For years, the auditors have signed off the balance sheets of the scandalous group, although large parts of the transactions stated there did not even exist. EY are accused of serious omissions.
The scandal has stirred up the entire auditing industry to this day – and that in the middle of a drastic technological change. Artificial intelligence (AI) is expected to bring the auditing of balance sheets to a new level of quality and security in the coming years. PwC, Deloitte, EY and KPMG each announce billions in investments in new AI systems.
Whether the fraud at Wirecard would have been uncovered more quickly with the use of AI is something nobody in the industry wants to commit to. What is happening at the payment service provider still seems too opaque. However, experts are confident that artificial intelligence can also be used to better detect balance sheet manipulations.
“AI will improve the quality of the final exam and make it more secure,” says Kai-Uwe Marten, Professor of Auditing at the University of Ulm. “With the help of AI, testing will be more comprehensive and intelligent in the future. It can also act as a deterrent to potential perpetrators in companies who intentionally manipulate balance sheets.”
PwC partner Rüdiger Loitz also believes in the potential to prevent new accounting scandals. “AI will make an important contribution to this,” says the head of accounting and capital market consulting at the German market leader in auditing. From his point of view, the systems should become significantly more efficient in the next few years.
1. Where are auditors already using AI?
For industry expert Marten, one thing is clear: “Artificial intelligence is becoming a key technology in auditing. If you close your mind to this, you will lose out on the market.” Because when companies’ figures are checked, there are ever larger amounts of data that need to be processed and analyzed in the best possible way.
The time pressure is high: auditors only have three months from January to March to examine the annual financial statements of listed companies for correctness. They have been working with special software for a long time – and for a few years now also with the first AI systems. With their help, large amounts of so-called unstructured data are processed.
These are PDF documents or scans of paper receipts from the test customers. Auditors have to analyze and read contracts, accounting documents, presentations. “AI can do this in a simplified and significantly faster way,” says Deloitte, for example. The company works with neurolinguistic programs that independently learn which data and passages in the documents have which meaning. The programs prepare these for further analysis.
Competitor KPMG also uses this type of technology to automate simple, repetitive tasks that used to be done manually. The AI-based “Document Matching” technology digitally compares booked transaction data with the original receipts.
All major auditing firms are already working with methods that detect irregularities in very large and structured amounts of data. This applies to all processes in the company’s IT systems. “We use it to automatically analyze the entire booking material and identify any unusual transactions,” explains KPMG.
2. How will AI transform auditing?
These first AI systems are constantly being expanded by the large companies. For example, KPMG is cooperating with the Canadian fintech company Mindbridge, which focuses on audit software.
PwC is a partner of Munich-based Celonis, a specialist in process mining. This is intended to virtually map and analyze all processes in the company. The auditors hope that this will provide them with deeper insights into what is happening at the client’s premises.
AI systems are constantly learning how a company’s business model works. Audit expert Marten is convinced that the technology will not only provide data analysis, but will also draw its own conclusions from it. “In the future, AI systems will also be able to take on more complex audit procedures.”
PwC, EY, Deloitte and KPMG see great opportunities in the so-called generative AI, which creates texts independently. The systems should support the auditors in the development of analyzes and assessments as they are needed for the documentation.
3. How can AI prevent new accounting scandals like Wirecard?
Until now, auditors have worked with random samples of individual databases. With AI solutions, however, all processes and transactions can be analyzed up to a full audit, explains Christoph Schenk, Managing Partner Audit & Assurance at Deloitte.
The service providers expect more quality and security from this alone. The upfront work of AI frees auditors from routine tasks and allows them to focus on analyzing a company’s larger, risky issues. AI should provide them with more input and knowledge: for example about conspicuous banks and partner companies with which the clients work, as PwC partner Loitz explains.
The company hopes that artificial intelligence will make auditing safer.
(Photo: AP)
The AI company Mindbridge promises that its system will uncover incorrect bookings and attempts at manipulation (fraud) “faster than anyone” – right up to “complex, internationally intertwined attempts at embezzlement”.
This can be seen as a subtle reference to what is happening at Wirecard, where EY has not uncovered the sophisticated fraud system for years. The auditors are also accused of not having penetrated the payment service provider’s business model. EY rejects these allegations.
Industry expert Marten also relies on the deterrent effect of the new examination systems. Because in white-collar crime, it is crucial whether it is made easy for potential perpetrators – or whether the risk that the fraud will be exposed is high.
4. Will AI make the auditor obsolete?
Almost all audit experts warn against blind trust in AI. The global PwC boss Bob Moritz, for example, believes it is wrong and dangerous to leave audit opinions to a technology. “In the end, an independent examiner has to make the decision based on personal judgment and not a black box,” says Moritz. “We will always need people’s years of experience and judgment.”
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However, it is unclear how large the workforce of the service providers will really have to be if many activities are taken over by AI-controlled systems. Their introduction is also a huge gain in efficiency for the large service providers.
The auditor’s job will change dramatically as technology expands. You need experience in the comprehensive and risk-oriented analysis of companies. Above all, however, they must be able to handle the new AI systems and develop them further. Digital competence, according to the unanimous opinion in the industry, is still far too neglected in today’s training.
More: PwC boss warns: “The risk of misconduct and fraud in companies is growing”