KPMG integrates AI into smart audit platform

KPMG International has announced the integration of generative AI into its global smart audit platform, KPMG Clara.

This move, announced on July 29, 2024, marks a pivotal moment in the accounting industry’s adoption of artificial intelligence, promising to reshape audit processes while raising important questions about risks and preparedness.

KPMG’s initiative will impact 90,000 auditors worldwide, aiming to enhance audit quality and efficiency across the full audit process.

 “With seamless access to trusted generative AI capabilities within our audit workflow, our auditors will be empowered to deliver quality audits and focus more time on areas of highest risk,” said Larry Bradley, Global Head of Audit at KPMG International.

“KPMG Clara AI can not only free up resources to spend more time on the areas of highest risk, but can directly help our teams execute more effectively as we carry out our responsibilities to protect the capital markets.”

Key features of the AI integration include:

1. Refining risk assessments: AI assistants will review documents to help identify risk factors, including analysing meeting minutes for potential accounting and financial risks.
2. Developing substantive testing procedures: The AI assistant, with direct access to KPMG audit methodology, will help design appropriate procedures to respond to risks more quickly.
3. Enhancing audit documentation: Team members can use the AI to summarize, question, and improve engagement-specific audit documentation within KPMG Clara.

The AI integration in KPMG Clara will assist auditors in refining risk assessments, developing substantive testing procedures, and enhancing audit documentation.

KPMG has also outlined upcoming AI and generative AI capabilities, including:

• A growing prompt library with AI-powered agents to assist Audit teams
• Automated quality scoring for feedback and quality improvement
• AI and machine learning for automated review of financial statements
• Integrated assurance capabilities for teams delivering assurance over disclosures

Industry concerns

However, this move comes amid growing concerns about AI risks in auditing. A recent study highlighted by  found that while AI is increasingly seen as a significant risk over the next two to three years, only 12% of organizations have adopted AI within their audit functions. The research also pointed out gaps in organisational preparedness and audit proficiency in handling AI risks.

KPMG’s announcement follows earlier moves by other Big Four firms. Notably, EY implemented an AI system in its audit processes earlier this year, which led to the detection of fraudulent activities in two out of the first ten companies evaluated. This success sparked industry debate about the reliability and potential of AI in fraud detection.

EY’s innovative approach, developed by Naoto Ichihara, an assurance partner in Tokyo, involved creating an AI solution that could detect anomalous entries in large databases. The system, named EY Helix GL Anomaly Detector or Helix GLAD, has transformed the auditing landscape by enhancing accuracy and efficiency while reducing the risk of undetected financial irregularities.

“Our Trusted AI framework underpins everything we do with AI in the audit. KPMG auditors are trained on how to effectively use AI with a human-in-the-loop mindset to help maintain quality, accuracy and professional scepticism,” said Thomas Mackenzie, KPMG U.S. and Global Audit Chief Technology Officer.

As the industry continues to evolve, regulators are likely to play a crucial role in determining the extent to which AI can be used in audit processes. Jason Bradley, head of assurance technology for the UK’s Financial Reporting Council, believes that AI presents opportunities to improve audit quality and efficiency if used appropriately.

The integration of AI in auditing processes represents a significant shift in the industry, promising enhanced efficiency and accuracy. However, it also raises important questions about data privacy, the need for continuous algorithm updates, and the balance between technological advancement and human expertise in ensuring audit quality and integrity.

Challenges and Opportunities

The integration of AI in auditing processes presents both challenges and opportunities:

Benefits:

• Increased efficiency in analysing large volumes of data
• Reduced risk of human error or oversight
• More objective and consistent application of audit criteria

Challenges:

• Integration of AI technology into existing auditing systems and processes
• Need for continuous monitoring and updating of AI algorithms
• Ensuring auditors have the skills to effectively use and critique AI systems

Sebastian Stöckle, Head of Innovation, Global Audit at KPMG International, summarized the transformative nature of this shift: “The transformation brought about by AI spans across industries and regions. For financial reporting, this transformation is not just a technological shift, but a paradigm shift, aiding the role of auditors and reshaping the accounting industry as a whole.”

As KPMG and other firms push forward with AI adoption, the industry watches closely to see how these technologies will reshape the future of auditing and financial reporting. The balance between technological advancement and maintaining the integrity and quality of audits remains a critical consideration for firms, regulators, and clients alike.