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Well over a year ago, Dave asked, “Are robots coming for your auditor?” His blog noted that CAQ’s analysis of 2022 audit quality reports showed that some firms had added a discussion about how they employ AI and data analytics to improve audit quality and highlighted a study that showed AI has been effective at improving audit quality while also displacing junior-level audit professionals. As this July 2024 Spotlight details, the PCAOB has also taken note and is considering action in response to these trends — especially the rapidly developing use of GenAI:

The PCAOB’s standard-setting agenda includes a research project to assess whether there is a need for guidance, changes to PCAOB standards, or other regulatory actions in light of the increased use of technology-based tools in the preparation and subsequent audit of financial statements. [To that end,] we conducted outreach regarding the current state of integration of GenAI tools in audits and financial reporting. We spoke to auditors mainly at larger firms and representatives from several companies (i.e., preparers of the financial statements) about their current use of GenAI and the direction in which they expect GenAI will be integrated in audits and financial reporting.

The survey found that auditors’ current use is focused on administrative and research activities, while financial statement preparers have been more focused on integrating GenAI in operational and customer-facing areas than on accounting and financial reporting. More specifically:

Auditing: Some firms stated that their staff can use GenAI when preparing certain administrative documents or initial drafts of memos and presentations related to the audit. Some firms also indicated that they had developed and deployed GenAI-enabled tools to assist staff in researching internal accounting and auditing guidance. Generally, the global network firms we spoke to are further along in developing and deploying GenAI-enabled tools than non-affiliated firms are.

Financial Reporting: Some preparers noted that their personnel use GenAI in creating initial drafts of internal documents (e.g., summaries of accounting standards and interpretations, presentations, and benchmarking of company information with publicly available information from competitors). In addition, some preparers also use GenAI to assist in the performance of less complex and repetitive processes, such as preparing account reconciliations or to assist with identifying reconciling items.

Most audit firms also reported investing in GenAI-enabled tools to expand their use case but cited data privacy and security, plus the lack of auditability of the underlying source data, as limiting factors for using GenAI for audit or attest procedures. They also indicated that current PCAOB auditing standards are “not currently viewed as impediments to the development and use of GenAI in the audit.”

AI will be a prominent topic at our “2024 Proxy Disclosure & 21st Annual Executive Compensation Conferences.” I’m especially excited about the panel “In-House Insights: Governing and Disclosing AI.” Our experienced in-house panel featuring Kate Kelly of Meta, Arden Phillips of Constellation Energy and Erick Rivero of Intuit will discuss how AI has impacted their work in the last 18 months – and what they expect going forward — from creating policies and developing governance practices, considering risks, opportunities & related disclosure, and how they’re utilizing AI to streamline day-to-day legal tasks. Don’t miss it! Our “early bird” rate for individual in-person registrations ($1,750, discounted from the regular $2,195 rate) ends today! You can register by visiting our online store or by calling us at 800-737-1271.

– Meredith Ervine