The rapid growth of artificial intelligence (AI) technology is transforming industries, and the auditing and financial reporting sectors are no exception. Generative AI (GenAI), a cutting-edge subset of AI, has emerged as a mighty tool capable of generating new content based on user prompts, from text and images to audio and video. Recognizing the significant potential of GenAI to reshape auditing processes, the U.S. Public Company Accounting Oversight Board (PCAOB) has actively engaged in outreach activities to understand its integration and implications better.

Overview of PCAOB’s Outreach Efforts

In recent months, the PCAOB staff conducted a series of outreach initiatives with various audit firms and companies. This proactive approach aimed to gather insights into how these entities incorporate GenAI into their operations, particularly in audits and financial reporting. The findings from these interactions have been compiled in a comprehensive Spotlight report, providing transparency and shedding light on the evolving use of GenAI in these fields.

Key Observations from the Outreach

Integration of GenAI in Audits

The integration of GenAI in auditing is still in its nascent stages, yet it is progressing rapidly. Audit firms are primarily leveraging GenAI for administrative tasks and research activities. For instance, some firms use GenAI to prepare initial drafts of memos and presentations or to assist staff in researching internal accounting and auditing guidance. Larger global network firms appear to be ahead in developing and deploying GenAI-enabled tools compared to their non-affiliated counterparts.

Despite the promising applications, firms have identified several areas where GenAI could further assist in planning and performing audits. These areas include summarizing accounting policies, evaluating audit documentation completeness, conducting risk assessments, and scoping audits. However, concerns about data privacy, security, and the reliability of GenAI output remain prevalent. To address these, firms are implementing safeguards and developing specific instructions to improve the consistency and accuracy of GenAI responses.

Integration of GenAI in Financial Reporting

On the financial reporting front, preparers are exploring how GenAI can streamline their processes. While the primary focus is on operational and customer-facing areas, significant efforts are being made to incorporate GenAI in accounting and financial reporting. GenAI is used to draft internal documents, prepare account reconciliations, and identify reconciling items.

However, like in audits, human oversight remains crucial. Preparers emphasize the importance of supervising GenAI’s use and reviewing its output to ensure accuracy and reliability. Establishing robust governance policies, procedures, and controls over GenAI tools is essential to mitigate risks and ensure data integrity.

The PCAOB’s observations on the integration of Generative AI (GenAI) in audits and financial reporting are supported by several industry surveys and reports. Here are some key statistics and findings that align with the PCAOB’s outreach results: