Auditing in the Age of Intelligent Machines

Accountants are often referred to as the guardians of corporate governance.[1] However, rapid technological developments in the field of artificial intelligence (AI) have led to speculation of a catastrophic decline in the accounting profession. Some fear that auditors will be completely replaced by robots. Others suggest that AI follows the typical cycle of fostering technological innovation and that speculation about AI’s extreme impact has peaked.[2] According to this mindset, AI is currently in a state of delusion where many of the overhyped technologies are still not working as intended.[3] This phase is followed by a more realistic assessment of how AI will be integrated into our business world.

This article goes beyond the hype and sheds light on what is happening in practice today, recognizing both the importance and limitations of the impact of the Intelligent Machines (SMA) Age on the accounting profession. Emerging risks and concerns are highlighted as the profession adapts to maintain its vigilante status in a rapidly changing business world.

The most likely first step to SMA is to migrate to cloud-based accounting platforms and implement automated postings.[4] Accountants and auditors today are increasingly turning to Robotic Process Automation (RPA) to automate data processing.[5] For accountants, routine tasks such as transaction analysis and account volatility are the areas where this technology is most likely to be automated. For example, PWC’s software quickly identifies GL articles that meet certain criteria and are marked with a “red flag” by the system.[6] The reviewers can then focus on the item for further testing.

RPA technology automates many basic verification tasks, such as confirming bank account balances.Just 10 years ago, the confirmation process was primarily paper-based, requiring letters to be mailed to the bank and received back by the auditor. Today, a significant portion of the confirmation process is automated, allowing the audit team to focus on analysis of the outcome and exceptions instead of spending time on the evidence gathering process.

Similar advances in data analytics technology have led to a more continuous audit process for some companies, such that 100% of certain transactions and account balances are subject to monitoring. The ability to continuously audit accounts results in higher levels of assurance that financial statements are accurate year around, including quarterly reports. For example, the AI technology AppZen allows companies to audit expenses on a real time basis to detect both errors and fraudulent employee expenses.[7] Any warning signals generated by the system can be checked internally or by an external auditor. Once companies implement this technology, their third-party auditors will likely be able to significantly reduce their year-end auditing of accounts and related transactions. Therefore, this technology can eliminate the traditional auditor “peak season” or allow auditors to focus on different tasks after the end of the year.