The last year has seen an explosion in the use of generative AI, predominantly spearheaded by ChatGPT.
While ChatGPT is still being developed, it has resulted in many user cases and hints at AI's potential across all industries. In the not-too-distant future, we'll likely see audit technology vendors incorporating AI into their products to allow auditors to generate insights and conduct audit tests across vast data sets. This will tie into the broader trend of technology adoption in audit as a necessity to improve audit quality and support revisions to ISA changes.
Adoption is likely to grow quickly, with a recent survey predicting average annual growth rates of 30% in the accounting industry between 2022 and 2027. Auditors shouldn't be fearful as this will allow them to focus on higher-value tasks and client communications.
How AI Will Add Value To Audits
AI will add value to audits by streamlining existing processes and increasing the scope of testing through automation, overcoming sampling limitations. The productivity of jobs will be boosted by manual admin tasks being undertaken more effectively by AI. An example of this includes identifying large and unusual items for testing, a task which can take up significant staff resources and time.
The potential of efficiency gains is hinted at by research from PwC showing that 54% of executives across all sectors believe that AI has already improved the productivity of their businesses.
AI will make collaboration easier, with staff and clients leveraging efficiency gains from centralised document management and intelligent search to minimise meetings and unwieldy email chains. This saved time can be used for auditors to focus on nuanced transactions that require professional scepticism and on working closer with individuals charged with governance.
It can also enhance audits by being able to undertake analytics capabilities exceeding auditors' capabilities, such as being able to analyse vast financial datasets and to detect potentially fraudulent transactions that may have otherwise been missed.
How This Ties Into The Future of Audit
The expected adoption of AI in audit ties into trends around the future of audit, with technology adoption being encouraged to overcome concerns around audit quality. This direction of travel has been influenced by several high-profile corporate failures, including Patisserie Valerie and Carillion, with this leading to the publication of several reports into the state of the market, including an independent review of the Financial Reporting Council (FRC).
While this led to the announcement of an audit reform agenda, proposed changes have been delayed, including creating the Audit, Reporting and Governance Authority (ARGA) to replace the FRC, which has now been pushed back until as late as 2027.
That said, the need to improve audit has been so dominant in the public discourse that many software vendors are already incorporating technology into their software to benefit auditors and their clients.
Supporting ISA Changes
An area that AI technology can support is ISA changes, including ISA 315 (identifying and assessing the risks of material misstatement) and ISA 240 (responsibilities relating to fraud).
These updates require a more holistic and nuanced approach that should increase audit quality. For example, ISA 315 has new requirements to unearth risk factors, such as considering complexity, subjectivity, management bias and fraud.
Clearly, this will require more work from auditors. However, guidance for both standards relates to using automated tools and techniques. This is an acknowledgement by the FRC that auditors are now often using technology tools when undertaking jobs to manage growing datasets and meet audit quality thresholds.
AI will make it easier to comply with these ISA changes due to being able to process data at speed and use machine learning to flag transactions for further inspection.
AI Will Supplement, But Not Replace Auditors
Experienced auditors may be fearful about AI making them redundant due to technology performing tasks faster and more efficiently.
However, AI will improve audit quality by supplementing rather than replacing auditors. Workers will be freed up to move away from data processing and instead can spend time and develop skills on higher value tasks such as interpreting data and suggesting process improvements to clients.
This will allow them to work on more rewarding workflows rather than "tick and bash" exercises and enhance client relationships.
In conclusion, just like in most industries, the advent of AI is under way and impact on the profession is inevitable. At this early stage it is hard to say the exact shape this will take, only that changes are coming, and that forward-looking auditors who can embrace AI and other technological advancements can expect a positive impact on their processes and audit quality, while enhancing the likelihood of demonstrating compliance.
