UK’s FRC publishes guidance on AI use in audit

The Financial Reporting Council (FRC) in the UK has recently released its first-ever guidance on the use of artificial intelligence (AI) in audits. This guidance is aimed at providing clarity to the audit profession on how to effectively integrate AI tools into their audit processes while ensuring audit quality and innovation.

Developed in collaboration with the FRC’s Technology Working Group, the guidance offers a structured approach for auditors and audit firms to develop and utilize AI tools. It also outlines the regulatory expectations for third-party technology providers serving the audit industry.

Mark Babington, the FRC’s executive director of regulatory standards, emphasized the potential of AI tools to enhance audit quality, support market confidence, drive innovation, and contribute to economic growth when deployed responsibly. The FRC is committed to fostering innovation in audit and supporting the appropriate use of AI through this guidance.

In addition to the guidance, the FRC’s thematic review provides insights into the certification processes for new technologies at the six largest audit firms. This review highlights good practices essential for maintaining audit quality and summarizes the approaches taken by firms to validate automated tools and techniques for audit purposes.

Key features of the guidance include a two-part structure with an example of AI application in audit and principles for documentation. The guidance takes a broad view of AI, covering machine learning and deep learning models, and promotes a balanced approach to documentation to avoid excessive detail. It also recognizes the varying levels of explainability required depending on the context and usage of AI.

The principles outlined in the guidance are versatile and applicable to a wide range of AI use cases in audit. They align with the UK government’s AI principles and are relevant for tools obtained from third-party providers. While the guidance is comprehensive, it does not introduce new regulatory requirements and instead supports innovation within the existing framework.

Overall, the FRC’s guidance on AI use in audits is a significant step towards leveraging technology to enhance audit quality, drive innovation, and support economic growth. By providing clarity and structure for integrating AI tools into audit processes, the FRC is paving the way for a more efficient and effective audit profession.