Audit dead in a decade?

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Accounting professor David Yermack thinks the audit profession may be dead in 10 years.

At a roundtable discussion held at New York University on Oct. 30, Yermack, who is a legal, economics and finance expert and the Albert Fingerhut Professor of Finance and Business Transformation at NYU's Stern School of Business, based his observation on the role that artificial intelligence and blockchain are taking in audit.

“The distributed ledger reduces the need for audit by 97 percent,” he said. “Auditors in the future will be competing on the basis of productivity, which will essentially mean who has the fastest hardware and software. And fraud, in the classical sense, will be all but impossible.”

The concept of the immutability of a set of data has been fundamental to the development of blockchain technology, according to Abhishek Biswas, corporate vice president and director at New York Life, who was also on the panel. And that is why fraud the way we know it today will effectively disappear with the rise of the distributed ledger.

But while blockchains are extremely secure by design, there are other opportunities for fraud that will develop alongside the technology, as they have alongside every technology we have seen thus far. For instance, socially engineered hacks, like phishing, in which cybercriminals target people (rather than computers of software) with emails and personal messages, may still be an effective way to gain access to private information even as blockchain becomes more widespread.

Yermack is not alone in his gloomy view of the future of the audit profession, although he may be one of the few to state the sentiment so boldly. The American Institute of CPAs is very aware of how AI is changing the sampling process drastically already, and recently launched an initiative to build what it’s calling a “Dynamic Audit Solution” that it hopes will drastically change the methodology of audits. At its recent user conference, Sage Intacct shared a similar plan: The company wants to build software that shifts audit from “after the fact” to “real time and continuous.”

Ryan Lazanis, a CPA and CA who was also at the NYU discussion, didn’t quite share Yermack’s view that audit will die, but does think the role of the auditor will change — perhaps drastically -- but that it will remain an important part of accounting services.

“An auditor’s job has two parts,” said Lazanis, who is the founder of a paperless firm, Xen Accounting. “First, to provide independent verification of third-party data, but also to apply accounting standards, and use judgment to verify that the record is valid and accurate. The audit role will shift more to the second part than the first.”

He went on to say that blockchain, as it develops, will be an “interesting tool” for auditors, as it provides the ultimate audit trail.” Expertise in blockchain will be highly sought after by firms in the future, he added.

But when will this shift occur? First, more data needs to flow through blockchains, Lazanis said; big players, like the Big Four, major corporations, big banks and governments need to adopt the technology; and regulations need to become clearer. But Lazanis thinks we could be as near as five years away from this shift taking place.

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Blockchain Distributed ledger technology Artificial intelligence Audits Audit software