The Public Company Accounting Oversight Board’s staff has conducted “limited outreach” to audit firms and public companies to understand their perspectives on the use of generative artificial intelligence (genAI) in financial reporting and auditing. This effort is part of a project on the Board’s research agenda to determine whether there is a need for guidance, changes to PCAOB standards, or other regulatory actions in light of the increased use of technology-based tools in financial statement preparation and auditing. Spotlight: Staff Update on Outreach Activities Related to the Integration of Generative Artificial Intelligence in Audits and Financial Reporting (GenAI Spotlight) summarizes the staff’s observations regarding the use of genAI in auditing and financial reporting based on the outreach initiative.
Observations Related to GenAI Integration in Audits
Integration of genAI into auditing focuses primarily on “administrative and research activities.” However, most audit firms see the potential for using genAI in audit planning and performance. The firms interviewed do not view PCAOB auditing standards as an impediment to using genAI in audits. Audit firm observations included:
Current Use of GenAI. Some firms use genAI to prepare administrative documents or initial drafts of memos and presentations related to audits. Some firms have developed genAI-enabled tools to assist staff in researching internal accounting and auditing guidance.
Investment in GenAI. Most firms are investing in genAI-enabled tools either by developing them internally or by partnering with third parties. Potential uses include “assisting with summarizing accounting policies and legal documents, evaluating the completeness of audit documentation against relevant documentation requirements, performing certain risk assessment procedures, scoping the audit, evaluating the completeness of financial statement disclosures, and comparing amounts in the financial statements or notes to the financial statements with audited amounts.”
Limitations on the Use of GenAI. Data privacy and data security are concerns. Some firms have safeguards that address what information can be uploaded to genAI tools, while some limit or prohibit the use of genAI in audits.
Supervision and Review of GenAI. An engagement team member who uses a genAI-enabled tool is still responsible for the results and documentation of the work, and supervisors who review such work are expected to apply the same level of diligence as when reviewing work where genAI was not involved.
Risks Related to GenAI Input and Output. Some audit firms emphasized the importance of the auditability of both the underlying source data and of genAI-created content when genAI-enabled tools are used. Firms also noted that genAI may generate false or misleading content.
Other Risks Related to the Use of GenAI. Financial statement preparer use of genAI could amplify existing information technology risks (e.g., risks related to segregation of duties) or create new risks.
Firm Policies Related to GenAI. Firms emphasized the importance of policies and procedures, internal controls, and training related to the use of genAI.
Observations Related to GenAI Integration in Financial Reporting
Some companies are exploring incorporating genAI in accounting and financial reporting processes. However, integrating genAI into “operational and customer-facing areas” is currently a higher priority. Financial statement preparer observations included:
Current Use of GenAI. Some company personnel use genAI in creating initial drafts of internal documents, such as “summaries of accounting standards and interpretations, presentations, and benchmarking of company information with publicly available information from competitors).” Some preparers use genAI to assist in “less complex and repetitive processes, such as preparing account reconciliations or to assist with identifying reconciling items.”
Supervision and Review of GenAI. While genAI has the potential to improve efficiency, “human involvement in supervising the use of genAI and reviewing genAI output continues to be important.”
Governance of GenAI. Some preparers said the governance issues around the development and integration of genAI were similar to those for other types of technology, while others are establishing new genAI-specific policies and procedures. Some preparers emphasized the importance of controls over the data used to train genAI models, although this may be difficult when models are developed or trained by third parties.
Consistency of GenAI Created Content. Preparers noted challenges in the broader use of genAI in financial reporting processes, including the “black box” nature of some genAI tools, the lack of consistent output, and the inability to audit some genAI-created output.
Audit Committee Takeaways
Like the more detailed and audit committee-focused CAQ paper, the GenAI Spotlight introduces some of the oversight issues that audit committees will face as genAI is integrated into financial reporting and auditing. (See CAQ Releases a Resource for Audit Committees on Generative AI Oversight in this Update.) The PCAOB staff is seeking input from stakeholders – including audit committee members – about how genAI may be used in auditing or financial reporting.
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