Financial statements and artificial intelligence are part of the incoming AI wave in which businesses have growing confidence – if human professionals are in the lead.
The 2024 first-ever BDO Audit Innovation Survey reveals the thinking of 200 finance leaders of companies with revenues ranging from $250 million to $3 billion. However, as AI expands, these considerations will grow among smaller companies, eventually flowing down to companies that are just starting to think about AI use in their financial statements. (Note: Rodefer Moss is an independent, privately-owned member of the BDO Alliance USA, the world’s fifth-largest accounting network).
Financial statements tell a public, private or nonprofit entity’s story to investors, regulators and other interested stakeholders. Financial statements are heavily scrutinized. Effective, thorough audits are a must-have to ensure corporate credibility and viability.
The survey of finance leaders at public and privately-owned companies shows that major firms are looking with growing attention at the technological capabilities of accounting firms conducting independent audits. The more effective the technology, the more confidence finance leaders will have in the audit firms.
However, the survey says as well that finance leaders want auditing professionals to be counseling, advising and supervising. They’re expected to demonstrate their knowledge of AI systems used in audits and to exercise professional skepticism, defined by the Public Company Accounting Oversight Board as “an attitude that includes a questioning mind and a critical assessment of audit evidence. The auditor uses the knowledge, skill, and ability called for by the profession of public accounting to diligently perform, in good faith and with integrity, the gathering and objective evaluation of evidence."
Fifty-four percent of survey respondents said they expect technology to result in higher-quality audits; 52% say it will lead to more efficient processes and collaboration; 46% expect more transparency in the audit process; 43% believe it will give a better picture of the audit risk landscape; 41% think it will result in fewer facilities and administrative-team manual labor; 41% see the audit as giving them a deeper insight into their business; and 29% think it will reduce costs.
Eighty-four percent of respondents expect audit technology to improve as more is employed, and trust in an external auditor is directly related to the auditor’s ability to demonstrate technological proficiency. Financial leader trust grows when the audit partner demonstrates the ability to use advanced technology. Within the BDO Survey Highlights it says that
“72% of respondents say a lack of confidence in the technical expertise of external auditors and their ability to interpret the technology’s outputs is sometimes or often a challenge.”
The BDO survey is consistent with the findings of a study conducted by researchers at Emory University's Gozuieta Business School. As part of the research, a hypothetical case was presented to participants in which they were asked about willingness to accept an auditor’s recommendation to record a downward adjustment in a patent (intangible asset). An article titled “The Use of AI in Financial Reporting,” in Emory Business, included this:
“When both the auditor and the company used AI, participants were willing to record a larger adjustment amount, i.e., decrease the value of the patent more. The authors find that these results are driven by increased perceptions of accuracy.”
Regardless of company size, AI should be a topic of discussion with any external auditing firm. AI is a rising tide – and this one won’t be going back out. For businesses, it’s better to catch the wave than to let it knock them off their feet.
This article first appeared in Knox News.