According to a new report from top six accounting firm BDO USA, company finance leaders are expecting technology like artificial intelligence to be used by their external auditors now to enhance their audit engagement and consider it the second-most important factor when choosing an audit firm.
In fact, according to the inaugural 2024 BDO Audit Innovation Survey, released on Oct. 7, the ability to leverage new technologies was a slightly more important factor that influences audit firm selection than industry knowledge.
Before engaging with an auditor, 64% of finance leaders say they look for the audit firm to use AI, the report reveals.
Although many companies say they believe technology will unlock a more efficient and transparent audit, they aren’t willing to compromise on hiring an auditor with a proven track record. Hiring an experienced auditor is especially important as companies indicate that they continue to face challenges finding high-quality in-house accountants. As a result, many are turning to solutions like hiring non-accountants or leveraging AI to fill those gaps.
BDO says in the report:
While technology is influencing how companies are approaching the selection process, one thing hasn’t changed: the importance of trust. Survey respondents indicate a strong tie between technology and trust in their auditor. In fact, 63% of leaders say trust is somewhat/significantly enhanced for them and their key stakeholders when auditors use advanced tools, such as AI, robotic process automation, extract transform and load software, blockchain, and more.
There is a clear connection between audit technology and audit quality expectations. The overwhelming majority of respondents (84%) say they anticipate audit quality to improve with increased integration of audit technology. The data illustrates that finance teams believe innovations within the audit and use of new tools will positively impact their experience with external auditors and the overall quality of the audit.
The ways companies see AI and other technologies benefiting audit engagements may offer insights into how they anticipate the technology will increase trust in financial data. Companies anticipate that technology will lead to higher quality audits and other positive outcomes such as greater efficiencies, increased visibility, and a well-defined picture of risk. While it’s true technology is already enhancing enterprise risk management, technology alone won’t result in a higher quality audit.
In fact, regulators are expressing concerns about auditors potentially becoming overly reliant on emerging technology and not putting appropriate controls in place to mitigate non-compliance. For example, the PCAOB has voiced concern about technology-assisted analysis within the audit resulting in non-compliance with their standards. In June 2024, the PCAOB approved new rules that provide clarity to auditors for using technology-assisted analysis, which the agency believes will help audit firms improve audit quality as they adapt to a new landscape.
Though survey data underscores the importance of auditors leveraging technology to meet client demand, it is critical to understand that technology cannot replace professional skepticism—a hallmark of an auditor’s role that remains essential to preserving trust in capital markets. The intentional inquisitiveness and judgment that experienced auditors bring to the engagement allows them to adequately assess evidence, detect errors, and identify potential frauds. Finance teams should look for their auditor to clearly exhibit these traits. An audit firm’s culture is key to ensuring audit quality, too. A demonstrated firm culture of compliance, combined with professional curiosity, in tandem with new innovations, will advance stakeholder trust.
As companies hire external auditors, it is increasingly important that they look for firms that emphasize auditor training, user adoption of technology, transparent processes, and data-driven analyses. Companies must seek out audit firms that prioritize their people because it is the people, combined with processes and technology, that drive audit success.
“One of the most important things external auditors can do to keep pace with their clients is train their own employees on emerging technologies, so they are better equipped to work with companies’ systems and data, as well as understand the proprietary tools at their own organizations,” said Megan Odegaard, assurance director with BDOADVANTAGE, the digital audit suite at BDO USA. “Increasingly, we see finance teams expect that we can work within their ecosystems effectively, making user enablement, on our end, a key piece of the engine that powers enhanced, streamlined audit experiences.”
The report makes the following two recommendations for finance teams regarding external auditors and technology:
1. Triangulate approaches to audit quality: The future of audit quality will be driven by three things: technological efficiency, regulatory compliance, and talent. These three elements are increasingly interdependent, and they impact audit firms and finance teams equally. While the pace of change is faster than ever before, finance teams will also need to take the time to ensure they are fully engaged with the concerns regulators are expressing about audit innovation. This will help them know what to look for in their external auditors and inform them how they balance the appeal of new technologies with tried-and-true auditor traits that preserve investor trust.
2. Ask in-depth questions about auditors’ tech capabilities: With AI and generative AI being touted over the last year within the accounting and auditing professions, it is important finance teams know what technologies to look for in hiring or retaining an audit firm. While this will undoubtedly include asking about AI capabilities and governance, understanding other tools and components on a deeper level will help finance teams develop a discerning eye. Companies should consider audit firms with robust digital capabilities that include automation tools that can easily extract, transform and load business data, which will help reduce the burden on their teams. They should also look for the use of data-driven analysis and functions such as anomaly and pattern detection so that the auditor can better identify areas of interest and investigate risk. Finance leaders should be prepared with a robust list of questions about technical capabilities during hiring discussions.
“We know that innovations like AI are reshaping the audit landscape, but it’s essential that we understand finance leaders’ top priorities and challenges in this shift,” said Demetrios Frangiskatos, national managing principal, assurance operations at BDO USA. “What we learned validated the critical importance of aligning audit technology with client needs and underscored the demand for auditors who can skillfully leverage these tools to maintain and enhance audit quality. By understanding these needs and expectations, we can help ensure that audit quality and trust remain at the forefront as the profession evolves.”
The 2024 BDO Audit Innovation Survey polled 200 senior finance leaders at U.S. private and publicly held companies with revenues ranging from $250 million to $3 billion. The survey was conducted last May by Rabin Roberts Research, an independent marketing research firm, using Slice MR’s panel of executives.
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