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Emerging technologies risk and the auditors focus

FINANCIAL REPORTING INSIGHTS  | 

Emerging technologies, such as the following, can bring about great opportunities for a business but also may present risks to financial reporting:

  • The concept of connecting any device to the internet and to other devices
  • Artificial intelligence tools that use advanced algorithms and machine learning to predict activity and manage business processes, such as projecting inventory levels, managing cash flow needs and enhancing internal audit activities
  • The ability to execute smart contracts that facilitate, validate and enforce the performance of an agreement or transaction on blockchains
  • Artificial intelligence used in developing accounting estimates

To provide an understanding of emerging technologies and an awareness of the risks they present to financial reporting, the Center for Audit Quality recently published a resource for auditors, audit committees and management: Emerging Technologies, Risk, and the Auditor’s Focus. This publication sheds light on issues such as the following, among others:

  • How technology affects:
    • A company’s business
    • Internal controls over financial reporting
    • Audit committee oversight of financial reporting
  • What auditors should focus on when assessing technology risks:
    • Gaining a holistic understanding of changes in the industry and the information technology environment to effectively (a) evaluate management’s process for initiating, processing and recording transactions and (b) design appropriate auditing procedures
    • Considering risks resulting from the implementation of new technologies and how those risks may differ from those that arise from more traditional systems
    • Considering whether specialized skills are necessary to determine the impact of new technologies and to assist in the risk assessment and understanding of the design, implementation and operating effectiveness of controls