Will AI help or hinder the future of auditing?

Among the more thankless tasks undertaken by junior accountants is meticulously checking off inventory at clients’ warehouses, which can involve scaling ladders with paper and pen in hand but handling mundane jobs is set to become more sophisticated, as auditors try out specialized drones to use artificial intelligence and image recognition to analyze information and zap it back to their headquarters.
Better technology can improve the quality of audit work by carrying out tasks faster, and potentially more accurately, than a human ever could. It can also assess huge volumes of data and generate new types of insights. The Big Four firms — PwC, EY, KPMG and Deloitte — are ramping up investment in this area as they seek to defend market share and as regulators take an increasingly tough stance on failures in the profession.

Auditors argue they can harness the power of data mining and AI to help avoid further high-profile failures. They say automating some repetitive manual tasks will improve efficiency, by freeing up employees to concentrate on areas where human judgment is needed. Many already use data analytics and robotics technologies to complete assignments at record speed. Much of the repetitive administrative work that tends to be given to entry-level employees will eventually be automated. But there is some concern that these tasks help junior staff to understand the business better.

While many projects are at pilot stage, some AI tools are beginning to be brought to market more widely. EY, which says it is spending “millions annually” to boost its digital capabilities in audit, will this year roll out an AI tool that will help clients review and classify all their lease contracts. Rival KPMG plans to deploy a system “imminently” that can evaluate credit information related to a bank’s commercial loan book, including “unstructured” data from social media, for example. Instead of sampling a snapshot of data, as has long been industry practice, auditors intend to use machine learning to analyze entire populations of data to illuminate apparent anomalies.

The accountancy firms are touting these technological capabilities as they try to grab audit business from rivals. Still, critics warn that hype surrounding the potential of AI to revolutionize the audit world is overplayed. Others point to limitations of the technology itself. “In practice, AI may not do much more to help auditors do a better job,” says Andrew Gambier, head of audit and assurance at the Association of Chartered Certified Accountants, the global professional body. For example, where humans might be able to pick up on “where things have been missed out or not reported properly”, machines will only look at what they are faced with, he says. “This may also create opportunities for the system to be gamed.”

There are also barriers to progress. “The cost of technology — and how much do we buy versus build — is going to be the big challenge,” says Hermann Sidhu, global assurance digital leader at EY. He also points to the difficulty of having to collect data from large organizations that may have complex and varied finance systems, and also having to find a uniform manner of gathering that internally. Others voice concern that current regulations and standards will not be able to keep up with the pace of change.

For PwC’s Mr. Andrews, the challenge will be convincing stakeholders — clients, colleagues, audit committees and regulators — of AI’s validity. “It’s going to take time to reach a level of confidence in the new technology.”

Automation to create not destroy jobs, say firms but fears that automation of the audit process will lead to big staff cuts in the future — and even the death of the accountant — are unfounded, says Mark Weinberger, EY’s global chairman and chief executive. Instead, it may attract a new type of tech-savvy auditor, versed in data analytics or computer science. “In the short term, the rate of hiring might slow down,” he says. “But in the long term, with more technologies to operate, it will pick up.” As a result, the Big Four — among the largest employers of graduates globally — are building relationships with both the tech world and academia in an attempt to target the right staff.