Use of Artificial Intelligence in Auditing
Most observable and ruthless principles of Darwinism can only be observed in a capitalist environment where innovation and efficiency can make or break your firm. In an ultra-competitive environment, efficiency is the key to great execution. Lack of it saw the fall of goliath firms and consequently, the rise of small startups with agile implementation. Bare basics of economics can be summed up as scarcity of resources. Scarcity of any kind, time, human labour computing power etc. Modern management classes are filled with quotes of Sun Tzu which goes by “Know your enemy and know yourself ”. Internal auditing which is “ knowing yourself”, is a part of the modern financial system and regulatory compliance since the start of the private corporation and rise of tools like bonds and shares available to interested investors. Even though unbridled capitalism, competent management practice and state intervention in the financial market made internal audits much more structured, use of artificial intelligence in internal audits has taken it to a whole new level.
Why is Artificial Intelligence needed in auditing?
Data generated in a medium to large organisation, working under different sections located in different geographies can run into quantifiable amounts depending upon what all data, internal auditing team is interested and presume to be valuable. It creates a situation where an organisation has a huge amount of data (big data) at its disposal and very limited insight gained out of it. For example in a logistics company shipping a million of products through road, air or sea every day may want to know about how many shipments it lost during transport and resulting financial loss due to it. Traditional internal audits may let you know how many shipments were lost and the resulting financial accountability of it every quarter, month or week. What if one wants to know what is the percentage of the shipment lost during the weekend at midnights to packages of a particular size? Such minute detail is sometimes lost and overlooked during audits. Such patterns and trends are hard to decipher by the human mind compared to Artificial Intelligence.
If Auditing teams apply artificial intelligence in their internal audits and observe a recognizable pattern then they can reach the possible conclusion like it’s easier to steal and lose a shipment of a certain size at midnight when security is lax. On this insight, management can make decisions to provide better security at night against burglars and design a protocol for safe handling of shipments of the aforementioned size.
Impact/benefits of Artificial intelligence in auditing
1. AI can automate, augment and to some extent replicate human intelligence which reduces the need for human intervention and observation.
2. AI can avoid systemic bias when it comes evaluating the performance of employees, which could be susceptible to personal relationships during internal audits.
3. AI has made auditing cheaper and less time-consuming.
4. The biggest advantage of using AI in internal auditing is that of risk mitigation and management especially in areas like financial management. Various financial institutions use AI in internal audits for fraud identification.
5. AI can visualise data and make it more comprehensive for human readability using tools.
6. Error detection and early warning, AI-based internal auditing provides early warning of error based on the pattern observed from the past. This feature has been extremely useful in the use of critical infrastructures like power plants and electric grid lines.
7. Compliance to regulatory standards is an absolute necessity in fields like biomedicine and pharmaceuticals etc. Any shift from the regulations can have serious financial implications and criminal liability for the employees of the firm. Advanced AI can look for loopholes in the procedure.
Artificial intelligence has huge potential in auditing. Auditing is one of the few domains where even thorough calculators and computers simplify accounting but when it comes to applying a certain level of required human intelligence. Firms equipping themselves with AI sharpening their sword for the unknown future to come. And those who aren’t are possibly looking at a bleak future with certainty of loss.
