5 Ways AI is Transforming Auditing and Taxation

Not so long ago, the mere mention of the word ‘audit’ would instill a strange fear or uneasiness among finance professionals. They would devote several hours to checking their financial records and preparing for cross-questioning by the auditor.

Despite all this preparation, the team often wasn’t fully confident about the accuracy of the records. And the possibility of auditors identifying errors remained high along with poor communication and lack of visibility into the process.

Inconsistent version control added to a chaotic audit process where different staffers often worked on the same audit material with little visibility into their colleagues’ work.

All of this has changed since the inception of technology in financial processes, especially with the adoption of artificial intelligence and robotic process automation.

In a recent survey of over 750 finance executives, 73% of tax professionals acknowledged that AI could help accounting firms modernize processes and improve accuracy to deliver more value.

Growing interest has translated into a significant increase in investments in AI-powered technologies.

How AI Can Simplify Auditing and Taxation

By automating repetitive and rules-based tasks, AI can enhance audit efficiency and minimize the possibility of error.

AI’s complex data processing capabilities provide opportunities to improve visibility, reduce risks, streamline processes and redesign financial procedures.

Let’s look at five ways AI can transform audit processes:

• Data Extraction and Validation:

RPA bots can extract data from financial statements, bank statements, invoices and other documents. They can auto-populate audit templates with this data and perform data validation checks by comparing data from different sources. They can also reconcile financial data to match various documents and systems.

• Testing and Sampling:

RPA can automate the selection and sampling of transactions or data for audit testing. It can execute predefined audit procedures on these samples, such as confirming receivables or testing controls.

• Audit Documentation:

RPA can also help generate standardized audit reports, work papers and documentation. Additionally, by automatically recording actions and changes made during the audit process, technology helps maintain an organized audit trail.

• Fraud Detection:

AI can be programed to flag suspicious transactions or patterns. It can help auditors detect potential fraud in real time by continuously monitoring transactions for unusual behavior.

• Compliance and Reporting:

Advanced technology can automate compliance checking with changing laws and regulations. It can even lower the risk of late or incorrect filings by generating and submitting tax returns to authorities.

In addition to the above, RPA bots can look at relevant tax laws, rates and deductions to perform complex tax calculations. In this way, they can quickly and accurately calculate taxes owed or refunds due.

The Human Touch is Still Needed

There is little doubt that AI can simplify several auditing and taxation processes. However, to fully streamline these processes, technology must be used in tandem with human judgment and expertise.

The function will always need human auditors and tax advisors to interpret results, apply professional judgment and make critical decisions. The combination of technology and human expertise will make auditing simple, accurate and error-free.

As financial consulting firms continue to invest in AI and automation, procurement should increasingly collaborate with these firms to achieve cost reductions and other tangible benefits. Procurement can also expand on the AI skillset to support the broader organizational digital transformation journey.

To know more use cases of AI in auditing and tax processes, read the GEP bulletin.