rose to the top of our list of cloud providers because the barriers to entry were so low.”

“We needed a safe environment, ticking the boxes of security, reliability, certification and accreditation. Microsoft gave us the feeling that we could ‘lift n shift’ from hosted infrastructure to the cloud – and quickly start to optimise our presence in that environment.”

“Previously, if I wanted to improve database performance, my biggest pain point was having to migrate from one virtual machine to another – with all the testing and heartache. With SQL Azure I drag a slider to the right, and suddenly I’m dealing with a much bigger database.”

“We migrated to Microsoft SQL Azure – and our customers didn’t notice”

Ahead of any significant shift in infrastructure, common sense dictates consideration to the possible knock-on effect on the end-user experience. Bryn Lewis, a Microsoft Most Valuable Professional (MVP) who has worked with Hedgebook since the early days, describes an initial migration without ‘any disturbance of the force’.

“Migration to cloud required minimal code or database changes, so we didn’t run up costs retesting code modifications. We simply dropped straight into the cloud and were up and running. Now we’re identifying performance improvements, cost reductions and reliability improvements at our leisure – rather than having to do it all up front.”

“We certainly achieved an ultra-responsive system, with far greater visibility and intelligence over the application. Which has allowed us to identify functionality with sub-optimal performance and fix them. Essentially saving money as we go.”

“And the clients scarcely noticed. Yet if they were to look at performance, the average user would notice the software running much faster than before.”

The technical journey behind ‘lift n shift’

Whilst Hedgebook describe the ease of migrating from hosted infrastructure to the cloud, the phrase ‘lift n shift’ perhaps trivialises the complexities behind the scenes. CTO Ian Ross picks up the narrative on the technical journey:
After several weeks’ preparation, we moved the Hedgebook Pro Software as a Service (SaaS) application from four dedicated servers hosted by SingleHop to Microsoft Azure.

The application is built using Visual Studio and consists of C/C++/C#/VB.Net code with a rich JavaScript web client. Data was stored in SQL Server 20012 and the core modules interacting via Microsoft Message Queue (MSMQ). (The Hedgebook application was originally developed on Windows Server 2008R2 and SQL Server 2000, but had been migrated to Windows Server 2012R2 and SQL Server 2012 R2.)
The initial focus was migrating the database from a dedicated SQL Server to SQL Azure. We repeatedly migrated the database using the Microsoft Migration Data Migration Assistant. Each migration focused on fixing a class of issues including: SQL ANSI-89 to ANSI 92 Syntax updates and moving off unsupported features.

The fixes were applied to the production database as part of the normal release cycle. Once the database could be migrated without any issues we moved to the application code & plumbing. In the hosted environment, the application was over provisioned to cope with EoM, EoQ, and EoY processing spikes which has significant cost implications.

Concurrently, we constructed a proof of concept (PoC) using an Azure Virtual Machine Scale Set (VMSS) to allow us to scale up & down the number of financial instrument pricing nodes in response to customer demand.

The VMSS nodes are provisioned using scripts based on the Azure VMSS Automation DSC sample. The scripts copy the necessary files from Windows Storage and install our pricing agent (a Windows Service) and dependencies (MSMQ etc.) on the standard Microsoft Windows Server 2012 R2 VM image.

Some of the VMSS provisioning configuration files were stored in Github and this caused us some issues in our trial live deployments. Between our PoC project (Jan 2018) and trial deployments to live Github disabled TLS V1.0 & V1.1 and required V1.2. In a standard Windows Server 2012R2 image V1.2 is not enabled so we had issues with connectivity. Migrating to Windows 2016 or moving configuration to Azure storage fixed were identified and confirmed as viable solutions.

With VMSS and the increased number of pricing nodes, we discovered a previously unknown threading issue in a cache implementation which required remediation. A .Net hash table had been used in a non-thread safe way and was causing application hangs and data corruption (in test), when a number of pricing nodes were running concurrently. Replacing the Hash table with a thread safe implementation and disabling the cache until it could be replaced with Redis were identified and confirmed as viable solutions.

The application has now been running for 18 weeks, during which there have been a couple of minor issues, unrelated to Azure, which we are in the process of investigating. The customer experience has improved with the initial performance testing indicating the pricing of a larger portfolio going from 35 to just under 20 seconds (depending on portfolio).

What’s the bottom line?

With the technical, performance and customer experience aspects of Hedgebook’s migration to Azure duly acknowledged, the company is also enjoying substantial, ongoing cost savings. Matching performance-to-performance on a standard month, Hedgebook reports saving an eye-opening 50-60% of their pre-migration costs for a like-for-like solution. Yet, as Ian Ross keenly observes, cost savings are not the bottom line – because Azure brings a wealth of inbuilt Microsoft benefits.

Microsoft – supporting companies in the post-GDPR world

“One of the first things we did when we got into the cloud was to turn on automated Transparent Data Encryption (TDE) – to take care of GDPR heartaches. Large customers ask all sorts of questions about hosting, and where data is stored (OLTP). These questions just disappear as soon as you say ‘we’re on SQL Azure’ because the platform has all the required compliance in place and is so well thought of by larger clients.”

“And that puts us in a tremendous position,” adds Ian Ross. “We now have the confidence to go after larger chunks of the market, globally, knowing that infrastructure won’t hold us back. With Azure, I’ve got the ability to scale the hardware almost instantaneously.”

A major step change –and the future’s bright

“Microsoft Azure has allowed us to build a product that we can put in front of some of the biggest distributors around, such as banks, FX brokers and accounting firms. The functionality we’re showing them is something they haven’t seen before, so it takes us to the next level. From a selling point of view, it’s really powerful – and I can’t say enough nice things about the amount of support Microsoft continue to give us.”

“Microsoft people are always happy to listen, and nudge us in the right direction. So we look forward to continuing to tie into emerging technology and adopt what we need to innovate as Hedgebook grows.”

PwC New Zealand, a leading treasury advisory provider in New Zealand, has collaborated with treasury software developer, Hedgebook, to create the foreign exchange hedging Strategy Tool. The Strategy Tool is an add-on module to the Hedgebook treasury management platform aimed at small-to-mid sized businesses that are exposed to foreign exchange markets.

A key part of PwC’s treasury advisory role is to provide strategic and tactical foreign exchange hedging advice within a company’s approved risk management framework. Implicit within PwC’s role is to monitor client’s financial market risk positions and provide specific and tailored hedging advice. In order to do this effectively, PwC relies on timely and accurate client risk position and exposure information. Some of PwC’s treasury advisory clients already use Hedgebook to record and report their FX hedging transactions and positions. Until now, Hedgebook had limited functionality to incorporate “what-if” hedging analysis when considering the impact of new or re-structuring of hedges.

Hedgebook provides its users with an easy-to-use treasury management system to record, report and value foreign exchange derivatives such as forwards and options. The development of the Strategy Tool module gives users additional visibility over the impact of proposed or hypothetical hedging transactions on their hedging position (including at points in the future). For example, a common practice amongst companies managing FX hedging risk is to leave orders with their bank or FX broker at target FX exchange rates. By adding these orders into the Strategy Tool businesses will clearly understand the impact these orders will have on the hedging position if/when they are filled. The Strategy Tool can also scenario test the impact of a new forward FX contract, or changing the terms of an existing FX contract.

The Strategy Tool combines the existing hedges with projected foreign currency cash flows and enables users to add, remove, restructure, maturity extend or shorten any hedges in order for these to line up with the (often changing) timing and amounts of forecast FX cashflows. Users can now have access to the Tool – co-developed by leading treasury advisor, PwC and the treasury software developers – that means you project and understand the impact on your hedge position when making strategic decisions around foreign exchange hedging.

Hedgebook is excited to work with PwC Treasury Advisory, New Zealand to add further functionality to what is a widely used treasury management system in New Zealand and Australia ( Hedgebook’s mission is to provide a low-cost solution to the small-to-mid size corporate market which relies heavily on error prone spreadsheets.

The Strategy Tool module is now available to all New Zealand Hedgebook users whether advised by PwC Treasury Advisory or not (certain conditions apply). Contact us here to arrange a demo:

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