Corporate finance leaders expect external auditors to utilize technology such as artificial intelligence to enhance audit work, according to a new report from top six accounting firm BDO USA. We believe this is the second most important factor when choosing.
In fact, the ability to leverage new technology was a slightly more important factor influencing audit firm selection than industry knowledge, according to the first 2024 BDO Audit Innovation Study released on October 7th.
Graph provided by BDO USA.
The report found that 64% of finance leaders say they are looking for an audit firm to leverage AI before engaging with an auditor.
Many companies say they believe technology allows for more efficient and transparent audits, but they are not willing to compromise on hiring proven auditors. Hiring experienced auditors is especially important as companies continue to face challenges in finding quality in-house accountants. As a result, many companies are turning to solutions such as hiring non-accountants and leveraging AI to fill these gaps.
BDO states in its report:
Technology is impacting the way companies approach the selection process, but one thing hasn’t changed. That is the importance of trust. Survey respondents indicate a strong connection between technology and trust in auditors. In fact, 63% of leaders believe that when auditors use advanced tools such as AI, robotic process automation, software extraction and transformation and loading, and blockchain, they and their key stakeholders have some or a lot more confidence. The answer is that it will be strengthened.
There is a clear relationship between audit technology and audit quality expectations. An overwhelming majority of respondents (84%) say they expect audit quality to improve as audit technology becomes more integrated. The data shows that finance teams believe that innovation in auditing and the use of new tools has a positive impact on the experience with external auditors and the overall quality of the audit.
How companies see AI and other technologies benefiting their audit operations can provide insight into how they expect the technology to improve the reliability of their financial data. There is a gender. Companies expect technology to lead to positive outcomes such as improved audit quality, greater efficiency, greater visibility, and a clearer understanding of risk. While technology is already helping businesses manage risk, technology alone won’t improve audit quality.
Indeed, regulators have expressed concern that auditors may be overly reliant on emerging technologies and may not have adequate controls in place to mitigate non-compliance. For example, the PCAOB has expressed concern that technology-enabled analysis in audits can lead to noncompliance with standards. In June 2024, the PCAOB approved new rules that provide clarity to auditors regarding the use of technology-assisted analysis. The PCAOB believes this will help audit firms improve audit quality as they adapt to the new environment.
While survey data highlights the importance of auditors leveraging technology to meet client demands, it is important to understand that technology cannot replace professional skepticism. This is a feature of the auditor’s role that remains essential to maintaining confidence in the capital markets. The deliberate inquisitiveness and judgment that experienced auditors bring to their work allows them to properly evaluate evidence, detect errors, and identify potential fraud. Finance teams should look for auditors who clearly exhibit these characteristics. An audit firm’s culture is also key to ensuring audit quality. A proven and robust compliance culture, combined with professional curiosity, increases stakeholder trust, alongside new innovations.
As companies hire external auditors, it becomes increasingly important to look for companies that emphasize auditor training, user adoption of technology, transparent processes, and data-driven analysis. Audit success depends on people combined with process and technology, so companies should look for an audit firm that prioritizes people.
“One of the most important things external auditors can do to keep pace with their clients is to train their own employees on new technology so they can interact with the company’s systems and data. ” said Megan Odegaard, Director of Assurance for BDOADVANTAGE, BDO USA’s digital audit suite. “Finance teams expect us to work effectively within their ecosystem, and user enablement on our end is a critical part of the engine that powers an enhanced and streamlined audit experience. I hope it becomes.”
This report makes two recommendations for finance teams regarding external auditors and technology:
1. Dividing your approach to audit quality into three parts: The future of audit quality will depend on three factors: technical efficiency, regulatory compliance, and talent. These three elements are increasingly interdependent and impact audit firms and finance teams alike. The pace of change is faster than ever, but finance teams also need to take the time to fully address the concerns regulators are expressing about audit innovation. This will help you know what to look for in an external auditor, and how to balance the appeal of new technology with proven auditor characteristics that maintain investor confidence. Helpful.
2. Ask probing questions about an auditor’s technology capabilities: AI and generative AI have been touted among accounting and auditing professionals for the past year, making it more likely that finance teams will be looking to hire or retain an audit firm. It’s important to know what technology to look for. This will undoubtedly include questions about AI capabilities and governance, but understanding other tools and components at a deeper level can help finance teams develop insight. Companies should consider audit firms with robust digital capabilities, including automated tools that can easily extract, transform, and load business data to ease the burden on their teams. You should also consider using data-driven analytics and features such as anomaly and pattern detection to help auditors better identify areas of concern and explore risks. Finance leaders should have a solid list of technical competency questions to ask during hiring discussions.
“We know that innovations like AI are reshaping the audit landscape, but it is essential to understand the top priorities and challenges for finance leaders during this change,” said BDO USA Assurance National said Demetrios Frangiskatos, Managing Principal. “What we have learned proves that aligning audit technology to client needs is critical and provides auditors with the ability to skillfully leverage these tools to maintain and improve audit quality.” By understanding these needs and expectations, we can help keep audit quality and trust at the forefront as the profession evolves.”
The 2024 BDO Audit Innovation Survey surveyed 200 senior finance leaders at U.S. private and public companies with revenue ranging from $250 million to $3 billion. The study was conducted in May last year by independent marketing research firm Lavin Roberts Research, using Slice MR’s executive committee.
