Audit firms must not get left behind by AI and analytics

Audit firms cannot afford to get left behind by the advances being made by rapidly evolving Artificial Intelligence (AI) and advanced analytics. These technologies are transforming and reshaping how auditors approach risk assessment and fieldwork.

How these technologies are enhancing efficiency, accuracy and delivering value in audits was examined by a recent webinar hosted by Mercia and Caseware on ‘Audit in the Era of AI and Analytics’. The webinar also looked at how AI and data analytics are being integrated into auditing practices and how audit firms can leverage these tools to stay ahead in an increasingly competitive industry.

Staying ahead

Jenny Faulkner, Head of Audit, Accounting & Compliance at Mercia says: ‘We need to keep up with emerging tech and emerging trends. Staying ahead and making sure we’re able to use the tech and use it ethically in order to drive both efficiencies and audit quality.

‘With the pace that we’re seeing now with technology, adaptability is key. Nobody wants to be that firm left behind.’

Faulkner told the delegates that analytics is driving better quality audits as evidenced by the ‘much, better quality audit files’ that Mercia is now seeing from its clients.

Through the roof

Although Mercia still sees see the occasional paper file delivered in a box and that has been handwritten, they are now rare.

Mid-tier firms are starting to embrace audit analytics, which is a positive step for the profession. Analytics are driving better quality audits, allowing auditors to focus on risk and good analytics are pulling out the risk areas for auditors.

Faulkner says: ‘The pace of change has gone through the roof. I remember talking to the ICAEW 10 years ago about analytics and we thought it was going to move quite quickly and then it didn’t. Nothing really happened for quite a long time, the technology was there but there was some blockage in the system.

‘The Covid pandemic probably played a part as for a lot of firms that became the catalyst for a reassessment. Because we’re naturally looking at different ways of auditing, people naturally started to look at technology.’

Reducing the mundane

AI tools are driving efficiency gains for audits with tools that are ‘really effective’ at just reducing the mundane tasks that are being done.

These are tools that can match invoices to payments or pick out the necessary information, which is a significant efficiency gain for firms and ‘an absolute game changer’. And the tools are evolving fast.

Faulkner notes: ‘The fact that it is reducing all these mundane jobs is making the profession a bit more exciting. I don’t want to say that audit is sexy, but it is becoming more attractive.

Nobody wants to sit and add up figures when they don’t have to. They want to do the things that they’re good at. They want to use their minds and make judgements and be sceptical.’

Absolutely critical

There are risks with any fast-moving technology and AI and analytics are no exception. From questions about whether the regulatory environment can keep pace with developments to the potential problems caused by AI’s confirmation bias.

Data privacy and confidentiality are also absolutely critical. Each AI tool comes with its own risks and with an open AI tool then everything is in the public domain. It is important that users understand the risks that go with AI and do not put confidential information of clients out there.

Faulkner says: ‘AI is not the auditor - the audit firm is still the auditor. You have to remember that alongside all the positive aspects of AI and analytics.

‘When the auditor produces the audit report, they absolutely need to have control over everything so when using these types of tools make sure you review the information. Just because AI tools can read and pull out some key elements, if you don’t look at it yourself as a firm, and the AI tool hasn’t picked up something vital it is going to be a big issue.’