Dusseldorf Are robots the better auditors? The bosses of the large auditing companies still answer this provocative question with a “no”. But PwC, KPMG, EY and Deloitte have long been working intensively on the next revolution in the auditing of balance sheets.
Artificial intelligence, software robots and large-scale data analysis should make testing faster, better and more secure. The world’s four leading service providers will invest around five billion dollars in new digital technologies for auditing this year alone. This was the result of a survey by the Handelsblatt among the “Big Four” of auditing.
Audit firms have been working on the use of such new technologies for several years. But now digitization is gaining momentum again. With the investments, the service providers are reacting to the growing amounts of data that are being generated by customer companies – but also to demands for more quality and security after the Wirecard case.
Since the scandal, the public has been critical of the work of auditors. As the long-standing auditor of the insolvent payment service provider, EY is accused of making serious mistakes in the attestation of the balance sheets. This caused the company a major loss of image and a wave of lawsuits from Wirecard victims.
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EY’s three major competitors do not want to comment on the events at Wirecard. Nor do they see the investment in digital testing as a direct response to the scandal. But they know: the fraud scandal has rubbed off on the entire industry. The auditors need to regain trust overall.
The investment offensive is intended to help with this. “Technology will make the final exam safer and of higher quality,” says Klaus Becker, CEO of KPMG. Until now, auditors have relied on self-selected samples, for example to discover discrepancies in a company’s accounting. Now technology should enable the examination of complete financial data.
“We will use artificial intelligence to do this. The systems learn and keep getting better,” says Becker. KPMG’s global network alone will invest more than $1 billion in data-driven testing.
On the one hand, the “Big Four” invest in recruiting data specialists and IT-experienced auditors. On the other hand, the money goes into the development of our own analysis systems. Large internal teams at the companies are working on AI and software. They also cooperate with external partners: PwC, for example, is developing its own digital testing tools together with the Fraunhofer Institute.
The multi-billion auditing groups have the financial strength to do this – unlike their smaller competitors. They are dependent on the systems available on the market. The offer is also growing rapidly there and is mainly driven by young software companies and start-ups.
The amount of data to be checked is increasing “exponentially”
“With the new possibilities, anomalies in the accounting of companies can be discovered faster and more effectively,” predicts Kai-Uwe Marten, Professor of Auditing at the University of Ulm and recognized expert in digital auditing. The technology could even allow for a full audit of all of a company’s data, not just the sample.
“The pressure from the Wirecard scandal and the higher requirements of auditor supervision will mean that auditors will have to analyze the growing amounts of data in detail,” says Marten. This is also demanded by the customer companies. They have introduced complex internal compliance systems to detect misconduct by employees. “The instruments used by the auditing companies also have to be developed further,” says the expert.
The number two in the German market, EY, speaks of “exponentially increasing amounts of data” among clients, with which the auditors have to keep up at all times. This will lead to an enormous need for investment, the company said on request.
The EY management did not want to respond directly to the question of whether technology could prevent a new scandal à la Wirecard. So much for the direction: “In the future, the auditors will use innovative and constantly evolving data analysis methods to screen company data and transactions and analyze them for inaccuracies.”
The companies to be audited are generating more and more data because they are increasingly doing their internal accounting digitally. According to a recent study by PwC, 60 percent of German companies are already aligning their reporting digitally. A similar research by KPMG shows that data quality and capture are progressing with clients going paperless.
This also applies to the solutions developed by IT companies and the testing giants. Software robots should initially take over the simple, repetitive activities, such as recording and comparing receipts, which auditors now do by hand.
It gets more complex with so-called process mining: With the help of this data analysis, it should be recognized when employees deviate from firmly defined standard processes in the company. This is to be completely uncovered by software and then examined. According to Deloitte, this could reveal weaknesses in internal controls.
Artificial intelligence is only gradually being used in the exam. The Canadian IT company Mindbridge has created what it claims to be the world’s first AI-supported platform for risk identification and assessment of business data with the “Ai Auditor”.
Increase security, identify discrepancies and risks better
According to the German sales partner 5FSoftware from Munich, this system can detect unintentional incorrect bookings, attempts at manipulation and even complex attempts at embezzlement faster than anyone.
The so-called text mining is still in its infancy. This involves IT systems that can read and compare non-financial information – such as contracts and other documents – and check for anomalies. This will become increasingly important in the final audit because the auditors also have to certify the companies’ sustainability reports.
Dietmar Prümm, Head of Audit Transformation at PwC Germany, expects this non-financial audit to change auditing as profoundly as the switch to international accounting that began in 2005: “PwC is massively upgrading its auditing and consulting.”
Increasing security, recognizing discrepancies and risks better – the new technology will be able to achieve this from the point of view of industry experts. Christoph Schenk, Managing Partner at Deloitte, expects that it can certainly provide indications of fraudulent activities. “However, AI and data analysis will not be able to prevent cases of fraud like Wirecard one hundred percent, especially if the fraud comes from top management,” says business administration professor Marten with conviction.
The “human” auditors remain in demand. With new analysis and diagnostic tools at their side, people can “take more focus on the critical points that involve questions of interpretation and judgment,” says Volker Krug, Head of Germany at Deloitte.
The “Big Four” expect that they will not need fewer experts in the course of digitization – but some with different skills. EY explains that it places a strong focus on hiring technology and data scientists in addition to graduates of traditional subjects.
More: Deloitte wins Telekom – and becomes the heavyweight of the auditors in the Dax