FEI Daily spoke with Will Bible, an audit partner at Deloitte & Touche LLP, on innovating financial statement audits with artificial intelligence and how it will impact the world of finance, accounting and auditing. Will is presenting at this year’s Current Financial Reporting Issues Conference, November 14-15, 2016 in New York City on the topic.
FEI Daily: Much has been written and published about automation and accounting. Where have we seen the greatest progress to-date?
Will Bible: To achieve automation and ubiquitous data analytics, you need data standardization. There's been a lot of progress on digitizing information, and automating processes around that digitized information. In addition, we are focused on extracting data directly from systems to streamline the data preparation phase and reduce the burden on our clients.
FEI Daily: How is data analytics helping to transform the audit? Can you provide specific example?
Will Bible: Visualization. A good visual can really describe a population of transactions, and allow an auditor to focus on populations of interest and better focus their testing. For example, an auditor can look at a picture of inventory items by their cost, and hone in on the items that have abnormal costs to ask insightful follow up questions. For public companies, we developed a predictive risk model, Deloitte Signal, to inform our risk assessment related to accounting, fraud and failure risks.
At the same time, trending analysis can be really insightful as well because it can help to identify changes that are occurring in the business. Those changes generate follow up questions that pinpoint areas of risk. We are seeing analytics and visualizations deployed to improve risk assessment, better focus the auditor's time, yield more meaningful questions, and identify what really could go wrong in the financial statements.
FEI Daily: What are the barriers to implementing more data analytics in audits?
Will Bible: Every company we audit is different. Each company has a different data structure and different systems. That is a challenge that we face as a profession. Whereas a company that wants to deploy an analytic has to work through their own legacy systems, and that challenge can be daunting by itself, we have to work with almost all companies’ legacy systems. In the U.S., Deloitte audits companies with approximately $6.5 trillion in market capitalization, and as a result we have invested significantly in data extraction technology to obtain data as close to real time as possible.
We talked about analytics for risk assessment, but analytics to predict balances or obtain evidence the balance is correct require precision. It's generally not sufficient to be directionally correct in an audit. We're exploring advanced technologies to try to overcome that barrier by employing more advanced analytics that achieve precision.
FEI Daily: What are the expected benefits of the technology investment for stakeholders of audits?
Will Bible: All stakeholders are looking for an effective, high quality audit process. Investments in technology, particularly data analytics, enables us to better identify and address risk in the financial statements. At the same time, it also helps us deliver better insights to clients, through benchmarking or identifying anomalies that might not be material to an audit, but worth considering by management.
Another critical stakeholder is our professionals. Our people asked the question, "Why can't I see the status of my audits on a mobile device?" There really is no great reason why they can't, so we created technology to give that transparency. Likewise, "Why aren't all public companies’ disclosures searchable in real time?" Again, that is within the reach of technology, and we deployed a system to enable that capability. The end result is a much more rich and rewarding experience for our professionals.
FEI Daily: What is on the frontier of accounting and auditing innovation?
Will Bible: Over a year ago, we deployed an artificial intelligence platform in our audit practice to assist with reading and analyzing documents, and extracting key information for the auditor. We also adopted an online digital portal to enhance transparency with clients. Now we're thinking beyond that.
We're thinking of things like robotic process automation. Innovations such as this could allow us to automate pieces of an audit process, without having to stitch together legacy systems. We're also thinking about drone technology, and how it could transform physical observations that are conducted as part of the audit. Maybe a drone could take independent measurements, at different times of the year, and give the auditor independent insight into how a business is operating. We are experimenting with blockchain technology, evaluating its impact on financial statement preparation and considering how we can leverage the technology to improve audit processes. All very preliminary, experimental thinking as we continue to drive technology into our practice.
FEI Daily: Auditing as a profession hasn't changed as rapidly as other businesses. How fast is the pace of change now?
Will Bible: Looking back at the progress of the past several years, it is tremendous. As a profession, we have a set of auditing and accounting standards that do not rapidly change – which is entirely appropriate and helps stabilize the financial reporting process. However, the technology we've deployed is being used by thousands of professionals that are auditing clients not only in the U.S., but around the world. Audit execution is changing as rapidly as any other professional service. It's a huge challenge, though, to transform audits of trillions of dollars of company value. It really is a journey.
FEI Daily: How will AI and automation impact future staffing levels?
Will Bible: Our perspective on artificial intelligence is what we call “human in the loop.” Some industry observers call it augmented intelligence. Our experience shows that artificial intelligence needs oversight to be deployed effectively because all audits are different. I don't foresee a near-term or wholesale shift to robotics over people for the auditing profession that will dramatically affect future staffing levels. Because of the breadth of businesses that we audit, and the need for professional judgment and skepticism as the backbone of an audit, it is much more difficult to achieve scale with automation that will shift staffing levels overnight.
However, I do see our people being challenged to use their time differently, because they have faster access to more information. They can think more deeply about that information, and they can access richer data sources to conduct the audit. I think all auditors should be questioning if they’re performing redundant tasks; “Why can't this be easier, and potentially automated, so that I can step back and think about the issue?” Essentially, effective use of technology is helping to offset increased audit requirements and increased complexity.
FEI Daily: How do AI and innovation make audit better?
Will Bible: Removing redundant tasks and allowing our people to exercise their judgement can improve the quality of audits tremendously. At the same time, innovative technology can minimize unnecessary friction in the audit process. Specifically, better transparency, better information and better analytics can reduce unnecessary surprises, and create more seamless service that's less disruptive. Audits are foundational to the capital markets, and essential for the investing public to enhance trust and confidence in the companies in which they invest. To the extent that audits are less unnecessarily disruptive, that's positive. Audits should be challenging, and they should be challenging in the right way.
FEI Daily: Disruption is unfolding at a furious pace among business overall. Where does audit rank on the disruption scale?
Will Bible: It's somewhere in the middle. There is no killer app for an audit. The breadth of financial reporting is too large to simplify to the level of creating an app that completely disrupts the process. Auditing is very heavily reliant on the judgement of highly skilled and experienced professionals. The disruption model doesn't work quite as neatly as other businesses. That being said, there is a lot of room for improving how an audit is executed. There will continue to be tremendous disruption in how audits are conducted and differentiation between various service providers.
Join Deloitte's Will Bible at this year’s CFRI conference where he will present “Innovating the Audit with Artificial Intelligence.” Hear how artificial intelligence has transformed the audit and how it will impact your world and the worlds of finance, accounting and auditing.
William Bible is a partner in the audit practice of Deloitte & Touche LLP.
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