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Generative AI revolution: How auditors are leading the way

November 9, 2023

Reliance on generative artificial intelligence (GenAI) in the financial reporting space is rapidly expanding, as is reliance on auditors to play a leading role in all aspects of the revolution.

In a recent KPMG survey of finance executives at companies with annual revenues of $1 billion or more, half have either deployed or piloted GenAI solutions for financial reporting functions, and 70% of those using AI expect to implement it more broadly over the next two years.

As they do so, executives are turning to auditors to make sure GenAI helps the cause as intended.

"As auditors, we must lead in deploying AI responsibly," Scott Flynn, KPMG vice chair—Audit, said in a news release.

Seventy-two percent of respondents said they believe the use of AI by external auditors responsible for auditing companies' financial reports is outpacing those preparing the financial reports themselves. Nearly half of the executives surveyed already expect their external auditors to conduct data analysis using AI.

As accounting firms get more comfortable with using AI to supercharge and streamline their audit capabilities, companies are relying on external auditors to smooth the tech-driven transition.

"Financial reporting leaders, but also investors, regulators, and other stakeholders in the capital markets expect AI to drive audit quality. They also expect auditors to understand and evaluate processes and controls, analyze transaction-level data for anomalies, and test more data in real-time," Flynn said. "Considering both the scope and scale of AI's impact on financial reporting, enhancing audit quality by using technology to stay ahead of emerging risks is expected."

In the survey, 65% of executives said they expect auditors to evaluate their use of AI either by conducting third-party attestation (29%) or detailed reviews of control environments (36%).

And, on a macro scale, it's plausible to think that auditors could be called upon to evaluate AI itself.

A recent Artificial Intelligence Policy Institute survey found that 64% of American voters support the creation of a government organization tasked with auditing the reliability of AI systems. The survey came on the heels of a Centre for the Governance of AI survey in which 98% of subject matter experts agreed that labs building AI technology should conduct third-party audits of their models.

Other insights from the KPMG survey include:

The most commonly cited benefit of AI in the financial reporting space was "increased efficiency and reduced staff burden."

52% of executives expect AI to attract more talent to financial reporting roles. Six out of seven executives believe AI will positively affect diversity, equity, and inclusion.

While just 27% view AI as a solution to staff shortages, 55% do not expect AI to shrink their workforce.

[Journal of Accountancy]

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