AI in Audit: Time for a reality check across technology providers

Accountants across the world spent much of 2018 debating and hypothesising about the impact of Artificial Intelligence on the professional services they provide, with audit being a key service many zeroed in on.

I was fortunate to attend many conferences around the world featuring a wide range of keynote speakers. Some promoted doom and gloom – the automation of all compliance work and removal of “traditional” accounting services.

But many shared a vision of an exciting future for the profession as lower-value activities are automated, allowing accountants to provide more valuable services to the corporate world. Certainly, this was the message my own keynotes promoted.

However, one trend that repeatedly appeared across conferences, social media and many other marketing channels was increasing hyperbole regarding the current state of AI in audit and the ways such technologies are having a tangible impact right now.

For a service inherently possessing an expectation gap between stakeholders and the accounting firms delivering audits, this lays an incredibly dangerous path towards an undesirable destination.

What is being said?

To articulate my point, here are some of the examples I experienced from tech providers:

“Hey Siri, I have a client meeting in 1 hour, can you perform an audit immediately?”. I mean, my teams 5 years ago wouldn’t have even drafted the engagement letter in this time, so the 100% progress bar that followed was perplexing…

“Audit failures like Carillion would be avoided if audit firms used AI to test journal transactions”. We would just need all fraudsters to commit their fraud via manual journal entries and this would be fine…

“AI will replace reasonable assurance with complete, 100% assurance”. Just think about the impact such a claim would have on audit fees and professional indemnity insurance…

Why is this so risky?

One of the fundamental skills accountants and auditors hone during their career is professional scepticism. This means creative marketing and hyperbole by tech providers is something they can quickly identify.

Yet, in 2019 the accounting profession will be subjected to an unprecedented level of scrutiny from external stakeholders. Most notably, in the UK market a competition review is ongoing to consider mechanisms to increase the competition between accounting firms – particularly in the listed space, where the Big 4 firms conduct 97% of audits.

Technology is repeatedly mentioned as one mechanism to increase competition. I certainly support this idea, as many of the so called “challenger” firms are customers of ours using our technology and expertise to compete with the Big 4 firms. Yet to set an expectation that any of the statements above are achievable or even appropriate runs the risk that those less experienced in what an audit truly is will exaggerate the immediate impact technology such as AI could make.

The most recent efforts to improve competition in the listed space – the mandatory firm rotation rules implemented following the 2007 financial crisis – actually resulted in reduced competition. It is therefore critical the solutions proposed to improve the audit sector now are not flawed at their outset.

Balance is key

I firmly believe in the value AI can add to auditing. The application of AI is already supporting auditors in performing a broad range of activities, improving quality and effectiveness.

But AI is just one example of how auditors can leverage emerging technologies. Data analytics, robotic process automation and process mining are just a few examples of techniques that can enhance established auditing techniques or re-imagine the audit of the future.

This array of capabilities is something we converge in our InfloHI functionality, but there is inherently a challenge in promoting such functionality to firms. The concept has huge potential – leveraging the judgements of auditors globally across a worldwide pool of clients to arrive at more informed decisions. Yet, the key focus must initially be on the tangible quick wins available to firms now, which can feel like evolution rather than revolution.

If we want the accounting profession to take a bold step forward in 2019, tech providers must play their part in representing the best interests of the profession. Only through substance will reform be achieved.