Auditors face Innovation Dilemma?
As frequently reported here, audit firms around the world are increasingly turning to new technologies, particularly artificial intelligence, to develop greater coverage and new insights. New machine learning techniques allow manual sampling efforts to be replaced with the automatic review of every single transaction of a particular type. Sounds like a way to provide a better, more comprehensive service to clients and to capital markets, right?
Throwing some sand into the innovation gears is lawyer Matthew P Bosher, writing in the Bloomberg BNA blog. He argues that — because there is not yet established process, procedure and professional standards in this area — audit firms face new litigation risks. According to Bosher, firms could face attack for failing to use AI and data analytics that could have identified a fraud, and equally, could face law suits that allege that their use of data analytics in a failed audit might be “unconventional, untested and unreliable and the auditor may have no clear professional standards to cite for a precise standard of care.”
Dickens had much to say about the legal profession, and perhaps he was right. By this logic there can be no advances in any professional field. If Mr Bosher is correct, then, at least in some jurisdictions, audit firms have an extremely fine line to walk as they push forward to improve their capabilities and take advantage of new technologies.
Our perspective? The use of digital technologies and the rapid digitisation of information in the public domain is accelerating in every field. In financial reporting (and the audit that supports it) this is particularly true – and supports entirely new capabilities, new forms of capital formation and new forms of risk management. Innovation in this field is essential. Read the article here.