How is artificial intelligence used in audit?
Artificial Intelligence has evolved exponentially in the last couple of years and for many industries, it has promised to be a game-changer. Research shows that in the next 15 years artificial intelligence will permeate our lives with drone delivery and 4D printing. This technology is already incorporated into various sectors today in the form of driverless cars, smart homes and computing systems with the aid of technologies like machine learning and data mining. In recent years, artificial intelligence has become a large part of accounting as well, more specifically, in auditing.
How can Artificial Intelligence help auditors?
AI is transforming the accounting industry by processing large amounts of data and providing results based on behaviour, trends and secondary data. It also creates an efficient way to report data, identify errors and report risk to clients. Here are a few ways artificial intelligence helps auditors:
1. Fewer controls
Automation is key to efficiency in accounting and artificial intelligence has proven to be incredibly effective when it comes to this. Tasks that were performed manually such as data collection, analysis and making predictions can now be performed with the click of a few buttons. The process no longer needs humans to memorise rules, write scripts or create tests.
2. Risk-based assurance
Artificial Intelligence has the ability to identify anomalies based on risk and not rules. This essentially means that there is a risk-based mechanism as AI-based tool flags transactional data based on how far they deviate from the standard set. This will help identify any unusual payment activities that would not have been caught by traditional testing methods.
3. Secondary check
AI technology also has the ability to grow and evolve with the data, when you enter a larger data set into the system, it is cross-checked with the secondary data that already exists and correlates it with numerous variables. This ensures that the data produced is accurate.
4. Frees up time
Artificial intelligence reduces the time required to process data for both the organisation and the client. Large amounts of data can be processed and ledgers can be created and analysed with little manual effort and there is no longer a requirement to work with the client on certain datasets. This frees up time for the accounting team and lets them focus on other areas of the audit to provide a better financial picture.
Algorithms that are developed by humans often come with errors and biases that can impact the performance of the algorithm when analysing data. Artificial intelligence, on the other hand, can be tested to ensure that the data is assessed with the original objective in mind. AI also involves a lot of complex technology when compared to basic algorithms and can result in more transparent results. Hence the output produced by AI is more ethical, legal and responsible.
6. Predictive value
In the larger business environment, artificial intelligence has the ability to review and assess historical data and make predictions of any future risks based on the data. This ensures that any anomalies in the current dataset can be rectified immediately. Big 4 firms like KMPG are partnering with IBM Watson to further develop and explore the predictive capabilities of AI.
What are the reasons for the growing popularity of AI in auditing?
There are many reasons why AI has become a large part of the corporate mainframe in recent years, thanks in part to the inception of AI in other sectors such as the automotive industry and home systems. In accounting, AI has shown the ability to reduce errors and increase efficiency. Here are a few reasons why artificial intelligence has become so popular:
Companies store a lot of crucial data online, either on their servers or in the cloud. This has led to an increase in the threat to cybersecurity as cloud and technologies have become more mainstream. Therefore AI offers many companies a competitive advantage in protecting the privacy of many accounting firms.
The cybersecurity threat is further increased by technologies such as the Internet of Things (IoT) and its associated risks such. It has become critical that auditors use AI and develop programs that will allow internal auditors to provide services such as assurance and advisory services to companies to help reduce the risk of a data breach.
2. The role of the modern-day auditor
Artificial intelligence serves as a management tool for auditors as it allows them to work better and smarter with the help of technology. Gathering data using machine learning or robots can provide the auditor with real-time data which they can examine in a more timely manner. Any potential risks identified can be resolved immediately. AI changes the role of the auditor from performing the audit to designing the audit, where they are able to collect the relevant information on the company based on its past performance.
3. The risk of fraud
The risk of fraud has increased significantly in recent years and has become a major cause of concern for many auditors. Advanced artificial intelligence tools have the ability to detect fraud in real-time. It has the ability to identify the authenticity and reliability of data in large datasets.
Artificial intelligence can help auditors direct their time towards designing a better auditing system and recommend changes to the company in the most efficient way possible. However, when implementing AI into the auditing process, it is also important that firms hire employees with the right skillset. The team should have a good understanding of the risks and benefits associated with AI as well as be able to identify if the data produced by AI is in line with what is expected.
Innovation in technology is all about taking that leap of faith and overcoming new challenges and finding ways to improve the existing process. Artificial intelligence will determine a company’s creative approach to assessing large volumes of data. But the ultimate goal of artificial intelligence is to provide high-quality audits thereby increasing the level of confidence in the financial markets.