The Financial Reporting Council (FRC), an independent regulator responsible for auditors, accountants and actuaries, has released its first-ever guidance on the use of AI technology in financial audits.
New AI tools are increasingly being used in audits, according to the FRC, obliging the group to establish best practices and avoid negative impacts.
Numerous industries are turning to AI tools to drive efficiencies, however, there is a particular responsibility among those in regulated industries to ensure the technology is used appropriately.
The guidance is largely supportive of the incorporation of AI where it can improve output, but urges firms to take steps to maintain compliance.
The regulator said it was of particular importance that the guidance be released given its observation of the industry’s largest firms. The FRC said it saw “no formal monitoring performed” by the six largest accounting firms regarding the “audit quality impact” of using AI tools.
The FRC has requested firms document their use of in-house AI tools, including what the tool does, when it is considered appropriate to use, information on how it was developed and tested and how the firm is ensuring it works as intended.
Similarly, third-party AI software use must be documented. While the FRC acknowledges certain development details will not be available, audit firms should still explain how they are sure the tool is reliable and safe to use.
“AI tools are now moving beyond experimentation to becoming a reality in certain audit scenarios,” said Mark Babington, FRC executive director of regulatory standards.
“When deployed responsibly, they have significant potential to enhance audit quality, support market confidence, drive innovation and ultimately contribute to UK economic growth.
“We recognise that this field is moving quickly and will continue to engage across the profession, both in the UK and internationally, to support innovation and the appropriate use of AI.”
Though the guidance was developed to be comprehensive, it is not prescriptive and does not introduce regulatory requirements, instead it focuses on encouraging the safe adoption of useful technologies.
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