EY, a member of the Big Four accounting firms, recently tested an artificial intelligence system on its UK audit clients’ accounts, yielding remarkable results.
In the trial, as reported by the Financial Times, EY’s AI system detected fraudulent activities in two of the first ten companies it reviewed. However, the move sparks debate among industry experts about the technology’s reliability and the privacy issues it raises. Opinions within the industry also remain divided regarding the reliance on such advanced tools for audit processes.
Financial Times @ft: EY claims success in using AI to find audit frauds – Financial Times. #GenAI #ArtificialIntelligence #aistrategy https://t.co/9K9lTIpaGI
— Nordic AI Artificial Intelligence Institute (@nordicinst) December 3, 2023
EY’s UK and Ireland assurance managing partner, Kath Barrow, confirmed that their AI system, trained to recognize signs of fraud, successfully identified suspicious activities later confirmed as fraud. This success is not just about catching wrongdoers; it represents a significant move in audit technology.
Traditional audit tools depend on predetermined data patterns to flag issues. Still, EY’s AI system uses machine learning and historical data from various fraud cases, making it more sophisticated and potentially more effective.
Skepticism and challenges
However, this technology comes with its skeptics. Simon Stephens, AI lead for audit and assurance at Deloitte UK, argues that the uniqueness of each fraud makes it challenging for AI to identify consistent patterns. Moreover, concerns about using confidential client data for developing AI systems have raised eyebrows regarding data privacy and the ethical implications of such practices.
Despite these challenges, AI’s potential to reduce auditor workloads and increase accuracy cannot be overlooked. The recent struggles in the auditing sector, marked by missed financial discrepancies leading to business collapses, highlight the need for improved methods. EY’s AI approach, a blend of historical fraud data and public information, could answer these growing challenges.
Regulatory perspective and future directions
The UK’s Financial Reporting Council acknowledges the potential benefits of AI in auditing but cautions that auditors need the right skills to critique and deploy these systems effectively. The council emphasizes the importance of maintaining standards and ensuring that AI tools are used appropriately.
As AI continues to evolve, its role in auditing could expand, offering a new risk assessment and identification tool. The technology’s ability to learn from past cases and adapt to new scenarios holds the promise of maintaining and elevating auditing standards.
The integration of AI into auditing processes is a delicate balancing act. On one hand, it promises more efficient, accurate, and thorough audits. On the other hand, it raises questions about data privacy, ethical use, and the overall understanding of the technology. As firms like EY and Deloitte continue to explore AI’s applications in auditing, it will be crucial for them to navigate these challenges carefully, ensuring that the benefits of AI are harnessed without compromising ethical standards or data security.
EY’s AI trial has opened a new chapter in auditing, where technology could redefine how financial scrutiny is conducted. While the road ahead is filled with debates and challenges, the potential for AI to revolutionize the auditing sector is undeniable. As the industry continues to evolve, it will be interesting to see how AI reshapes the landscape of financial auditing.
and then