Artificial intelligence cannot replace professional judgment for auditors

The use of artificial intelligence (AI) to replace human intervention for auditing processes and financial transactions will not remove the need for professional judgment, ICAEW warns

Regardless of the impact of robots on the accounting sector, professional judgement will remain a critical requirement and accountants need to develop their skills to use the technology.

ICAEW and data solutions company Drooms have published a report on the application of AI to corporate deals, which in 2018 involved transactions worth $4 trillion globally. 

The research explored how AI technologies will augment the existing business models of advisory firms, corporations and consulting groups, allowing organisations to conduct better due diligence, make better predictions, and guarantee the success of deals.   

Lord Clement-Jones, co-chair of the All-party Parliamentary Group on AI, said: ‘This report specifically addresses the application of AI in the context of mergers and acquisitions. Potential benefits include faster, more accurate and more insightful due diligence processes.

‘Professional judgment will become more, not less, important in the age of AI, but in a global AI market dominated by the US and China, countries such as the UK will need to increase public and private investment markedly.’

The report makes several recommendations for the implementation of AI, including that collaboration between professional services firms and technology developers in AI and big data should be stepped up.

The global technology companies such as Amazon, Microsoft, Google and IBM are already seeking to shape the way in which AI should work in the professional services industry including via the application of these technologies in accounting and legal services. 

ICAEW points out that comprehensive, multi-layered analysis can produce complex results, which require careful interpretation.  The institute argues that expert professional judgement will become even more, rather than less, important in the age of AI.

David Petrie, head of corporate finance, ICAEW, said: ‘Over the next three years there will be a sea-change in the way global mergers, acquisitions and corporate investment decisions are evaluated and transacted.

‘For professional bodies, our role is to ensure that members remain at the cutting edge of the application of these new technologies and that they have the expertise, training and qualifications to make the commercial and ethical judgements vital in the brave new world of AI assisted deal-doing and corporate finance.’

Early stages

Meanwhile, a report from ACCA and CA ANZ suggests the audit profession is still at the very early stages of introducing AI but should guard against full implementation.

Its research found that among the available technologies, data analytics is currently the most mature and is currently used by most firms, while the audit profession has not embedded AI as deeply as it could.

The findings show the human relationship between client and auditor remains important, and ACCA says not everything can be replaced by technology, but auditors will need to be more adaptable to change in future.

Maggie McGhee, executive director – governance at ACCA, said: ‘Technology offers the ability both to improve the quality of audit and to add value to it: audit is moving from being a reactive, backward-looking exercise to a proactive, predictive, forward-looking one, working in real time.

‘As such, it provides an opportunity to help clients by providing timely insights. Even in its traditional context, technology now offers an opportunity to produce higher-quality audits that better serve for their existing purpose.

‘Nonetheless, if AI and related technologies are fully implemented, it could raise questions about the auditor’s independence.’

 ICAEW report AI in corporate advisory

ACCA report Audit and Technology

Pat Sweet

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Comments

Hi Pat,

While the ICAEW rightly points out the risks with AI, they should also consider the benefits that AI brings in terms of increasing coverage and removing bias. This is particularly important as firms are under pressure for audit failures.

Disclosure of interest : I'm a former analytics director from EY and now CEO of Prudent.ai, a startup building data science solutions for accounting services firms.

There are risks in AI, the benefits are equally important . As accounting firms face pressure with audit failures, increasing coverage and removing bias are valuable effects that AI can bring to audits.

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