In today’s economy auditors play a critical role in the security of the financial markets by ensuring we are performing high-quality audits and providing clear insight into a company’s financial position to the users of the financial statements. Each auditor should continuously focus on enhancing the quality of our audit procedures and the value that we can provide to our clients. Given the vast improvements in technology in the past decade many audit firms throughout the public accounting industry have focused both time and resources to utilize technology in their audits. These technologies are intended to enhance the quality and efficiency of our work while allowing us to provide a more impactful assessment of our clients business, risks and even potential opportunities of growth.
One transformative piece of technology that is being used in the audit profession is artificial intelligence or AI. This technology consists of computer systems or software that will learn and develop on its own over time similar to human intelligence. This technology is allowing audit teams to evaluate voluminous data sets more productively in the performance of both our risk assessment and substantive testing procedures.
An area where artificial intelligence technologies have already impacted the profession is in the form of contract reviews. Many clients will have hundreds, thousands or even tens of thousands of contracts that will drive accounting implications from period to period. Prior to implementing this technology audit teams would sample on a population of these contracts (Ex: leases, purchase agreements, sales contracts, etc.) and ensure the client appropriately accounted for the agreement. However, with the use of artificial intelligence audit teams are now able to teach and program the software to identify, extract and summarize key elements of a contract (Ex: date of execution, parties to the contract, term of the contract, pricing, etc.) that enables auditors to perform a more detailed review in a shorter amount of time.
This technology can also be used to compare the key terms of various contracts to identify certain agreements with unusual items or terms that may indicate the need for alternative accounting treatments, additional risk and require additional procedures or evaluation. This allows audit teams to perform a more detailed risk assessment in evaluating large data sets enabling us to ask better questions to members of management and even provide insights into their business.
In addition to the use of artificial intelligence many audit teams are embracing the use of data analytics which are being used to both enhance the risk assessment of key operating and financial reporting risks and even perform substantive testing procedures. Data analytic software uses technologies such as machine learning and artificial intelligence to perform a series of detailed analysis designed to allow auditors to identify anomalies or unusual activities that may present additional risk. For example, these tools can analyze hundreds of thousands of invoices included within a Construction in Process population and within seconds summarize all information by invoice date allowing the auditor to identify older capital work orders or projects that may be a higher risk of impairment. These same technologies can also summarize this data by transaction type (Ex: invoice, inventory transfer, internal labor charge, etc.), building an expectation for each of these populations based on historical information to identify outliers in the population or even perform analytical testing procedures to support our audit opinion.
These tools and technologies are transforming the audit profession and will expand our traditional audit procedures beyond the normal sample-based testing approach. They will allow auditors to analyze entire data sets or populations to perform higher quality audit procedures, provide our clients with key insights into their business or operations and enhance our ability to identify financial reporting fraud or risks. The introduction of these technologies into the profession offers exciting opportunities to provide better client service to all our current and future clients.