Artificial intelligence (AI) and technological advances won’t change the purpose of an audit – to provide confidence to the capital markets. What will change, according to Felice Persico, vice chair of the global assurance service line at EY, is how the auditor will take advantage of new technology and embeds it as a fundamental and required part of audit service delivery.
“AI will provide stronger and more perceptive tools for auditors to interrogate the data, find anomalies and improve techniques, thereby leading to higher-quality audits,” Persico wrote in an article published in Accounting Today.
“The use of AI gives auditors the opportunity to help provide businesses with game-changing insights and a confidence and trust model. The information age challenges our ability to consume and understand the increasing amounts of data created every day. It’s likely that the pace of data creation will only increase, leading to a deeper pool of information that if effectively consumed, analysed and understood by the audit process, can lead to a higher quality audit.”
AI technology is increasingly becoming a tool an auditor has at their disposal to help them through their decision-making from the beginning to the end of an audit process, says Persico. “At EY, we are working on automation between how a client closes their books and provides us with the information we need to conduct the audit, no matter what process clients are using for their financial close. This dramatically reduces the time that our clients spend supporting an audit, as well as the administrative time our staff spend gathering this information. Instead, our auditors begin the process at the point they need to start applying judgement, thereby enhancing audit quality.”
With the increasing volume of information available to auditors, AI can help auditors uncover insights when addressing new global regulations as it comes into force by helping to analyse contracts and extract information from them using statistical and basic text analysis.
AI technology is also being used to identify the probability of accounting fraud. Persico cites the example used by EY. “EY has devised an accounting fraud prediction model to help us improve audit quality. This prediction model calculates the probability of misstated financial statements, which can occur in 1 to 2 percent of a company’s financial statements each year.”
“By applying machine learning techniques to a company’s previous financial statements (including those that were misstated), the prediction model learns the traits and characteristics of a company’s financial and non-financial information. By combining sector insight along with other variables, EY can determine if the financial statements could be indicative of a misstatement or even fraud. This means the audit team can revisit the audit procedures to better understand the potential risk and subsequently address this concern as part of additional audit procedures.”