How IT is impacting the audit industry
Historically, external audits relied heavily on human expertise, meticulous documentation, and thorough analysis to ensure the accuracy and integrity of financial statements. However, with the rapid advancement of information technology (IT), the audit landscape is undergoing a transformation. We have witnessed the introduction of Artificial intelligence (AI) like ALICE, the ‘digital auditor’. She can assist companies with providing them with real-time and continuous monitoring of controls and performance into a business while running in the background. Not only is she a digital auditor, but she can also provide business monitoring services. There is AI that is designed to interact with humans and provide them with information, amongst other things, like Chat GPT. AI like ALICE is changing the landscape of audit, while AI like Chat GPT can help respond to some technical questions. Therefore, auditors’ roles are inevitably being redefined.
An external auditors’ objective is “to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error,” per ISA 700. To meet this objective, auditors scrutinise significant volumes of data, verifying compliance with regulations and respective accounting standards, which may detect errors or fraudulent activities. Traditional audit demands a high level of human engagement and professional scepticism, critical thinking, and attention to detail. In the past this required auditors to vouch, on a sample basis, on significant transactions, reconciling accounts, and assessing internal controls to identify potential risks. This is a lengthy process due to the amount of data an auditor needs to test and analyse.
The Rise of IT in Audit
The integration of IT into audit practices has revolutionised the audit field in several ways, some of which are noted below:
Advanced Data Analytics: This enables auditors to process vast amounts of data more effectively and efficiently. These can detect anomalies and patterns that may be missed by human auditors.
Automation: Routine tasks such as data entry, reconciliation and report generation can now be automated. This frees up the auditor’s time to focus on more complex and strategic aspects of the audit.
Continuous Monitoring: IT systems can continuously monitor transactions, identifying discrepancies or unusual activities in real-time as these run in the background.
AI and Machine Learning: AI and machine learning algorithms can analyse historical financial data to predict future trends and potential risks, providing auditors with valuable insights.
The integration of IT in audit enhances and redefines the role of auditors. Auditors now serve as data analysts, technology experts and risk experts. They can leverage technology to access deeper insights into an organisation’s financial health and identify potential issues more efficiently. Human thinking remains crucial in audit. Humans provide judgment, context and ethical oversight that technology lacks.
While technology can automate many tasks and improve efficiency, human judgment and ethical reasoning remain critical. Auditors need to adapt to this changing landscape, acquiring new skills and embracing technology to become more effective and valuable in ensuring financial integrity and compliance. The future of auditing lies in the synergy between human expertise and technological innovation, allowing auditors to navigate a rapidly evolving financial landscape.
That is the redefined role of auditors, in addition to their traditional role, they are also enablers of IT systems or AI to produce top tier services expeditiously.
Associate: Audit, Johannesburg