How would the emerging technology affect the future of auditing? - - PowerPoint PPT Presentation

How would the emerging technology affect the future of auditing?

AC4342 Auditing

S01 Group 4

54818800 CHAN Shu Wah 54791726 IP Sunny 54814013 WAN Chun Fai 54808805 YIU Ho Fung

Intro to emerging technologies Impact of emerging technologies

• Benefits in audit procedure
• Challenges to the audit industry

How can accounting firms prepare? How can students prepare? Conclusion

Agenda

How would the emerging technology affect the future of auditing?

1 2 3 4 5

1

Introduction to Emerging technologies

Big Data

Introduction to Emerging technologies

Volume

approximately 1018 bytes

• f data generated

every day

Variety

Other than in textual forms

Velocity

Real-time generation

1.7MB of data created every second for every person

Big Data

Introduction to Emerging technologies

Growth of:

• Volume
• Variety
• Velocity
• cannot be effectively

captured and processed with traditional applications

• A need of using other kinds of

emerging technologies

Robotic Process Automation (RPA)

Introduction to Emerging technologies

• Can be applied to routine (rule-based) tasks
• With clear-defined rules and parameters
• 24/7: removes the constraints of office hour
• No diminishing efficiency and human involvement

E.g. for bank confirmation, discovering non-balancing journal entries, ratio calculations, and more…(refer to the next section)

BOTs

Artificial Intelligence (AI)

Introduction to Emerging technologies

• Enables machines

to perform cognitive work

E.g. problem-solving, identification

• Recognition and processing of:

natural language, voice, and gesture

• Low margin of error, increasing efficiency
• review F/S, analyse financial ratios, identify trends from the figures, and more…

(refer to the next section)

Machine Learning (ML) and Deep Learning (DL)

Introduction to Emerging technologies

• On top of AI
• Trained to recognize patterns in vast volumes of data
• Especially unstructured data

e.g. emails, social media, conference call audio files

• feed back

to the machine Problems identified, recognized and remembered by the machine auditors’ judgement able to respond to similar problem in the future

the more is carried out, the better the machine will get at spotting real anomalies

Daily example:

Machine learning “taught” by human

Machine Learning (ML) and Deep Learning (DL)

Introduction to Emerging technologies

the more is carried out, the better the machine will get at spotting real anomalies

Machine Learning (ML) and Deep Learning (DL)

Introduction to Emerging technologies

Deep Learning

• Part of a broader family of ML methods
• Ability to process a larger amount
• f data at the same time

+ learn without the aid of human

Machine Learning (ML) and Deep Learning (DL)

Introduction to Emerging technologies

Deep Learning

• Part of a broader family of ML methods
• Ability to process a larger amount
• f data at the same time

+ learn without the aid of human

• Use of neural networks
• - ↑ relationship complicity

Machine Learning (ML) and Deep Learning (DL)

Introduction to Emerging technologies

Deep Learning

• Part of a broader family of ML methods
• Ability to process a larger amount
• f data at the same time

+ learn without the aid of human

• Use of neural networks
• - ↑ relationship complicity
• - ↑ layers of data

Blockchain / Distributed Ledger Technologies

Introduction to Emerging technologies

Information is stored in batches (blocks) Blocks linked together in a chronological order to form a continuous line (chain)

Blockchain / Distributed Ledger Technologies

Introduction to Emerging technologies

• An open and decentralized database for transactions involving value

E.g. business transactions, money, goods, property, work, votes

• Modifications need to be

approved by the community → higher data security → can act as a trust → use as validation Blockchain audit

2

Impact of emerging technologies

2.1 Benefits 2.2 Challenges

2.1

Impact of emerging technologies

Benefits in audit procedure

Client acceptance / continuance

Impact of emerging technologies - Benefits in audit procedure

Client acceptance / continuance

Impact of emerging technologies - Benefits in audit procedure

• Going through company document

○ transcripts of conference calls ○ press releases ○ management discussion and analysis (MD&A)

• Capable of identifying concepts or sentiments

○ Positive, neutral and negative

• Extract useful information

Understand client business and industry environment

Textual analysis

Client acceptance / continuance

Impact of emerging technologies - Benefits in audit procedure

• repetitive and time consuming

Automation

• reduce human efforts and

time consumed

Understand client business and industry environment

Textual analysis

Client acceptance / continuance

Impact of emerging technologies - Benefits in audit procedure

• Oral communication

e.g. phone inquiry

• AI: recognize keywords or tone

→ Interpret the meaning

• Reminds auditor to carry out suitable engagement actions
• ML: Ability to accumulate experience

Speech recognition

Making inquiry with related parties

Client acceptance / continuance

Impact of emerging technologies - Benefits in audit procedure

• human are somewhat ‘weak’ in some wordings

○ “kind of”, “maybe” or “sort of” ○ Uncertainty → Further investigation ○ Spots indicators / signals

• f concealment or falsification
• Process the entire oral information

efficiently

• Easier to keep the record for reference

Speech recognition

Making inquiry with related parties

Preliminary engagement activities

Impact of emerging technologies - Benefits in audit procedure

Preliminary engagement activities

Impact of emerging technologies - Benefits in audit procedure

Change of audit engagement team requirement

• expertise / knowledge on special sectors include:

■ manufacturing ■ logistics ■ finance and ... ■ information and technology

e.g. employed more data analysts than Google (2016)

Plan the audit

Impact of emerging technologies - Benefits in audit procedure

Plan the audit

Impact of emerging technologies - Benefits in audit procedure

• Impact on timing of audit
• Audit work initiates earlier
• Possibility of continuous / real-time auditing
• Begin gathering audit evidence earlier
• focus human resources on high-risk

items or where judgment is required

Audit business processes and related accounts

Impact of emerging technologies - Benefits in audit procedure

Audit business processes and related accounts

Impact of emerging technologies - Benefits in audit procedure

• Cost-effectiveness issue

○ Audit with sampling

• E.g.: time consumed for reading a 100-page legal doc.

○ Human: 4 hours ○ AI: less than 1 second

• Human power constraint makes ‘full audit’ unreasonable
• AI makes impossible possible

Stock-taking

• Flying a drone to client’s warehouse

○ High quality photo with comprehensive information ■ Model ■ Quantity ■ Condition

• Reduces time on physically travelling between sites

Audit business processes and related accounts

Impact of emerging technologies - Benefits in audit procedure

Audit sampling

• AI lowers the sampling risk than traditional method
• AI: Analysis based on whole population

→ Ability to discover default samples and outliers

• Auditors: carry out further investigation
• Prevents human error due to carelessness / massive document

Audit business processes and related accounts

Impact of emerging technologies - Benefits in audit procedure

• RPA assists auditor to send confirmation +

verify the authenticity of client’s response

• Possibility of blockchain validation
• Manual procedure can be reduced

○ Preparing confirmation letters ○ Putting into envelopes ○ Sending and waiting for reply ○ Reminding for reply

Audit business processes and related accounts

Impact of emerging technologies - Benefits in audit procedure

Audit confirmation

Completing the audit

Impact of emerging technologies - Benefits in audit procedure

Completing the audit

Impact of emerging technologies - Benefits in audit procedure

• Contingency: scanning through documents during

subsequent period (AI)

→ potential contingency issues → proper modification in disclosure or audit opinion

• Schedule of proposed adjusting entries:

Generated by RPA

• Final analytical procedure:

RPA: Computation of accounting ratios AI: Comparison with other companies / industry standard

2.2

Impact of emerging technologies

Challenges to the audit industry

Data Governance and Return On Investment

Impact of emerging technologies - Challenges to the audit industry

• Data governance - usefulness of data

Requires labeling, categorizing, and validating by human in the incubation stage

• Having the ability to capture high volume of data

does not necessarily mean having good data governance

• Ineffective governance may result in a negative ROI

Cyber Security

Impact of emerging technologies - Challenges to the audit industry

• Use of technologies → accessing information from

centralized servers through internet connection

• The increasing valuable data stored in auditor’s

database may attract hackers

• New anti-virus always come later than new virus
• Potential violation of the confidentiality principle

Further Dominance of the Big 4

Impact of emerging technologies - Challenges to the audit industry

• New technology is often expensive
• Smaller firms might not have sufficient fund

/ delay in adoption → Big 4: Expand capacity to serve more clients → possibility to audit a client’s supply chain → Possible threat to independence

Dilemma: Professional Judgement or Software?

Impact of emerging technologies - Challenges to the audit industry

• Auditors have to determine the degree of reliance
• n machine
• No specific regulation nor guideline currently
• The unclear legal liabilities may lead to

auditors’ hesitation in adopting new technology

Managing Expectations: Widened Expectation Gap

Impact of emerging technologies - Challenges to the audit industry

• With new technology, auditors are more capable in

providing professional services

• Clients may expect higher higher value-added services
• Concerns:

❏ Self-review threat ❏ Minimum requirement by HKSA V.S. Competence & due care by Code of Ethics

3

How can accounting firms prepare?

How can accounting firms prepare?

The era of emerging technologies Nurturing and equipping auditors: Implementation:

• additional trainings for existing auditors
• both market-leading & small firms
• provide suggestions for universities
• step by step with detailed planning

ATTRACT NURTURE

4

How can students prepare?

How can students prepare?

The era of emerging technologies Acquisition

Students MUST get prepared

Possible changes of the HKICPA Qualification Programme Expectation from future employers

How can students prepare?

The era of emerging technologies Acquisition Participation Revaluation

Get to know the latest technology

• seminars
• mentoring

programmes

• sharing sessions

Apply knowledge to real-life practices and exchange ideas

• Forums
• competitions

Keep tracking on the emerging technology

• go through the

whole process again and again

5

Conclusion & Key takeaways

Prepare for the Changing World

Conclusion & Key takeaways

• Inevitable change of world
• double-edged sword of technologies

○ bring convenience and reduce overall audit risk ○ take account for potential challenge

Prepare for the Changing World

Conclusion & Key takeaways

• Discussion of whether human auditors will eventually

be replaced by technologies

• Yes unless

Re-skilling + get ready to embrace technological world

Prepare for the Changing World

Conclusion & Key takeaways

• Discussion of whether human auditors will eventually

be replaced by technologies

• Yes unless

Re-skilling + get ready to embrace technological world

Key message: Only equipping ourselves and following the trend to change can make us not to be replaced with the technology but instead make technology from an enemy to our friend to make our world become better.

Reference

How would the emerging technology affect the future of auditing?

• AICPA. (n.d.). The Case For Electronic Audit Confirmations - How to detect audit confirmation fraud. Retrieved November

1, 2018, from https://www.confirmation.com/media/53068/white-paper_the-case-for-electronic-confirmations_final.pdf

• AICPA. (n.d.). Understanding Audit Confirmation Risks - Shared by the accounting and legal professions. Retrieved

November 1, 2018, from https://cdn2.hubspot.net/hubfs/1704855/Archive - Old Brand Files/Legal Confirmation Whitepaper FINAL.pdf Akred, J., & Samani, A. (2018). Your Data Is Worth More Than You Think. Retrieved November 1, 2018, from https://sloanreview.mit.edu/article/your-data-is-worth-more-than-you-think/

• Bednarek. (2018). AI Will Not Replace Auditors, but Auditors Using AI Will Replace Those Not Using AI. Retrieved from

https://www.mindbridge.ai/ai-will-not-replace-auditors-but-auditors-using-ai-will-replace-those-not-using-ai/

• Boer. M. (2018). Auditing (with) Artificial Intelligence. Retrieve from https://www.norea.nl/download/?id=4248

Boillet, J. (2018). How artificial intelligence will transform the audit. Retrieved from https://www.ey.com/en_gl/assurance/how-artificial-intelligence-will-transform-the-audit Chang, H., Kao, Y., Mashruwala, R., & Sorensen, S. M. (2017). Technical Inefficiency, Allocative Inefficiency, and Audit

• Pricing. Journal of Accounting, Auditing & Finance, 33(4), 580-600. doi:10.1177/0148558x17696760

Reference

How would the emerging technology affect the future of auditing?

Chua, F. (2013). Technology Trends: Their Impact on the Global Accountancy Profession. Retrieved November 1, 2018, from https://www.accaglobal.com/content/dam/acca/global/PDF-technical/futures/pol-af-ttti.pdf Maynez C. M. (2017). 19 Artificial Intelligence Technologies That Will Dominate In 2018. Retrieved November 1, 2018, from https://blog.adext.com/en/artificial-intelligence-technologies-2018 CPA Journal. (2017). Deep Learning and the Future of Auditing. Retrieved November 1, 2018, from https://www.cpajournal.com/2017/06/19/deep-learning-future-auditing/ Davenport T.H. (2016). The Power of Advanced Audit Analytics. Everywhere Analytics. Retrieved from https://www2.deloitte.com/content/dam/Deloitte/us/Documents/deloitte-analytics/us-da-advanced-audit-analytics.pdf

• Deloitte. (2018). Robotic Process Automation. Retrieved November 1, 2018, from

https://www2.deloitte.com/content/dam/Deloitte/us/Documents/audit/ASC/us-aers-robotic-process-automation-internal-co ntrols-over-financial-reporting-considerations-for-developing-and-implementing-bots-september2018.pdf Edureka (2018). AI vs Machine Learning vs Deep Learning | Machine Learning Training with Python | Edureka. YouTube. Retrieved on 1, November, 2018, from, www.youtube.com/watch?v=WSbgixdC9g8. EY Reporting. (2015). How big data and analytics are transforming the audit. Retrieved from https://www.ey.com/en_gl/assurance/how-big-data-and-analytics-are-transforming-the-audit

Reference

How would the emerging technology affect the future of auditing?

EY Reporting. (2015). The Future of Assurance. How technology is transforming the audit. Retrieved from https://www.ey.com/Publication/vwLUAssets/EY-emeia-fso-assurance-viewpoint-technology/$FILE/EY-emeia-fso-assuran ce-viewpoint-technology.pdf EY Reporting. (2015). Making the Impossible Possible. Retrieved from https://www.ey.com/Publication/vwLUAssets/ey-reporting-technology-making-the-impossible-possible/$FILE/ey-reporting- technology-making-the-impossible-possible.pdf Faggella, D. (2018). AI in the Accounting Big Four - Comparing Deloitte, PwC, KPMG, and EY. Retrieved November 1, 2018, from https://www.techemergence.com/ai-big-four-comparing-deloitte-pwc-kpmg-ey/ Franzel J. M. (2017). Update on PCAOB Efforts to Enhance Audit Quality. Retrieved from https://pcaobus.org/News/Speech/Pages/Franzel-update-PCAOB-efforts-enhance-audit-quality-12-5-17.aspx GAA Accounting (2018). Interview with new HKICPA President, Eric Tong. Retrieved from http://www.gaaaccounting.com/interview-with-new-hkicpa-president-eric-tong/ Giovannini, C. (2018). A point on AI, big data, Blockchain, and audit automation: what all business consultants need to

• know. Retrieved November 1, 2018, from

https://www.linkedin.com/pulse/point-ai-big-data-blockchain-audit-automation-what-all-giovannini/

Reference

How would the emerging technology affect the future of auditing?

Goodman, M. (2015). Future Crime: A Journey to the Dark Side. London: Transworld. Holland, P., Rae, S., & Taylor, P. (n.d.). Why AI must be included in audits. Retrieved November 1, 2018, from https://assets.kpmg.com/content/dam/kpmg/uk/pdf/2018/06/why-ai-must-be-included-in-audits.PDF Huang, F., & Vasarhelyi, M. (n.d.). Robotic Process Automation (RPA) in Auditing. The State University of New Jersey. Retrieved November 1, 2018, from http://raw.rutgers.edu/docs/wcars/40wcars/Presentations/FeiqiHuang.pdf

• ICEAW. (n.d.). The Future of Audit: Technology. Retrieved November 1, 2018, from

https://www.icaew.com/technical/audit-and-assurance/faculty/the-future-of-audit/the-future-of-audit-technology Lohr, S. (2013). The Origins of 'Big Data': An Etymological Detective Story. Retrieved November 1, 2018, from https://bits.blogs.nytimes.com/2013/02/01/the-origins-of-big-data-an-etymological-detective-story/ Lord, G. (2017). Confidence in the Future - Human and Machine Collaboration in the Audit. Retrieved November 1, 2018, from https://www.pwc.co.uk/audit-assurance/assets/pdf/confidence-in-the-future-human-machine-collaboration.pdf McCorduck, P. (2004). Machines who think: A personal inquiry into the history and prospects of artificial intelligence. Natick, MA: A.K. Peters.

Reference

How would the emerging technology affect the future of auditing?

Murphy, H. (2017). Auditing to be less of a burden as accountants embrace AI. Retrieved November 1, 2018, from https://www.ft.com/content/0898ce46-8d6a-11e7-a352-e46f43c5825d Narayanan, A., Bonneau, J., Felten, E. W., Miller, A., Goldfeder, S., & Clark, J. (2016). Bitcoin and cryptocurrency technologies: A comprehensive introduction. ISBN 978-0-691-17169-2 Pickard, M. D., Burns, M. B., & Moffitt, K. C. (2013). A Theoretical Justification for Using Embodied Conversational Agents (ECAs) to Augment Accounting-Related Interviews. Journal of Information Systems, 27(2), 159-176. doi:10.2308/isys-50561 Raphael, J. (2017). How Artificial Intelligence can Boost Audit Quality. Retrieved November 1, 2018, from http://ww2.cfo.com/auditing/2015/06/artificial-intelligence-can-boost-audit-quality/ Ryan, V. (2018). Auditing: Time for an Adjustment?. Retrieved November 1, 2018, from http://ww2.cfo.com/auditing/2018/10/auditing-time-for-an-adjustment/ Sommer, B. (2017). AI and Big Data – three years in the evolution of accounting. Retrieved from https://diginomica.com/2017/10/12/ai-big-data-accounting-three-years-evolution/

THE END

Thank You!