Be aware, audit firms. The PCAOB is sniffing around about your use of generative AI according to a Spotlight they just released [PDF]. Exactly what they said was:
The PCAOB’s standard-setting agenda includes a research project to assess whether there is a need for guidance, changes to PCAOB standards, or other regulatory actions in light of the increased use of technology-based tools in the preparation and subsequent audit of financial statements.
As part of this research, the PCAOB asked mostly larger firms — that is, US global network firms and several U.S. non-affiliated firms that audit more than 100 issuers — how they’re using generative AI right now and how they foresee using it in the future.
Here’s what the firms said about right now:
Current Use of GenAI: Some firms stated that their staff can use GenAI when preparing certain administrative documents or initial drafts of memos and presentations related to the audit. Some firms also indicated that they had developed and deployed GenAI-enabled tools to assist staff in researching internal accounting and auditing guidance. Generally, the global network firms we spoke to are further along in developing and deploying GenAI-enabled tools than non-affiliated firms are.
And the future:
Investment in GenAI: Most firms indicated that they are continuing to invest in GenAI enabled tools either by developing them internally or by partnering with third parties. These firms identified several potential areas where such tools may assist engagement teams in the future with planning and performing audits. The areas could include assisting with summarizing accounting policy and legal documents, evaluating the completeness of audit documentation against relevant documentation requirements, performing certain risk assessment procedures, scoping the audit, evaluating the completeness of financial statement disclosures, and comparing amounts in the financial statements or notes to the financial statements with audited amounts.
The PCAOB also canvassed preparers of financial statements and here’s what they said:
Current Use of GenAI: Some preparers noted that their personnel use GenAI in creating initial drafts of internal documents (e.g., summaries of accounting standards and interpretations, presentations, and benchmarking of company information with publicly available information from competitors). In addition, some preparers also use GenAI to assist in the performance of less complex and repetitive processes, such as preparing account reconciliations or to assist with identifying reconciling items.
Both groups are rightfully concerned about the reliability of AI output with the audit firm side insisting humans must still be involved due to AI’s tendency to hallucinate (related read on that topic from Scientific American: ChatGPT Isn’t ‘Hallucinating’—It’s Bullshitting!). “[S]upervisors who review work performed with the assistance of GenAI are expected to apply the same level of diligence as when reviewing work where GenAI was not involved,” said the PCAOB. Our condolences to the supervisors who now have to review the offshore team’s work, the AI’s work, and the offshore team’s AI work.
Full Spotlight below. It’s short, don’t worry.
