State Board Report

May 2017

The threat of auditors’ over-reliance on data analytics was raised by Public Company Accounting Oversight Board Member Steven B. Harris at the April 20 joint conference of the PCAOB and the American Accounting Association. He cautioned: “…auditors should take care that they are not over relying on data analytics. As powerful as these tools are, or are expected to become, they nonetheless are not substitutes for the auditor’s knowledge, judgment, and exercise of professional skepticism.”

Mr. Harris cited Deloitte Chief Executive Officer Cathy Engelbert’s prediction that in the next 5-6 years the accounting and auditing profession will change more than it has in the last 30 years. Quoting another Big 4 leader from the United Kingdom, Mr. Harris said the projected impact of artificial intelligence could result in a drop in the employment of auditors and accountants by as much as 50 percent by 2020.

“The use of these technological tools and methods raises certain challenges,” Mr. Harris told the joint conference. “For example, it is important that the data being used is reliable, complete and accurate. That is true for general ledger data, other financial and operating data, and data from outside the company. Data security and quality control over these tools, whether developed in-house or by vendors, are also factors for firms to consider. And ensuring consistency of approaches across group audits may become difficult if such tools are not readily available to, or used by, affiliate offices.”

He described Blockchain as an emerging technology that has an open, distributed ledger where transactions are verified by the parties involved. Mr. Harris asked, “Will new technologies, such as Blockchain, call into question the need for an audit?” He called on the educators to continue to analyze the future role of the audit and how best to prepare the next generation of auditors.

Two educators who are closely analyzing this area, Dr. Miklos Vasarhelyi and Dr. Hussein Issa, will be discussing the significance of these coming changes at NASBA’s June Regional Meetings with Regulatory Response Committee Chair W. Michael Fritz (OH) and Standard Setting Advisory Committee Chair Catherine Allen (NY).

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