Artificial intelligence significantly improves auditing levels

A recent study published in Accounting Research Review shows that the application of artificial intelligence is significantly improving the quality and efficiency of auditing financial statements and gradually replacing professional auditors.

Audit work follows its own set of execution standards and is highly dependent on professional skills such as prediction and anomaly detection. Such practical requirements also make auditing an ideal scenario for machine learning and artificial intelligence (AI) to show off.

In the article titled "Is Artificial Intelligence Improving the Audit Process? "In the study, researchers analyzed more than 310,000 employee resumes to measure the AI ​​investment of 36 leading audit companies in the United States. The research period was from 2010 to 2019. The authors of the article are Anastassia Fedyk from the University of California, Berkeley, the AI ​​for Good Foundation, Natalia Khimich from Drexel University, and Tatiana Fedyk from the University of San Francisco.

To guide the analysis, the researchers first interviewed audit partners to understand how their companies use AI technology in their audit work. The study then measured audit firms’ investment in AI through detailed resume data. Specifically, AI investment is measured as the percentage of AI professionals employed by audit firms in their total workforce. After the review was completed, the researchers matched the level of AI investment with indicators such as audit quality, audit costs, and the size of the audit company's layoffs.

Generally speaking, AI practitioners are mainly male, relatively young, and most of them are not from accounting majors. They are mainly concentrated in the fields of engineering and computer science. In addition, most AI employees are concentrated in New York and California, with a small number living in Washington, DC, Illinois and Texas.

Research author Anastassia Fedyk pointed out, “Our main finding is that as audit companies invest in AI technology, their audit quality will improve simultaneously. The number of restatements, especially major restatements, has decreased, and securities Exchange committees also conduct fewer audit investigations of companies investing in AI.” Interestingly, the study also found that both Big Four accounting firms and non-Big Four firms showed a clear correlation between AI and audit quality. Of course, I believe you can also imagine that for established firms and retail companies that have more available data, AI can more effectively enhance auditing capabilities. During the interviews, the researchers found that most audit partners believe that the retail industry is the most suitable industry for introducing AI tools.

Fedyk further pointed out, “We also observed that in addition to the improvement in audit quality, the work efficiency of auditors has also improved. Although we cannot directly measure the efficiency of auditors, from the perspective of audit fees, The intervention of AI has indeed made practitioners more efficient and reduced audit costs. The greater the investment in AI technology, the lower the corresponding audit fees can be controlled."

The study further reported that audit The improvement in audit quality that clients gain from AI investment is far lower than the AI ​​investment made by audit companies themselves. Fedyk commented, “This is also very intuitive. Customers invest in AI mainly for other goals, such as new product development; while audit companies invest in AI to analyze the complexity of the audit process and explore how technology can help auditors. But before the study began, we thought that AI applications on the customer side could play a greater role in auditing, but this was not the case."

Finally, the researchers found that as the adoption rate of AI increases, Audit firms have seen a reduction in headcount. This impact is most pronounced among professional audit groups at lower levels within a company. The article also explains that the audit income generated by unit employees is positively correlated with AI investment.

Fedyk concluded, “Overall, the results of this research are very positive. Investing in AI audit technology does bring tangible benefits to enterprises, which is not true with many other technologies. In another previous study, a researcher and I documented the real-world effects of companies adopting popular and overhyped technologies, including IT in the early 2000s and data analytics in the 2010s. While these initiatives can improve companies' performance in the short term, Valuation, but in the long run it is harmful rather than helpful. Only when the environment is suitable and the technology is effective, the benefits will be truly within reach. Obviously, the performance of AI technology in audit scenarios falls into this relatively positive situation."

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