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Financial statements and artificial intelligence are part of the coming AI wave that companies are increasingly confident in – if human professionals take the lead.
The first-ever 2024 BDO Audit Innovation Survey reveals the thinking of 200 financial leaders from companies with revenues ranging from $250 million to $3 billion. However, as AI continues to expand, these considerations will increase among smaller companies, ultimately culminating in companies just beginning to think about using AI in their financial statements. (Note: Rodefer Moss is an independent, private member of the BDO Alliance, the fifth largest accounting network in the world).
Annual accounts tell the story of a public, private or non-profit organization to investors, regulators and other interested stakeholders. Annual accounts are heavily scrutinized. Effective, thorough audits are a must-have to ensure the credibility and viability of the company.
The survey of financial leaders at public and private companies shows that large companies are increasingly looking at the technological capabilities of accounting firms that conduct independent audits. The more effective the technology, the more confidence financial leaders will have in accounting firms.
However, the survey also shows that financial leaders want accounting professionals to advise, advise and supervise. They are expected to demonstrate knowledge of the AI systems used in audits and demonstrate professional skepticism, which the Public Company Accounting Oversight Board defines as “an attitude that involves a questioning spirit and a critical assessment of audit evidence. The auditor uses the knowledge, skills and abilities necessary for the accounting profession to conduct the collection and objective assessment of evidence diligently, in good faith and with integrity.
Fifty-four percent of respondents said they expect technology to result in higher quality audits; 52% say this will lead to more efficient processes and collaboration; 46% expect more transparency in the audit process; 43% believe this will provide a better picture of the audit risk landscape; 41% think this will result in fewer facilities and manual labor by administrative teams; 41% believe the audit gives them a deeper understanding of their business; and 29% think it will reduce costs.
Eighty-four percent of respondents expect audit technology to improve as it is deployed, and trust in an external auditor is directly related to the auditor’s ability to demonstrate technological proficiency. Financial leaders’ confidence grows when the audit partner demonstrates the ability to use cutting-edge technology. The BDO Survey Highlights states that “72% of respondents say that a lack of confidence in the technical expertise of external auditors and their ability to interpret the results of the technology is sometimes or often a challenge.”
The BDO study is consistent with the findings of a study conducted by researchers at Emory University’s Gozuieta Business School. As part of the study, participants were presented with a hypothetical case in which they were asked about their willingness to accept an accountant’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 stated: “When both the auditor and the company used AI, participants were willing to record a larger adjustment amount, that is, the value of the patent even further. . The authors find that these results are driven by an increased perception of accuracy.”
Regardless of company size, AI should be a topic of discussion at every external accounting firm. AI is a rising tide – and it’s here to stay. It is better for companies to ride the wave than to let it knock them down.
Samuel French is president of Rodefer Moss & Co. PLLC, a bi-state accounting firm based in Knoxville. The company’s website is rodefermoss.com.
