Artificial Intelligence Improves Audit Function, Helps Businesses Save Time and Money by Hector Aguililla, CPA
Artificial intelligence (AI) is quickly becoming a mainstay of our lives, helping us to control the appliances in our homes, recommend movies or products based on our previous behavior, and take us on rides in self-driving cars. Similarly, AI has crept into the corporate environment, helping to sort through the voluminous amounts of data created by the new breed of software and systems that businesses large and small use to manage their operations. When it is combined with expertise of professional auditors, AI helps businesses enhance the audit processes, improve efficiencies and reduce costs.
Audits historically involve a qualified third-party professional’s objective assessment of all of an entity’s financial records, documents and processes to ensure the business presents a fair and accurate representation of its financial position to all of its key constituents, including senior management, board members, investors and lenders. They can help businesses prevent and detect fraud and noncompliance with government regulations and validate the credibility of information that stakeholders rely on to make informed decisions about the organization’s direction and long-term growth.
Combing through thousands of records and transactions to identify potential issues and/or hidden opportunities that can affect business performance requires the specialized skills of highly trained auditors. While the proliferation of software programs that automate business processes and documentation has helped to expedite auditors work, AI and machine learning go even further, helping businesses reap significant savings of time, money and resources for their investment in audit services.
AI saves businesses time by automating many tedious and repetitive audit tasks. It can continuously collect and process the massive amounts of data businesses create, learn and predict acceptable patterns of behavior and algorithms, and identify anomalies and trends between seemingly unrelated activities as they occur in real time. As a result, when AI is embedded in the audit function, businesses have an easier time staying on top of all their audit risks throughout the year and are able to respond immediately to potential threats rather than waiting for a suspicious transaction to be identified during their next external audit. Similarly, business can also use AI to monitor the day-to-day progress of specific strategies and initiatives by flagging those activities or behavior patterns that either differ from an established plan or fail to occur at all.
AI also helps businesses improve reporting accuracy by downloading data directly from existing accounting software systems and legal contracts and even linking line items on financial statements or accounting ledgers to supporting documentation, such as invoices or cancelled checks. Not only does this minimize the risk of human error, it also helps businesses account for every line item and maintain compliance with a multitude of constantly changing rules and regulations. Moreover, AI can provide auditors with the ability to assign weight and priority to specific risk factors and narrow in on specific threats that may be inherent or specific to a particular line of business or industry. For example, an external auditor is required to test journal entries. Using AI software, an auditor is able to sift through 100% of all journal entries made during the period being tested to produce a risk score for each transaction to highlight those for further investigation. Sifting through 100% of journal entries would take an excessive amount of time not using AI software.
To be sure, the application of AI in the audit processes is both practical and affordable. However, it does not eliminate the need for external auditors, nor does it replace the professional assessment and judgement that only humans can bring to data analytics. After all, not all business metrics are black and white. There are often nuanced factors that companies must identify and take into consideration before making important decisions that can affect their business operations. This responsibility should remain in the hands of professional auditors who understand and know how to leverage big data and AI to bring meaningful insight, improved efficiency and greater confidence to business decisions and high quality audit services.
About the Author: Hector E. Aguililla, CPA, is a director with Berkowitz Pollack Brant’s Audit and Attest services practice, where he provides business consulting services, conducts audits, reviews, compilations, and due diligence for mergers and acquisitions. He can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at firstname.lastname@example.org.