Tag: Audits

AIs Impact on the Accounting Industry

Posted on by dsp64

Brace for Impact

Tech entrepreneur Mark Cuban stated in recent years that artificial intelligence (AI) will dominate the landscape of the business world, so much so that entire industries could be relegated to near obsolescence.

One such industry he mentioned happens to be near and dear to our hearts: the 7,000-year-old accounting industry. After taking a few deep pulls from my handy hyperventilation bag, it got me thinking: is that truly possible? Far be it from me to spit in the face of the “experts,” but the accounting industry as a viable employment option will most decidedly not be disappearing any time soon. Will AI change our industry? Undoubtedly, and with great benefit to us and our clients, assuming we allow it.

AI has already entered our space in numerous manifestations, freeing up accountants at all levels to engage clients better and offer the expert advice we are hired to dispense. Here are some ways the accounting industry has benefitted and will continue to benefit from AI:

Easy access to financial information – most, if not all, accounting systems now have the ability to integrate data from various financial institutions and products, both historical and real-time. This allows for up-to-the-minute reporting, benefiting management and internal/external accounting staff in decision-making and forecasting. As Matt Bontrager, founder of Bookkeeping Blueprint writes in Entrepreneur, “…analyzing historical data, industry benchmarks and market trends, AI-powered systems can offer tailored recommendations and insights based on a business’s specific goals and objectives.”

Security – you know those texts you get from your bank when there is “suspicious activity?” That’s AI working for you. Our systems now have the tools to analyze patterns and red-flag irregularities. Incorporating AI systems into accounting software has dramatically enhanced fraud detection at the personal and business level, giving accountants another tool to protect the integrity of their financial information. Rather than going line-by-line through a general ledger and losing our minds in the process, we can utilize the tools AI provides to seek out oddities that may save a company some severe distress.

Improved audit efficiency – looking at the first two items above, it’s not a long leap to see that AI also benefits the auditing side of the accounting industry. Being able to set parameters and quickly search through a data set for anomalies has reduced time spent on various audit procedures compared to audits of years past. Similarly, having access to real-time client financial data allows for more efficient procedures around subsequent events (e.g., disbursements and receipts subsequent to year-end). In an article for becker.com, Jim Eicher noted, “As a result of big data and streamlined auditing, accountants are able to execute predictive and prescriptive financial analytics for their clients, which can make their clients’ financial processes more efficient, accurate and profitable. Centralized access to vast amounts of data previously dispersed across individual spreadsheets, PCs, mainframes and servers will promote faster, more efficient client audits.”

This small sample of how AI can assist accountants in their roles should inject at least a small dose of confidence in the sustainability of the accounting industry. AI should not be considered a monster coming to destroy our livelihoods; it should be viewed as a tool to make ourselves more valuable to our clients than we ever have. It’s already dramatically impacted our daily routines, even going unnoticed as we weave through newly implemented software or hidden in an update.

Accountants, however, can’t just sit back and let AI do all the work. We will need to study and understand the assistance it can provide. Resources abound related to AI. Whether taking one of the many AI-related CPE courses available or simply researching and garnering the knowledge on your own, it behooves accountants long-term to dive into this new world headfirst and learn how to harness its power.

Before long, if not already, the client will expect their accountant to offer advice and guidance related to AI tools that can benefit their business. Advancements in AI will most certainly lead to the more mundane and monotonous bookkeeping tasks being automated. As a result, greater opportunities will open for those in the industry to develop their soft skills developing strategies and truly advise their clients.

Cuban’s prediction of AI dramatically changing the business world’s landscape appears very much on point. However, where this takes respective industries remains to be seen. History has proven time and again that the future is nothing if not unpredictable, and only that change will be a constant. How this all plays out long-term will be determined later. Still, with some willingness to adapt and learn the capabilities AI offers our industry, we can continue to help our clients and ourselves sustain continued success for the foreseeable future.

Changes To The Non-Public Auditor’s Report

Posted on by dsp64

The Times They Are-a-Changin

The AICPA has issued several Statements on Auditing Standards (“SASs”) that, on the effective date, will impact the auditor’s report. These changes are included in SAS 134 through 140 and are effective for periods ending on or after December 15, 2021, per SAS 141. Therefore, they will initially be effective for the calendar year 2021 audits. Early implementation is permitted.

Usually, busy private business owners don’t need to concern themselves with the SASs. Why should they? However, owners should be aware of these recently issued SASs because crucial decisions must be about engaging the auditor to report on what is styled as “Key Audit Matters.” Some of the more noteworthy changes related to the non-public auditor’s report are summarized below.

  1. SAS 134 changes both the contents and arrangement of the auditor’s report for non-public companies. These changes are designed to provide greater transparency and improve communication for the end-users of the financial statements.

    • Key Audit Matters. The Auditing Standards Board has added new AU-C Section 701, Communicating Key Audit Matters in the Independent Auditor’s Report. If the auditor is so engaged, the purpose of communicating key audit matters (“KAMs”) in the auditor’s report is to provide greater clarity regarding significant audit issues to the end-users of the financial statements. Many end-users thought the old standard boilerplate auditor’s report didn’t provide sufficient insight into the audit process. The KAM section of the SAS 134 auditor’s report is advanced in response to this concern.

      The new standard does not require that KAMs be communicated in the auditor’s report. However, end-users, such as banks, absentee owners, and potential buyers may request that KAM communications be included to facilitate their analysis and understanding of the audit. Accordingly, company management may find it prudent to comply with this request and engage the auditor to include a KAM section in the auditor’s report.

      KAMs include matters that, in the auditor’s professional judgment, are most significant in the audit. For example, the following are key matters areas that the auditor may communicate:

      • Areas in the audit that pose a higher risk of material misstatement
      • Significant estimates and related disclosures that are susceptible to material misstatement
      • Areas of high complexity
      • Transactions or events having a significant effect on the financial statements or the audit
      • Areas of the audit that were challenging to the auditor
      • Matters that required consultation by the auditor

      If reporting on KAMs, the audit report should describe the following for each KAM:

      • Why the KAM was considered to be significant
      • How the matter was addressed during the audit
      • Provide a reference to the financial statement areas or the related disclosures addressed by the KAM

    • SAS 134 also:

      • Expanded the descriptions of management’s responsibility about going concern evaluations
      • Expanded descriptions regarding the auditor’s professional judgment, professional skepticism, going concern, and communication with the governing board.

    • The arrangement of the auditor’s report has changed, as follows:

      • The opinion paragraph is now the first paragraph. The thought here is that most readers of the audit report immediately focused their attention on the opinion paragraph, which, in the current report, is positioned at the end. So it makes sense to move it to the first paragraph, thereby stating up-front the auditor’s opinion on the financial statements.
      • The basis for opinion follows the opinion paragraph
      • KAMs, if requested by company management, is the next paragraph, followed by a description of each KAM
      • The following paragraph describes the responsibilities of management, followed by
      • A paragraph on the auditor’s responsibilities

        NOTE: Both the management and auditor’s sections must now include each parties responsibilities for assessing the company’s going concern

      • The final three sections are the firm’s signature, city and state, and date.

    • SAS 134 also modified AU-C Section 706, Emphasis -of-Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report. It clarified the relationship between Emphasis of Matters and KAMs if both are included in the auditor’s report.

  2. SAS 136 made significant revisions to the ERISA auditor’s report. Next month we will discuss those revisions and their impact.
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