Clients will soon be expecting us to use technology in our audits, or at least be moving towards it. In addition, with the revised ISA (UK) 700 now in place which requires auditors to explain the extent to which the audit was considered capable of detecting irregularities including fraud there is an increased opportunity for AI and data analytics to make its mark on the audit. Whilst it remains the directors’ responsibility to detect and prevent fraud within an organisation, there is an extended level of expectation on the auditor, as has been evident in the fall out of Patisserie Valerie in particular. But what does that mean for the future of our audits and how could AI and data analytics be used?
The potential for data analytics software to scrutinise large volumes of data within seconds makes identifying duplicate employees and bank accounts considerably easier, particularly where there are thousands of transactions. These software packages could run through data quicker than a person ever can. However, data analytics will be best used to help understand the direction which the audit needs to take. For example, data analytics would be able to identify a pattern of when journals are mostly posted, and if these are in evenings or on weekends, there is an increased opportunity for fraud or error here, and therefore this is where we could apply additional scrutiny. What data analytics will not be able to do however is decide on whether a journal is reasonable or not; this is where the auditor will always be required to apply judgement and ask the question “what is the business reason for this?”. As such, being able to understand and analyse a pattern in journals and other transactional postings could assist the auditor to a huge extent, and make the audit process considerably more effective, allowing us to free up time to focus on other areas.
Data analytics and AI does not need to be reserved for the auditor though. A busy Finance Director or Managing Director could use these tools to help them understand what’s happening in their business at a higher level.
However, the professional scepticism and judgement required by an auditor during an audit will always ensure that AI can be a complementing tool for an auditor. The ability to also identify tax saving opportunities, offer advice over controls, and advise on wider business issues gained through experience in relevant sectors and a wider client base, is something that cannot be replaced by a machine. A huge amount of added value in having an audit comes from understanding and knowing the entity in order to be able to scrutinise the financial reporting and whilst advances in AI can support this, it won’t be able to replace it.