AI Audits
What impact does artificial intelligence have on auditing?
In the Fourth Industrial Revolution, with increasingly developed technology, the application of artificial intelligence (AI) has become popular both in everyday life and work. Thanks to AI’s outstanding features, multiple tasks can be performed in less time and with less effort. For this reason, AI is playing an important role in some areas which require the processing of large amounts of information, such as auditing. So how does AI affect the work of an auditor?
AI is defined in the Oxford English Dictionary as “the capacity of computers or other machines to exhibit or simulate intelligent behavior; the field of study concerned with this.” In later use, it is also defined as “software used to perform tasks or produce output previously thought to require human intelligence, especially by using machine learning to extrapolate from large collections of data.” In other words, AI is used to perform tasks that require human intelligence through programmed algorithms.
AI processes supplied information and produces results after conducting an analysis. Thus, AI can convert huge amounts of data in a short time and increase work efficiency.
With those exceptional aspects, AI can be applied at many stages of the audit process. How is it used and how does it affect the efficiency of the audit?
This can be broken down into three stages:
Audit Planning
Based on the customer data input, AI will propose appropriate audit procedures to optimize the audit plan.
Risk Assessment
Using the provided information, AI will analyze past trend fluctuations and financial indicators. Since AI can process and synthesize considerable amounts of information, the analysis will be more specific and more effective, giving auditors a deeper view of the business’s situation. Accordingly, auditors will identify potential risks more accurately and provide more appropriate material. As a result, AI also can assist auditors to predict the potential financial situation and determine the reasonability of financial forecasts as well as potential future risks of the business.
Substantive Procedures
At this stage, auditors must perform many repetitive tasks, such as checking details of documents (e.g., invoices and contracts), matching data among documents, and verifying the accuracy of the financial statements. AI can perform these tasks automatically through programmed algorithms, allowing auditors to review more data promptly with a higher level of accuracy in less time than a traditional audit.
By using AI to analyze and process the large volume of transactions, auditors can easily detect anomalies, errors, and risks in financial data. It allows auditors to focus more on high-risk areas that are prioritized, thereby improving the audit quality. Additionally, AI has a function known as machine learning which allows the system to learn from past data and improve its performance, thus enhancing accuracy and effectiveness.
It can be seen that applying AI in auditing brings many benefits. On the one hand, labor savings and productivity increases are the prominent characteristics of AI system. And with the ability to review and analyze information on a wide scale, AI can help identify fraud or potential risks that may be overlooked, thereby improving risk assessment and strengthening audit quality.
“With the ability to review and analyze information on a wide scale, AI can help identify fraud or potential risks that may be overlooked, thereby improving risk assessment and strengthening audit quality.”
However, using AI still has certain limitations:
AI works based on the provided data, so ensuring that the data is accurate, complete, and taken from reliable sources is crucial. Additionally, with a colossal volume of data, errors are likely to occur during analysis and processing. This can result in inaccurate conclusions and affect audit results.
Another limitation relates to cybersecurity, as using AI requires an internet connection. Therefore, if the internet system is compromised, AI algorithms could be altered and routed to discrepancies in AI operations.
AI is, after all, a machine set up by humans which performs tasks based on pre-established patterns. Hence, AI cannot respond to or handle unforeseen situations. Moreover, maintaining an attitude of professional skepticism is extremely important during the audit process to minimize potential risks. Nevertheless, the nature of AI is mechanical, so it is impossible to possess this skepticism when analyzing information and handling situations as auditors do.
Another limitation is that AI might not be able to satisfyingly detect fraud or window dressing in accounting that may occur in a business, because AI lacks the ability to think and evaluate like humans. Fraud detection requires auditors to possess a professional skepticism to assess the evidence collected during the audit and to evaluate it based on the business operations and internal control activities.
With workloads increasing, the benefits that AI provides are indispensable and will have a positive impact on the audit process. However, auditors should use AI appropriately and not abuse it or rely entirely on it, because AI is precisely a tool and cannot solve complex issues that require human decision-making on a system basis. Consequently, the balance between using AI and manual work in auditing is prerequisite. Furthermore, auditors should be equipped with the necessary knowledge and skills to fully understand AI’s operations, employ its produced results, and avoid cybersecurity attacks.
For more information, please contact Grant Thornton Japan at info@jp.gt.com or visit www.grantthornton.jp/en
Disclaimer: Opinions or advice expressed in the The ACCJ Journal are not necessarily those of the ACCJ.
