Executing an Impactful Financial Audit with AI
In the last three decades, technology has changed how auditors carry out audits of financial statements. They’ve moved from manual auditing to usage of computer-aided audit tools (CAATs). More and more auditors are adopting and implementing a wide range of innovations and cutting-edge breakthroughs to make the audit process efficient and streamlined.
Especially now that the introduction of Artificial Intelligence (AI) is revolutionizing the audit process. With its laser-focused arsenal - Machine learning (ML), Robotic Process Automation (RPA), Optical Character Recognition (OCR) and Big Data - Artificial Intelligence (AI) can empower and transform the lives of auditors.
Background
Our client, a top accounting firm in the midwest, based in Illinois, USA, is engaged in financial statements’ auditing services for mid and large corporates and multinational firms. A global food trading corporation, one of the largest distributors in North America in multiple food and grocery categories, with over $460Mn in annual revenue, appointed our client as their financial auditor.
Upon understanding business of the entity and its environment, including the internal controls to identify and assess the risks of material misstatement in the financial statements, the audit team decided to focus on the following key areas:
- Significant transactional entries between entities
- Purchase and sales records of 10,000+ SKUs
The Business Challenge
This task, if manually handled by a team of auditors, would require:
- Compilation and analysis of data form 25 regions, with thousands of journal entries each
- Accepting
- a considerable sampling risk while undertaking a sampling-based audit
- less than a 100% data analysis, that might otherwise make it impossible for a time-bound audit engagement
- that with the scale and volume of data, the identification and detection of unusual patterns, hidden data fraud or errors would be rather incomplete.
The Prudent AI Impact
Here's the transformation in the auditing process that Prudent AI was able to bring to this engagement.
Data consolidation and Standardization
Using statistical methods and advanced analytics, Prudent AI was able to compile the data that usually takes days, in just a few clicks - consolidated head-wise, ledger-wise and other custom-built views.
Customization
A comprehensive data-driven, laser-focused dashboard with advanced filters was custom-built for the client team to do expert analysis.
Powerful Visualization
Using query-based knowledge graphs, trend charts and other visualization tools, Prudent AI presented complex data in an interesting, simple, consumable format.
- The insights can be filtered to drill down to specific transactions and auditors can even break down the risk by time, by account, by user, by customer – so and so forth.
- The powerful dashboard allowed the audit team to focus on a single screen instead of jumping among documents, excel sheets and systems. This along with the in-depth accurate risk-based assessment provided helps staff perform productively.
100% Analysis
The audit team defined 12 key parameters, based on which Prudent AI examined 100% data and flagged behaviours and outliers to auditors. It also segregated the high-risk transactions, looping in human auditors to review them manually.
Anomaly Pattern Detection & Risk-based Insights
Prudent AI identified hidden fraud, errors and other material misstatements, and flagged the top 5% high-risk journal entries for deeper audit review. Post analysis, each transaction is risk-scored into High, Medium, Low buckets using our algorithms designed by domain experts with Big 4 experience. The scoring is based on failed parameters to enable the team of auditors to apply their expertise and professional judgement.
Variances and Ratios