Forensic Auditing And Artificial Intelligence (AI)

23 Dec, 2019

Organizations are increasingly implementing forensic auditing along with artificial intelligence (AI) technologies as part of their risk management strategy to prevent fraud. Companies across industries, and regulators too, have started using integrated, data-driven analytics’ approaches to identify potentially fraudulent transactions. AI has emerged as a useful tool in dissecting financial data over multiple years to identify spending patterns and high-risk transactions for a CPA (Certified Public Accountant) to review. This is an alternative to the traditional sampling methodology used by auditors and allows for the analysis of thousands of transactions over multiple fiscal years within a significantly reduced timeline. The utilization of AI platforms significantly improves the efficiencies of forensic audits and reduces the timeline of work performed. Artificial intelligence’s key advantage in investigations is its ability to predict behavior based upon pattern recognition. AI is particularly proficient at helping investigators organize and analyze unstructured data. By combining human instinct with the efficiency and accuracy offered by AI tools, investigators can analyze, interpret and unearth relationships in huge data sets, and quickly and effectively uncover fraud.

AI uses Natural Language Processing technology to identify key terms or performance indicators within administrative documents, contracts, and financial reports. AI has also enabled the use of forensic analytics in fraud investigations. Forensic analytics combines advanced analytics with forensic accounting and investigative techniques to identify potential rare events of consequence.

The global forensic audit market was estimated at $12.2 billion in 2019, and is expected to grow to $15 billion in 2022 at an annual growth rate of 7.2%. Use of advanced technologies such as artificial intelligence to analyze and quickly identify irregularities in the data is expected to drive the growth of the forensic audit market in the forecast period. Artificial intelligence uses rules created by humans to reason through issues and reach conclusions by identifying patterns from the huge data sets available. Artificial intelligence tools can be adjusted to understand how accounting entries are being used to conceal irregularities such as incorrect revenue recognition or deferring liabilities by businesses.

The Big Four – Deloitte, PwC (PricewaterhouseCoopers), Ernst & Young (EY) and KPMG have implemented AI-based services. Deloitte has partnered with IBM Watson and offers LeasePoint, an AI-enabled solution for the leasing industry. PWC has collaborated with, a leading Silicon Valley company to build is an AI-enabled system capable of analyzing huge data points in milliseconds, detecting anomalies in the general ledger, and preparing reports. EY Australia has adopted its proprietary robotic process automation technology, claiming that 50% of its bank audit confirmations were lodged using the AI-enabled system. KPMG offers its own portfolio of AI tools called KPMG Ignite.