Auditing undergoing a digital and AI transformation

Jon Andrews, head of technology and investments at PwC

Accountants and auditors have started using AI and automation, including specialied drones, to deal with the more mundane tasks in their jobs, assess huge volumes of data and generate new types of insights. This comes a year after regulation gave these companies trouble. It is hoped that data mining and AI will help avoid further high-profile failures.

This has become a popular topic to cope with regulatory requirements for the Big Four accountancy firms — PwC, EY, KPMG and Deloitte. PwC was fined £5.1 million by the FRC just this month for “extensive misconduct” in its audit of professional services firm, RSM Tenon. The FRC has also launched investigations into the audit of UK companies Rolls-Royce, BT and Mitie — audited by KPMG, PwC and Deloitte respectively.

Data analytics and robotics technologies can be used to complete assignments more efficiently and, theoretically, free human time for higher priority tasks. Innovations in the pipeline include systems that can detect anomalies across all of a company’s financial transactions.

“It’s becoming very clearly apparent to us that AI is going to have a huge impact on our business, therefore we are building stronger and stronger capability in that space,” Jon Andrews, head of technology and investments at PwC in the UK, told the Financial Times.

Great investments

EY says it is spending “millions annually” to enhance the digital side in audit, while rival KPMG will be able to evaluate credit information related to a bank’s commercial loan book through their upcoming AI big data system. In fact, in the past 18 months, KPMG has partnered with IBM Watson to develop predictive models through AI capabilities.

“The expectations of audit generally continue to increase and the regulatory oversight that sits above audit is ever demanding,” said Stephen Griggs to the FI, head of audit at Deloitte. “Firms are distinguishing themselves by evidencing that their approach to innovation and the developments they’ve secured are more impressive than the competition.”

Detractors

Critics of this trend, including the FRC, have qualified it as “overemphasised”. “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. “This may also create opportunities for the system to be gamed.”

“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 mentioned the difficulty of having to collect data from large organisations that may have complex and varied finance systems, and also having to find a uniform manner of gathering that internally.

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