The American Institute of CPAs issued a new practice aid on Tuesday that aims to help auditors better understand how artificial intelligence affects the financial statement audit.
The guidance centers on two key areas: when an organization uses AI in its financial reporting or controls, and when auditors use AI-related technology in performing the audit.
The practice aid, Artificial Intelligence (AI) Considerations for Financial Statement Auditors, is designed to help auditors understand and respond to the use of AI in business processes and financial reporting. It also covers the implications when AI is used by auditors in performing the financial statement audit.
AICPA officials say the guidance will aid CPAs in evaluating AI-related risks, understanding how AI may affect controls, and determining appropriate audit responses and the auditor’s use of AI tools when performing the audit.
“AI tools are already benefiting the efficiency and effectiveness of both financial statement preparation and the audit in a number of ways,” Amy Pawlicki, vice president of assurance and advisory innovation at the AICPA, said in a statement. “But as powerful as they are, these tools can introduce new risks that auditors must be cognizant of in fulfilling the critical role they play in performing financial statement audits. This practice aid is intended to help auditors understand and mitigate these risks in a rapidly evolving environment.”
The practice aid is currently divided into two parts: the first covering how an organization’s use of AI in financial reporting affects the financial statement audit, and the second covering audit firms’ use of AI-related technological resources in the performance of their audit engagements.
More guidance, including a deeper dive into assessment of the risk of material misstatement and evaluation of audit evidence when a company is using AI, will be added to section one of the guidance in the future, the AICPA says. In addition, more questions and answers are expected to be added to the section on the implications of using AI in the audit process.
Among other topics, section one of the practice aid discusses:
- AI in broad terms, its different variations, how AI differs from ordinary automation, and how that may affect the auditor’s risk assessment.
- How the quantity, quality, accuracy, completeness, relevancy, and diversity of data can significantly affect the reliability of an AI system.
- The need to assess the audit team’s capabilities, because practitioners may need a blend of auditing expertise, AI knowledge, data skills, professional skepticism, and specialist support.
- How to determine whether the company’s use of AI affects financial reporting, and what this means for the application of professional standards in the financial statement audit.
- Types of new risks that can be introduced by AI, such as data risks, model risks, hallucinations, explainability, and bias.
- Understanding controls that are foundational to the organization’s system of internal control that may relate to its use of AI in the financial reporting process.
Section two of the practice aid:
- Emphasizes the importance of establishing quality management policies and procedures to address the firm’s responsibilities relating to AI tools.
- Addresses firm-level considerations about the competence and capabilities of the engagement team when using AI tools.
- Recommends audit firm planning on the intended use of AI in specific engagements.
- Outlines the responsibilities of engagement team partners to understand AI tools they’re using, ensure they’re approved by the firm and are being used correctly by staff.
“This section provides practical guidance to auditors when using AI, including considerations for quality management, appropriate supervision and review, and continued attention to professional judgment and professional skepticism,” AICPA Chief Auditor Jennifer Burns said in a statement. “Ultimately, the auditor remains responsible for the audit and the audit opinion.”
In addition to the new practice aid, the AICPA has issued two other relevant items on AI-related topics in the past year: guidance on the effect service organizations’ use of AI could have on SOC 1 and SOC 2 engagements, and a staff insights article, “AI Through an Ethics Lens,” available to members through the AICPA’s online ethics library.
Photo credit: American Institute of CPAs
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