The auditing process helps ensure the accuracy and reliability of the gathered data and organize it in a systematic manner. Audits can be internal and external across various industries & sectors. With the introduction of Artificial Intelligence (AI) & Machine Learning (ML), the scenario has changed completely.
AI has been a game-changer and disrupted the way industries operate. Everything is now digitalized since industries have adopted software with AI capabilities to enhance their processes. Multinational companies in sectors like FMCG, Healthcare & Medicine, Travel, Manufacturing, and Finance & Auditing, etc. have adopted AI & ML technologies that can help increase the productivity and accuracy while freeing up their human resources from performing repetitive rule-based tasks to perform strategic tasks.
Putting AI in context
For auditors, a lot has changed with the advent of AI. Since the ways in which industries operate has changed, so has the way audits are performed. Though a lot of people believe that machines will replace auditors, it’s not that simple. Machines cannot replace human experience or skepticism, although AI might replace some repetitive, rule-based tasks. But that will allow human auditors to perform tasks requiring a lot of brainstorming and decision making.
The data that is currently generated is in terabytes and is huge as compared to the data generated in the last few decades. So, AI & ML will help auditors in increasing the efficiency of the auditing process without compromising its accuracy.
Since machines can process huge data efficiently, it becomes possible to examine the whole data population to examine anomalies instead of just working with a few samples during the audit process. This will help the ML algorithms to gather the data and learn from the conclusions drawn by auditors during the audit process for future use.
Although AI & ML technology is still in its development stage for auditing industry, several CPA firms are analyzing the viability of using ML for audit process improvements and adaptation of new auditing standards that include AI & ML. Deloitte is using an ML tool known as ‘Argus’ that can read documents like leases, sales and derivative contracts, etc. Its algorithm is programmed to help the auditors focus on interpreting documents’ key features by identifying the key contract terms, trends, and outliers in these documents.
When more data of similar type is gathered and input in ML’s algorithm, it will become more accurate in identifying these documents and will further help the auditors in identifying the contracts, leases etc. efficiently and accurately. This will also aid auditors in identifying which contracts come with the highest inherent risks and which contracts are less risky.
The second example is Halo, the ML technology being used by PricewaterhouseCoopers. Halo analyzes journal entries to identify potential problems viz. entries of questionable nature, entries from unauthorized sources or a huge number of journal postings just under the allowed limits. Halo focuses on outliers and allows auditors to test all the journal entries with the highest risk while improving the speed of the process but maintaining the quality.
A lot of financial companies are trying to understand the use of AI & ML for risk assessment and mitigation. Some companies have proposed that voice recognition and face recognition can be used for fraud detection during the executive fraud interviews that are required by the auditing standards.
How? Well, while answering the questions, if there are delays in responding or if the executive provides questionable answers, this might indicate that the executive is lying or concealing some details. AI & ML can also help in detecting & notifying the auditors of certain behavioral patterns during such interviews, which might be difficult for a human being to detect.
A lot of audit firms expect that AI & ML will change the way the audit industry works. With AI & ML becoming more readily available in the future, even smaller firms will be able to use these technologies for risk assessment & auditing processes. AI has a huge potential for this industry and if used appropriately can generate enormously beneficial results.