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Industry Analysis
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Exploring the PCAOB's Spotlight on Generative AI

October 21, 2024
Ethan Kelemen

Exploring the PCAOB's Spotlight on Generative AI

The PCAOB recently published "Spotlight: Staff Update on Outreach Activities Related to the Integration of Generative Artificial Intelligence in Audits and Financial Reporting," acknowledging the ongoing significant shift in the accounting profession. This comprehensive report provides valuable insights into how both audit firms and financial statement preparers are currently using—and planning to use—generative AI.

PCAOB's Research Methodology

The PCAOB conducted extensive outreach with audit firms and public companies to understand their experiences and expectations regarding GenAI integration. Their interviews included several of the top 100 audit firms as well as issuers themselves, revealing varying degrees of GenAI adoption and investment across the industry.

Key Findings: Two Main Categories

GenAI Integration in Audits

Current Applications: Not surprisingly, GenAI is currently used primarily for administrative tasks and research. While there remains significant potential for its use in planning and performing audits, data privacy and reliability concerns limit current application.

Emerging Use Cases (currently being explored but with some restraint):

  • Assisting with summarizing accounting policy and legal documents
  • Audit documentation completeness reviews
  • Performing certain risk assessment procedures
  • Audit scoping and planning
  • Evaluating the completeness of financial statement disclosures
  • Comparing amounts in financial statements or notes to audited amounts

GenAI in Financial Reporting

Current Focus: Issuers are exploring GenAI mainly for operational and customer-facing tasks, with less focus on accounting and financial reporting processes.

Key Challenges:

  • The "black-box" nature of GenAI tools creates transparency concerns
  • Need for robust controls to ensure data reliability and accuracy
  • Regulatory compliance considerations

Industry Implications

The PCAOB's insights serve as an important resource for understanding the evolving role of GenAI in auditing and financial reporting. The measured approach reflected in their findings suggests the profession is proceeding thoughtfully, balancing innovation with the need for reliability and compliance.

Tellen's Alignment with Industry Trends

Several of the use cases highlighted by the PCAOB—including financial statement disclosures and documentation completeness—are central to Tellen's ongoing design partnerships. Our platform directly addresses many of the applications that audit firms are actively exploring.

As we continue to work with our design partners, we will be closely following and reporting on the PCAOB's initiatives and GenAI findings as they relate to auditing and financial reporting. This alignment ensures our development efforts remain focused on the most impactful and industry-relevant applications of AI in audit practice.

Looking Forward

The PCAOB's report validates the significant potential of GenAI in audit and financial reporting while highlighting the importance of thoughtful implementation. As the technology matures and concerns around data privacy and reliability are addressed, we expect to see broader adoption of the use cases currently being explored.

For accounting firms looking to stay ahead of this transformation, understanding these industry trends and preparing for GenAI integration will be crucial for maintaining competitive advantage and audit quality.