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Industry Analysis
2 min read

Exploring the PCAOB's Spotlight on Generative AI

October 21, 2024
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Ethan Kelemen

Recently, the PCAOB 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 profession. The report is interesting in that the PCAOB chose not only to interview audit firms but also financial statement preparers accumulating insights into the current and potential future applications of GenAI, as well as some current limitations.

The PCAOB conducted outreach with audit firms and companies to understand their experiences and expectations regarding GenAI integration. Their interviews included several of the included discussions with several of the top 100 audit firms and as well as issuers themselves, revealing varying degrees of GenAI adoption and investment. As such, their findings fit broadly into two main categories - GenAI integration in audits and financial reporting.

-In Audits: Not surprisingly, GenAI is currently used primarily for administrative tasks and research. There remains significant potential for its use in planning and performing audits, though data privacy and reliability concerns limit its current application. --The PCAOB also mentions several of these use cases firms have explored but are currently somewhat restrained to use (page 3), including:

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

-In Financial Reporting: Issuers are exploring GenAI mainly for operational and customer-facing tasks, with less focus on accounting and financial reporting (page 5). Challenges include the "black-box" nature of GenAI tools and the need for robust controls to ensure data reliability.

We view the PCAOB's insights as an important resource for understanding the evolving role of GenAI in auditing and financial reporting. Interestingly, several of the use cases, including financial statement disclosures and documentation completeness are included in Tellen’s ongoing design partnerships. As we continue to work with our design partners, we will be following and reporting on the PCAOB's initiatives and GenAI findings as they relate to auditing and financial reporting.

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