[ad_1]
In the movie The Accountant, the main character Christian Wolff, portrayed by Ben Affleck, is a brilliant mathematician who works as an accountant. In one of his assignments he evaluates hundreds of papers, writes numbers on the glass board and analyses it for hours. He finds one small paper which is the backbone of the major discrepancy which has involved over millions of dollars. I was impressed by the movie, so when someone recently bragged that with Artificial Intelligence he can do everything, I asked him, can AI and Big Data actually find out such intricacies and loopholes or discrepancies in the audit as portrayed in the movie. He said yes…
So how big the AI role in auditing in India?As they say necessity is the mother of invention, during the pandemic when they were virtually confined to their homes, auditors globally devised tools and methods to perform their tasks remotely which was earlier not thought about such as a evaluating the production plants of clients using drones and setting up virtual processes. So when the use of AI became popular in the last few years, auditors have latched on to it.
In an era defined by rapid technological evolution, artificial intelligence (AI) is emerging as a game-changer in auditing. The integration of AI into auditing processes signifies more than mere automation; it heralds a paradigm shift in how audits are conducted, enhancing both efficiency and accuracy. This transformation is reshaping traditional methodologies and presenting new opportunities for auditors to redefine their roles.
In India, too AI has taken the Indian audit world by fancy, so much so that the Indian Institute of Chartered Accountants has launched a ChatGPT programme for its members and CA students, which have become very popular.
ICAI released a publication detailing 100 AI tools tailored for financial and accounting functions. Additionally, ICAI introduced ‘ICAI CA GPT’ for students, offering free access to comprehensive study materials for exam preparation to all 9.85 lakh students.
ICAI is also collaborating with the Ministry of Electronics and Information Technology (MeitY) to develop an AI-based audit tool aimed at addressing compliance issues, detecting fraud, and facilitating informed decision-making to enhance professional practices.
CAs are using AI to sift through tonnes of GST data and the tool has made their lives easy.
On the government side, AI is transforming tax fraud detection with systems like Business Intelligence and Fraud Analysis, developed by GSTN with Infosys’ assistance. This AI-driven platform leverages vast amounts of data from taxpayer records, invoices, eWay bills, and external sources like Customs and Direct Taxation systems to identify and analyze tax evasion.
BIFA employs advanced analytics, including machine learning and graph algorithms, to detect anomalies and fraudulent patterns. By analyzing mismatches in tax returns, identifying suspicious transactions, and highlighting entities not covered under GST, IFA has uncovered significant fraud, including $50 million within three months of its launch.
The Comptroller and Auditor General (CAG) has implemented a significant digital transformation with the launch of the One IAAD One System (OIOS). This system eliminates the need for physical files across CAG’s 130 offices, ensuring long-term record maintenance. The shift to OIOS marks the end of paper-based workflows, as all new audit work will now be conducted digitally. The OIOS rollout covers key areas such as master data, audit design, execution, legacy data migration, knowledge management, and quality control.
For fraud detection
Beyond immediate detection, AI’s learning capacity offers a more exciting benefit: predictive analytics. Over time, these systems can forecast where future fraud might occur. For instance, if a pattern shows steady tax fraud in the cash-intensive scrap business, authorities can focus their efforts on this sector to address potential vulnerabilities.
AI excels in pattern recognition, enabling it to sift through extensive digital tax data and detect irregularities that would be challenging for humans. This capability is enhanced by machine learning, which improves the system’s accuracy over time and helps predict potential fraud hotspots. As a result, AI is becoming an invaluable tool for tax authorities, offering deeper insights and proactive measures to combat tax fraud effectively.
AI’s impact on auditing extends far beyond automating routine tasks. Traditional audit practices, characterized by manual data entry and analysis, are giving way to advanced algorithms that streamline these processes. By handling data validation, pattern recognition, and anomaly detection with precision, AI liberates auditors from mundane activities, allowing them to focus on higher-order tasks. This shift facilitates a more strategic approach, where auditors can concentrate on interpreting results, assessing risks, and providing valuable insights.
Enhancing accuracy and efficiency
One of the most significant advantages of AI is its ability to process vast amounts of data with remarkable accuracy. AI algorithms can analyse extensive datasets drawn from diverse sources—accounting software, bank statements, transaction records—with greater efficiency than traditional methods. This capability not only enhances the accuracy of financial analysis but also improves the ability to detect unusual patterns or potential fraudulent activities. AI’s role in identifying anomalies, such as accounting irregularities or unauthorized transactions, underscores its potential to strengthen the integrity of financial reporting.
While the benefits of AI in auditing are substantial, the integration of this technology also brings challenges that must be addressed. Concerns about job displacement, ethical implications, and algorithmic bias are prominent. As AI takes over routine tasks, there is a growing need to reconsider the role of human auditors. Ensuring transparency in AI decision-making processes and mitigating biases are critical issues that require ongoing attention. Moreover, regulatory bodies must establish clear guidelines to govern the use of AI in auditing, ensuring that these technologies are employed in a fair and accountable manner.
The advent of AI necessitates a significant evolution in the skill set of auditors. While AI can handle certain tasks with efficiency, the expertise of human auditors remains indispensable. Proficiency in data analytics, a deep understanding of AI algorithms, and the ability to interpret machine-generated results are crucial skills for modern auditors. Additionally, critical thinking, ethical judgment, and effective communication are vital as auditors navigate the complexities of AI-driven audits and articulate their findings to stakeholders.
As auditing evolves, embracing technological advancements becomes essential. AI’s potential to enhance audit quality and efficiency is substantial, but it must be harnessed thoughtfully and strategically. The future of auditing will be marked by a symbiotic relationship between technology and human expertise, where AI complements the skills of auditors and drives the profession forward.
To sum up, the role of AI in auditing represents a transformative shift that offers significant benefits while also posing challenges. By integrating AI thoughtfully and addressing the associated concerns, the auditing profession can leverage these advancements to improve accuracy, efficiency, and overall value. The successful adoption of AI will depend on auditors’ ability to adapt, upskill, and navigate this evolving trend with a blend of technological proficiency and professional acumen.
(Editor’s note is a column written by Amol Dethe, Editor, ET CFO. Click here to read more of his articles exploring several buzzing topics)
[ad_2]