Is AI The Future Of Audit Or All Hype?

Innovation Is AI The Future Of Audit Or All Hype? Isaac Heller Forbes Councils Member Forbes Technology Council COUNCIL POST Expertise from Forbes Councils members, operated under license. Opinions expressed are those of the author. | Membership (fee-based) Jun 15, 2022, 06:15am EDT | Share to Facebook Share to Twitter Share to Linkedin CEO & Co-founder of Trullion , AI-Powered Accounting Software that automates accounting workflows for CFOs, Controllers & Auditors.

getty Artificial intelligence is billed as the future of everything—a magical panacea to all of the world’s challenges, heralding a utopian future where algorithms will know exactly what’s required and when. Is the future of audit really all about AI, or is it just hype? Challenges Facing Audit It’s important to start with a high-level overview of the challenges audit faces today. Solving the challenges of trust, talent and technology is going to be the key to getting a glimpse of what audit will look like tomorrow and beyond.

1. Trust There is a general sentiment that auditors have lost the trust of the people who rely on them for accurate financial information. This isn’t pervasive or threatening, but for a profession that prides itself on its reputation, each new accounting scandal jeopardizes this hard-won stature.

2. Talent The “Great Resignation” is well documented, as are statistics showing that numbers entering this industry are down across the board . Another key element here is that for audit—like many other professions—tomorrow’s auditors are looking to be proficient in coding and the latest algorithmic developments in order to remain relevant and be positioned to add value.

MORE FOR YOU Google Issues Warning For 2 Billion Chrome Users Forget The MacBook Pro, Apple Has Bigger Plans Google Discounts Pixel 6, Nest & Pixel Buds In Limited-Time Sale Event 3. Technology From a technological perspective, there are necessary advancements being implemented so auditors can provide the assurance that users rely on. Financial transactions are getting more complex, new technologies such as the blockchain are increasingly relevant and cryptocurrencies are becoming mainstream.

If an auditor doesn’t have a deep understanding of these areas touching almost every business today, how can they render an opinion? AI And The Future Of Audit The question of audit’s future takes us back to the fundamentals of the profession. As stated by the U. S.

Supreme Court in the “U. S. v.

Arthur Young” case: “The SEC requires the filing of audited financial statements in order to obviate the fear of loss from reliance on inaccurate information, thereby encouraging public investment in the Nation’s industries. ” This is still the main role of audit. The question is, how is this best achieved? What if, for example, instead of a human auditor sampling 30 items, an algorithm can scan every single transaction (including huge amounts of data) and find patterns, pick up anomalies and estimate the impact of any irregularities? Taking this a step further, why can’t audit software be present and connected to a company’s internal systems, performing an audit in real time? Following this logic, the concept of having a set period of time when a company is audited falls away.

In fact, the current “role” of the auditor is no longer relevant. AI is, therefore, the future of audit—a future where the human being is removed from the equation, and AI makes all the decisions and generates the results. Well, not quite.

The Limitations Of AI And The Human Advantage This approach fails to take into account the limitations of AI and the true role of the auditor. These limitations are well documented and include: • Garbage in, garbage out . AI is reliant on data inputs which in the real world can be messy and render the most advanced systems useless.

• The inability to adapt to extreme changes . If a business pivots or experiences some major change, AI will struggle to deal with this. • Recursivity .

Machines cannot make their own, more powerful machines. • Transparency issues . Machines can come up with an answer, but it is often difficult, if not impossible, to understand how this was derived.

Issues like these mean that AI isn’t a silver bullet for the challenges facing audits. Moreover, those who believe that AI will replace humans should consider the following key facts. • Not everything is in the numbers .

Experienced auditors can spot warning signs based on conversations, nonverbal cues, the company environment, the caliber of management and multiple other factors that an algorithm doesn’t even see, never mind analyze. • Auditors set the parameters for technology . The technology, though powerful, needs to be harnessed and directed effectively; it also itself needs to be audited to ensure it is effective.

• Auditors can think inside and outside the box . AI cannot “think,” meaning it cannot adapt to rapidly changing circumstances. A human auditor can and has to do so almost constantly.

There are some exhilarating directions that have come out of these technological developments for auditors. For example, source-based accounting, where software is used to evaluate aspects of the business throughout the year and not just over the hectic “audit season,” is already changing the nature of the profession. Another example: the role of sampling is also changing, as software and AI can process massive amounts of data, precluding the need for sampling.

This is also the case when it comes to automation software, which takes care of manual tasks that were a drain on auditors’—and clients’—resources. Looking at the three Ts of challenges to the future of audit—trust, talent and technology—there is certainly an effective role AI can play. It can minimize errors, thereby reducing scandals, and as auditors become experts in the latest business and technological trends, the profession becomes more exciting for new graduates.

So, is AI the future of audits or a passing trend? I feel that neither answer is correct. Rather, a nuanced approach to the future of audit and AI’s role within that will help shed light on what’s possible, what’s probable and how we’re going to get there. Forbes Technology Council is an invitation-only community for world-class CIOs, CTOs and technology executives.

Do I qualify? Follow me on Twitter or LinkedIn . Check out my website . Isaac Heller Editorial Standards Print Reprints & Permissions.