Internal Audit

Decoding the Viability of Internal Audit Using AI

Decoding the Viability of Internal Audit Using AI

Companies have great hopes for transformational technologies. Approaches using methods like artificial intelligence etc. have become increasingly accessible, and it has been gaining significant traction. These technologies allow the extraction of deep insights from large data sets. The artificial intelligence technology that leverages algorithms to identify patterns and anomalies within data sets can be used in the internal audit is the question that needs to be answered. In this article, we will discuss the possibility of undertaking an Internal Audit using AI[1].

What Is Internal Audit, And Who Are Internal Auditors?

Internal auditors ensure protection against preventable errors and omissions that can affect the reputation and trustworthiness of a company. They provide a defence against contingencies that can lead to financial loss for the company.

Internal Auditors, through internal audits, detect inefficiencies and non-compliances. It is done through a risk-based assessment and conversation with board members. The financial audit focuses on the detection of material issues in transactions.

Thus, the losses identified in a financial audit have occurred already. In contrast, the result of the internal audit highlights a lack of compliance and quality and traces gaps in other areas.

These gaps are identified when internal audit operations track outcomes in each risk area that a company might be exposed. Such tracking must have contextualization instead of an annual report to the audit committee.

Internal audit has a great deal of assurance within the corporate domain. It has its roots in financial auditing and now provides an enhanced range of assurance.

The internal audit allows for meeting the goal of reporting to the company’s senior management about its governance, processes, risks, controls, and procedures. Moreover, in the case of public corporations and in certain sectors like healthcare, etc., an internal audit is required under the law.

Thus, the essence of an internal audit of a company is to deliver results to meet the assurance requirements of stakeholders and to safeguard the company from emerging threats.

What Is Artificial Intelligence?

AI or Artificial Intelligence refers to the technology that can mimic human intelligence to perform tasks. It functions based on the information that it collects. AI can be seen in various forms, such as Chatbots etc.

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With the help of AI, chatbots can know customer queries and provide answers efficiently. AI is all about the process and ability for intelligent thinking and data analysis. AI can significantly improve human capabilities and operations, which makes it a valuable asset for businesses.

Internal Audit Using AI- Why Do We Need a Change in the Working of Internal Audit?

Due to huge volumes of report data, a poor situation is ensuing in the audit landscape. It has been happening as a company tracks various indicators, thinking they assure quality. However, they are missing potential risks as the information they have is not measured by the tracked indicators.

Thus, better technology is essential for transforming data into actionable information. It provides efficiency and productivity in the internal audit.

Many private text-based data of internal reports have impacted the role of auditors. For instance, a company with a huge workforce in a highly regulated field can produce innumerable documents over time. Translating this report data into assessment plans can be time taking exercise. Further, the results of these assessments are time-sensitive.

The company’s management must know where a particular risk is on a particular day. However, the audit exercise produces reports on a quarterly basis and annual basis.

Moreover, risk management is under the constant pump for emerging risks. Apart from the dire need to deliver results quickly, the assessments provided in the reports are sample-based, which needs more complete coverage. The connection between reports, like repeated risks, growing controls, etc., should also be noticed. 

Benefits of Internal Audit Using AI

Artificial intelligence comprises risks as well as opportunities for internal auditors. Auditors can leverage the use of AI to their advantage. Some of the common benefits of AI internal audits have been discussed below.

  • Reduces manual burden

One of the most crucial uses of AI is that it alleviates the burden of manual processes. Without AI’s assistance, auditors need to manually review batches of transactions, allowing them to highlight discrepancies. In such cases, the time and resources required for the process can be huge. However, with the help of AI, the process can be streamlined.

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With internal audits using AI, companies can teach systems to detect cases of fraud and other issues, and the auditors can step in to peruse the flagged issue.

  • Ensure comprehensive audits

AI enhances the ability to evaluate vast amounts of data in less time, allowing professionals to focus on more value-added tasks. It helps them to complete their jobs more efficiently. The ability to predict the instances of risk also improves considerably as the analyzed data increases. However, this may also cause some issues because large data means increased discrepancies. The auditor should peruse each of them to know whether it is a serious issue or not.

Technology like machine learning assists AI systems in evolving. Thus, the manual load on the auditors can be significantly reduced. However, audit professionals can become more occupied in terms of their overall work burden.

  • Get Strategic insights with AI.

AI can provide deep insights into risk and governance, and internal auditors can deliver strategic inputs to the board. During this, the auditor’s role can also change from an assurance-based role to a different role where they become business advisors for the company. This will accelerate the growth of the company. An improved role for auditors in the business can lead to better career opportunities for professionals looking for improved opportunities.

  • Onboard leading professionals

Those companies with cutting-edge AI technologies at their disposal have a great chance of onboarding leading professionals in the industry. Removing or mitigating the burden of manual processes can improve retention in the company. Moreover, ensuring an engaging work environment can benefit the company’s success. With leading professionals, the company can taste more success.

Artificial Intelligence and the Future of Internal Audit

It may be early to know the impact of artificial intelligence on internal audits. Still, AI continues to be used to know the control failures of institutions with cybersecurity programs. In a case where a malicious code is identified, AI technology through the devices can change the path of such code from the sensitive data. It can even close the access completely until the nature of the attack is investigated, and appropriate actions have been taken.

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Such use of AI can help companies to save huge amounts of money. The next generation of artificial intelligence-enabled devices is expected to have even more attributes, such as behavioural analysis, that can identify the intention of a user before the person can access the data.

Internal audit professionals are also expected to train AI to seek situations that need more profound analysis. Still, the technology will enable to undertake the internal audit process in different ways.

With cloud storage, the creation and aggregation of the data can be done subject to internal audit; however, examining the completeness and integrity of data has become a mammoth task due to the huge volume of data.

AI is expected to monitor such data constantly. It can alert the auditors about the status of the data and can also alert them regarding instances of potential fraud and disclosures.

AI can also measure the data performance in fulfilling the company’s objectives. AI can help internal auditors to have an understanding of everyday activities in the business, alerting internal audits when there is something suspicious which needs to be investigated further.

Challenges

AI seems very promising and enterprising; however, AI can become unpredictably biased in some cases. Further, AI, which collects data from various sources covering an individual’s financial status, education, likes, dislikes, etc., can be used to pursue certain malafide intentions.

Moreover, AI can be weaponized in many ways that could be difficult for us to understand. Thus, protecting AI from internal malicious persons and external adversaries will be critical.

Conclusion

Keeping the challenges aside, AI is expected to positively impact the internal audit process by detecting risks and evaluating the process and control design. With internal audits using AI, future internal auditors can transform into highly technical and skilful individuals. Therefore, all eyes are set on how the future of internal audits pans out.

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