Impact of Artificial Intelligence & Data Analytics on Audits
Some people are immediately daunted by the phrase “artificial intelligence.” It brings to mind media portrayals of robots that can think for themselves and can outsmart humans. What they might not realize is that artificial intelligence is already part of our daily lives. You interact with machine learning technology any time you call out to Siri, hail a ride through Uber, speak to a virtual assistant or get a fraud prevention notification from your bank. For CPAs and auditors, using artificial intelligence tools can generate data analytics that streamline financial statement audits and identify possible risks before they turn into major problems.
How is Artificial Intelligence Used for Audits?
Theoretically, AI-enabled tools can be applied to many parts of the auditing process. Programs that use machine learning can scan through huge quantities of financial data very quickly, identifying anomalies like duplicate payments and fraud indicators. They can “read” and analyze data from documents like contracts and internal notes. For data analytics purposes, artificial intelligence has tremendous practical value during a financial statement audit. It is easier to see problems and opportunities coming when every transaction and every statement has been reviewed and analyzed.
In reality, AI is still something of a novelty. AI-enabled tools are being developed and fine-tuned all the time, and major auditing firms have begun experimenting with implementing them. Many firms are already working with some tools that use machine learning technology; for example, a chatbot on the homepage of a website helps visitors get answers to simple questions. Clients can expect their auditing professionals to use increasingly more AI-enabled tools over the next decade, but do not expect audits to be completely revolutionized overnight. The human element of an audit is not in danger of becoming obsolete.
Improving Auditing Data Analytics with Artificial Intelligence
Using AI-enabled tools as part of an audit has several key benefits. Some of them are practical. Obviously, it is much faster for a computer program to analyze blocks of data and text than for a person. Letting AI perform repetitive tasks like reviewing spreadsheets, digitizing data and comparing data sets to one another takes these tasks off the auditor’s plate and eliminates the chance of human error. Having a program perform those kinds of tasks gives the auditor more time to do in-depth analysis on the information that AI finds.
Data analytics using AI technology has both predictive and prescriptive applications for auditing purposes. In other words, data analytics can help organizations and their auditors anticipate upcoming problems and come up with solutions in advance. AI might be used to help predict future inventory costs, identify weaknesses in a business’s internal controls that could be exploited by fraudsters or even generate suggestions for ways to optimize productivity. Because AI can interpret written text like reports, contracts, emails and news stories as well as financial data, these tools can provide more sophisticated prescriptive analysis than you might expect.
AI Tools Can Not Replace CPAs
Think of artificial intelligence as an additional tool in an auditor’s toolbox, not as a substitute for the auditor. Machine learning technology lacks nuance and context. AI can be great at gathering data and telling you what patterns, trends and oddities that data shows. It can flag anomalies so an auditor can use their skills to dig into them. And yes, it can generate predictive and prescriptive guidance and identify possible risks that might expose an organization to future fraud.
But AI is not all-knowing. It does not have all the information about a specific organization and its financial priorities that the organization's accountant has. It can not evaluate whether a particular suggestion will work practically for a given business. Auditors have to translate and interpret findings for their clients, and be there to address follow-up concerns raised by an audit. AI will not answer the phone and explain something that is confusing you on an auditing report.
Even as AI becomes more prevalent in auditing processes, the human element will also continue to be critically important for data security and confidentiality purposes. It takes the oversight of skilled auditing professionals to make sure that digital systems are used both correctly and securely. Accountants and all financial advisors who use AI technology will continue to be responsible for protecting their clients’ data and answering specific questions as they arise.
Data analytics can help organizations get a fuller picture of their own financial reality. Using AI-enabled tools as part of internal and external audits may help CPAs complete these audits with as much speed, accuracy and deep analysis as possible.
L&H’s Accounting & Attest Services gives organizations all the support they need to audit and analyze their financial statements. Our team helps business leaders take a 360-degree view of their financial health, from compiling financial statements to providing in-depth financial statement audits. Contact me today for more.
Wendi Haynes, CPA, serves as Livingston & Haynes’ Managing Partner and has been with the firm for over 30 years. Wendi has extensive experience providing accounting, auditing, tax, and advisory services for employee benefit plans, small businesses, and nonprofit organizations.