The far-reaching impact of Artificial Intelligence on the audit profession

There is almost no sector that has changed more dramatically in the last decade than financial reporting and auditing, with the profession undertaking a huge move from mostly manual processes towards technology, a change that is actually proving to be only the beginning of a fundamental transformation further fuelled by the rise of Artificial Intelligence (AI). As KPMG experts Marcel Boersma and Anastasia Priklonskaya put it: “Auditing was long a field where ‘human intuition and judgement’ were the most important tools. Since then, data-driven technologies have added an important component to that, automating a lot of manual work such as routine tasks, a change that not only brings new benefits and opportunities as well as making the profession more enjoyable, but also raises complex questions about the nature of the audit process, the reliability of AI systems, and the changing role of the auditor.” The question now is: What are the key trends, opportunities and challenges that Artificial Intelligence brings to the auditing profession?

The auditing profession has already evolved thoroughly in recent years, according to Anastasia: “Traditional audit processes, largely dependent on physical documents and manual checks, have now been largely digitised. The introduction of automated systems for data analysis and process management was an important step forward. The next step is AI, and that involves a much deeper shift.” Whereas digitisation was mainly focused on improving efficiency and consistency, AI provides the opportunity to fundamentally change the quality of audits and how they are performed. This involves increasing the speed and accuracy of audits, but also makes it possible to generate new insights that were unthinkable for a long time. Marcel says: “The use of machine learning, natural language processing and other AI technologies, for example, makes it possible to discover patterns and make predictions that go beyond what human auditors can achieve with sampling, providing ongoing advice on how processes, safety and efficiency can be improved.” At the same time, the role of AI raises questions about what human expertise means in an increasingly automated field.

Although, with the rise of generative AI, the technology is taking on increasingly ‘human’ traits, there remains a fundamental difference between what humans can do and what computers can do, according to Marcel: “The power of AI is to 'give the most logical answer' based on algorithms and data. Human intelligence is driven by analytical ability, creativity, intuition and emotion. These are unique qualities that artificial intelligence does not yet have. This means that both types of intelligence can excel in a different field.” Sifting through huge amounts of data and extracting errors from them is a task AI is better at than humans. Defining frameworks, dealing with ethical considerations, and developing vision and strategy remains the domain of humans. Therein lies an immediate opportunity, because although the audit profession is largely about extracting the right information from data, the real difference is made by people who visit clients and get a deeper sense of what is happening. Only then can that data be interpreted correctly. 

According to Anastasia: “Although there is a lot going on in the field of AI and developments are happening at lightning speed, there are currently a number of major trends that are important to the auditing profession and/or that are going to have a big impact. Partly because they will change the profession, and partly because they will lead to quicker and more effective adoption by organisations.” Here are the three main developments and what they mean:

1. Automated data analysis and predictive analytics.
   AI in auditing enables analysis of entire data sets (in the future even in real time), eliminating the reliance of audits on sampling. Machine learning helps auditors better identify risks and detect anomalies that would otherwise go undetected. Predictive analytics, a coming development in the auditing profession, enables auditors to proactively prevent problems, increasing the value of audits as a strategic risk management tool. This gives auditors more scope for their advisory role.
2. The rise of Explainable AI (XAI).
   One challenge with AI in auditing is the transparency of decision making. Explainable AI (XAI) makes the internal processes of AI systems transparent, allowing auditors to make more informed decisions and justify them to clients and regulators. This strengthens confidence in AI and supports compliance through continuous management control.
3. AI and non-traditional data sources.
   With the increase in ESG reporting requirements, non-traditional data sources are becoming increasingly important in audits. AI helps analyse diverse data sets, such as social media and customer feedback, providing a more complete picture of the risks and performance of organisations. Integration with financial data makes audits more complete and more relevant, although uniformity in non-financial data needs further development.

As promising as AI is within the audit profession, Marcel says the development certainly carries risks, especially in the areas of security and trust: “First of all, because AI systems are only as strong as the data on which they are trained and the frameworks that are set, poor input can lead to wrong conclusions, with all the consequences that entails. In addition, there is a risk that AI decisions are not adequately monitored, especially if auditors rely too heavily on these technologies without a deep understanding of their limitations.” Recent KPMG research shows that 54% of organisations experience challenges due to existing concerns about data security and privacy. Another critical issue is the ethics and responsibility surrounding the use of AI in audits. Who is liable when AI systems make mistakes? How can auditors ensure that AI systems meet the ethical standards expected of them? These questions must be answered to avoid undermining trust in the audit industry. This requires roadmaps with a well-thought-out underlying strategy and vision. 

It is important for organisations to realise that the rise of AI is leading to changes in the role of the auditor, which was also highlighted in the survey. Anastasia explains: “Whereas auditors used to spend time primarily collecting and analysing data, their role will increasingly shift to interpreting AI-generated insights, having conversations within organisations at many levels, and forming judgements based on these analyses.” Auditors need to be better than ever at listening to their intuition. Moreover, new players will enter the market, with specialised AI-driven audit services that can make traditional audits obsolete. This means that existing audit firms need to invest in technology and training to stay competitive as well as clearly explain why the combination of humans and AI is so strong. For organisations, they need to provide room for their auditors to properly implement this new way of working. Only then will the combination of artificial intelligence and human intelligence be harnessed to its full potential.

The audit industry is at the beginning of a profound transformation with the rise of AI, according to Marcel: “Yes, there are huge opportunities to improve audit efficiency and effectiveness, but it also brings complex challenges. To successfully navigate this new reality, auditors and their clients must not only embrace AI technologies, but also continue to think critically about the ethical and professional implications of using AI.” A successful future in auditing therefore lies in the synergy between auditor and organisation and between human and machine, where AI is used to enhance, not replace, the unique human capabilities of auditors. And that can only happen if organisations take this new way of thinking into account in their vision and strategy.

Want to learn more about this topic or have questions? Download the full research report on AI in audit here, or contact Marcel Boersma or Anastasia Priklonskaya.