Marc Jeschonneck, global assurance digital leader at Ernst & Young, and Paul Goodhew, EY's global assurance innovation and emerging technology leader, discuss the firm's $1 billion investment in AI and other advanced technologies for auditing, as the firm contemplates spinning off its consulting side.
Transcript:
Mike Cohn (
Hi, welcome to On the Air with Accounting Today. This is Mike Cohn of Accounting Today, and we're here to discuss auditing and audit technology with some experts from Ernst and Young. We are joined today by Marc Jeschonneck, global Assurance digital leader at EY, and Paul Goodhew, EYs Global Assurance, innovation and Emerging Technology Leader. Welcome, gentlemen. EY has been in the news a lot in recent months after plans leaked out about a proposal to split up the global firm and spin off the consulting practice into a separate company that would presumably go public. There would first need to be a vote among the member firms and partners around the world, and apparently a lot of the details are still being worked out about compensation and who would go where. I understand you're involved more in the technology side of the assurance practice, but what can you tell us about how this might affect your part of the firm?
Marc Jeschonneck (
Look Michael, for us, this is a very exciting time. We actually think it will not only affect the EY organization in the way that we are related to. So for example, in technology and broader investment into that, to even further strengthen, strengthen the assurance part of the EY organization, but actually the profession, we think that this is a bold move that subject to the partner vault can really be a defining moment for the entire profession and help us to strengthen the independent view, the investment to audit quality. And as part of that, also technology. So as I said, right that you mentioned that the partner vote still to come and we are preparing for that internally right now. And you might have noticed that our announcement about our 1 billion investment into technology actually went out last June. That was at the time when internally that preparation already went on, as you can imagine for that scenario to a potential split of the organization. So what I want to say is actually the investment into technology is not subject to that split, but we think that the two organizations building on the strengths of each part of, of the partnership focused on assurance as well as the corporate and focused on consulting, can even further strengthen that journey that we have embarked with technology in particular.
Mike Cohn (
Oh, thanks Mark. Oh yeah. I wanted to ask you both about that technology and investment the billion dollars, that's quite a lot of money. So that's supposed to go toward a next generation audit platform that will use some of these new technologies to help your clients. What are some of the challenges that clients are facing and how are these technologies going to assist your firm with auditing them?
Paul Goodhew (
Maybe if I can talk to that, Michael. I think we're in a position right now where for the organizations that we serve, but also internally for ey, we're so impacted by technology data, but also around the trust agenda. And I think that from our perspective, when we think about the journey, our clients are going on significant transformations in a really dynamic environment. At the moment, what we see is clients making investments in automation, in new systems implementation, in centralization of activities, transforming their talent model. So when we look at that and we look at the experiences our clients are going through from our perspective, it's really important that we keep pace with the pace of change in technology and key pace of the transformation of our clients are going through. So when I think about this 1 billion investment helping us drive the integration and transformation of our own technology and assurance, it's really about keeping pace with the transformation our clients are going through that companies are going through at the moment so that we can harness the technology that they're using, the data that is now available for us to transform the way that we deliver services, including our financial statement audits.
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So it's a really exciting time, very dynamic time, but it's just for me so fundamental as to why we need to continue to invest in technology during such a period, a period of such exciting change.
Mike Cohn (
Oh, thanks Paul. Yeah, I understand some of these technologies or things like artificial intelligence and machine learning and H, how do you think that's going to help your auditors identify the audit risks out there in companies?
Marc Jeschonneck (
So actually when you think about that investment it basically splits into the two dimensions that Paul just mentioned, integrating the strengths of our current capabilities. We've already embarked the journey on artificial intelligence with document intelligence capabilities around analytics and such, but we're really combining that into one seamless platform. And with that we are transforming now the capabilities and three pillars. And while you explicitly mentioned intelligence out of those three being data and analytics intelligence and the user experience, Paul is as the emerging technology, why don't you guide us through the example of that intelligence layer for the transformation?
Paul Goodhew (
Yeah, intelligence is a really broad word, and I think that when we break it down and think about TE intelligence through the technology, do through the technology lens, there's two dimensions, right? There's business intelligence but also artificial intelligence. Business intelligence can include the use of data analytics to generate insights, to generate benchmarks to visualize information in a way that makes it really relatable to help organizations make better decisions. But on the artificial intelligence side, there's really a couple of areas that we would focus on, particularly when it comes to auditing technology. Number one for me is using AI to really just help our professionals read information, documents, contracts, invoices, huge amounts of information that needs to be consumed, but breaking it down so that our professionals can rapidly go to the information that's most important for them. The second piece is not just about reading documents and reading unstructured data, but also reading structured information.
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We can use AI to read tables, tabular data, lo a large number of statistics, and particularly when it comes to reviewing financial data, we can use AI to do things like identify patterns identify anomalies, flag outliers to our professionals. But then the third component is looking ahead, what else can we do? And that's where it gets really exciting around the use of predictive analysis, modeling different scenarios and possibilities and helping build predictive models so that we can actually help our auditors really identify the potential risks and making decisions on areas that are more forward looking rather than just backward looking. So that's really, I'd say free areas that we see huge potential for AI and the overall intelligence pillar.
Mike Cohn (
Oh, thanks Paul. Yeah, I've heard a lot about the use of data analytics in auditing that seems to be increasing in use by starting with the large firms like ey, and it's starting to filter down to some of the smaller firms. Is that really helpful in identifying areas of potential risk in the audit?
Marc Jeschonneck (
Yeah, absolutely right. Michael and data analytics have become an integrated part for all phases of the audit. So for the risk identification for the execution, actually also how we deliver as part of our conclusion of an audit through throughout all phases. Just to give you an example, in 12 months, so one cycle of audits that we deliver, we analyze more than 600 billion line items of general ledger data only. So from those enterprise our platforms, from our clients, extracting all the journal entries and using that in those spaces, most of those analytics are at the current stage descriptive. So our ANA auditors actually using those analytics and spinning it from different dimensions to see what are the preparers, what are sources? Do we find patterns, taking them those selections to make more meaningful investigations rather than just random samples. That is how I would describe the benefit of analytics right now.
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And with this investment, we are actually taking that to the next level saying on data analytics, for example, going beyond general ledger subledger into the more unstructured data that Paul just mentioned to with the use of AI and machine learning in particular. Also being sure that from that descriptive moment that we currently are in, when auditors use that, we're using techniques to identify outliers much more automatic than before. Regression analytics, building in statistical elements here is one of the key drivers to that. And then actually when you take that forward, how to share these analytics and how to derive the insights here, then you can spot off that what Paul mentioned as recommendation engines, the business intelligence, how that is actually fueled much better with those analytics than just what it currently is building audit evidence at the forefront of what auditors deliver. So just to give you a glimpse, it's currently really an integrate power on all of our audits already, but with this investment, we hope that we make it much easier and actually capitalize more on the data end to end throughout the audit process.
Mike Cohn (
Thanks, mark and Paul, we're going to take a short break and we'll be right back with our guests. This is Mike Cohen with Accounting Today, and we were joined once again by Mark JK and Paul Goodhue of ey, and we were just talking about the data analytics. I wanna find out a little bit more about how you see technologies like this and AI and machine learning and freeing up the auditor's time, or are they able to actually use that on higher value kind of work?
Paul Goodhew (
I think for me, it's incredibly fundamental that we have this conversation because there is a constant open dialogue about the impact of technology on the role of the auditing professional. Is technology going to replace what our people do? Is technology going to replace our people? And this is something that we get asked by our existing professionals, but also both who are interested in the career in this space. And for me, it's really fundamental to reinforce, but actually we see technology and working hand in hand with the professional. And I see so many examples of that on a day-to-day basis, whether it's our professionals using core audit technology to project manage the delivery of the audit, or if it's an audited professional auditing professional using a data analyzer to review large volumes of financial data or if it's an audit professional using AI to review large volumes of unstructured information.
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This is not removing the decision making process or removing the decision from what the auditor needs to do every day. It's actually the technology supporting the auditor with consuming the huge volumes of information but exist. It's allowing the auditor to be much more focused on the areas that really matter, identifying those outliers, identifying those unusual patterns that we talked about, and really helping the auditor really look at where they need to go and focus their time, their professional skepticism, their curiosity around when they're reviewing information. And so for me, it's really, really fundamental, this concept of the professional and the technology working hand in hand, whether that's some fairly rudimentary technology or very sophisticated emerging technologies such as artificial intelligence. And so that is something that we see as being a really, really important point. And as I think about technologies and new technologies, new emerging technologies coming into the space, it's a constant trend. We see it's absolutely going to make it easier for our professionals to spend their time focusing on areas that really require a much more judgment, both really complex areas but it also removes a lot of the administrative burden, whether it's sharing information, preparing information, we want to take some of that, those rose repetitive routine and frankly sometimes mundane tasks away from our professionals to really make sure that they, they're focused on the things that,
Marc Jeschonneck (
And I love when Paul just said, because it illustrates that we use that technology as an enabler and enabler to do something, as you said Michael, to focus our auditor's time. And that comes with two big benefits. The benefit of actually enhancing the experience for the auditors, the administrative work that still is part of every auditor's daily live copying, pasting work from like PDF documents into Excel spreadsheets. And the other way around, we are fully aware that that is not helpful for the effectiveness of the profession. So the way we are using AI here is also to reduce that and really make the profession much more attractive. And the second is, as you say, with that focus we are firm believe firmly believing that it helps audit quality because if you take random samples, and that's still also part of most of auditor's daily life you have a chance to detect the error, a statistically high chance up to the 95% confidence intervals that we all trying to reach here. But ultimately it is still a random sample. And guiding that selection of the items that are unusual with the help of technology even helps with that focus. Not saying that the time and the effort is reduced, but as you said, it's much more focused than it was before.
Mike Cohn (
And I also wanted to ask you about some of the pressures from regulators and standard centers. It seems like there were a lot more cases involving audit firms and we're seeing the S E C and the P C A O B here in the US starting to crack down on some of them. And also in Europe there have been instances and the UK and new standards too that have been coming out that are in the P C O B, they're trying to update some of these older standards standards that they inherited 20 years ago from the AI CPA to take into account some of these newer kinds of auditing technology. What kinds of pressures are you seeing there to regulate the use of technology so that it's not just being handed over to the AI system to do the whole audit, but to actually preserve that auditor skepticism? The human element there that that's definitely so needed.
Marc Jeschonneck (
I think there are two influencing factors here Michael, one that you describe coming with the pace of change that also technology is used at the companies that we audit. So with that, our auditors need to have a very robust understanding of the technology that is implemented into processes for controls for the IT general controls at a broader level, but also the process level controls. And I think that is a focus area for a lot of regulators around the world, making sure that all other terms really upskill their people with that understanding of technology. The second dimension to that as an influencing factor to the current regulation probably is one that existed for a while, and that is a different expectation by the market, by various stakeholders and expressed by the regulators about the objectives of nordi. Is it about the historical financial data and really making sure that financial statements are free for material mistakes or are we also covering other risks such as fraud, cyber risk, certain business risks? And I think the expectation here is broadening with us making sure that we use technology to help our people, our auditors, but also the people supporting audits beyond the financial statement audit to build that trust that the marketer actually expects. That's why, and Paul, maybe you can give some references, regulators, the PCA will be the I S B are looking into changing their standards now to reflect those expectations here when it comes to the use of technology and how it can help,
Paul Goodhew (
We see a lot of momentum at the moment and a lot of interest from those professional bodies, sort of standard centers around understanding technology, the transformation presented by technology, the risks, but also the opportunities associated with new emerging technologies and issuing new guidance, new standards around the use of technology in the audit process. And I think that when I think about that in particular is adapting to new technologies such as ai, considering those implications also through the lens and different dimensions. Mark mentioned cyber as well as an example. So as we go through this right now, I think that there's a significant amount of momentum, particularly with different working groups established by a number of the standard setters to look into this impact. And then really is it the whole profession working together to understand this? And I think that when we see as we see a plan moving forward from my point of view, it's really important also to emphasize VO that there is also a lot within the current standards that allow technology to be embraced, right? Existing technologies and advanced technologies which can be utilized within the auditing process within today's standards. And so for me, what's really important that we also make sure that it's taking place is that firms are embracing existing technologies and using that within today's audits at scale to really maximize the way that we can capitalize on technologies that exist and use those to support the way that audits are delivered.
Marc Jeschonneck (
And maybe to just give you a few examples. One tackling the fraud as one of those topics that unfortunately all around the world, you rightfully spotted as being something that the profession here needs to dedicate attention to is the general ledger anomaly detection, where we actually use with our general lecturer analyzers that I mentioned before. And one of our strengths here, the capabilities are dependent on the client's e r P sets here, which we have now greater access to really use artificial intelligence for anomaly detection within the patterns of the companies. And we have proven that we can actually help our auditors to be much more guided when they detect fraud with those techniques. Are we using that on all audits? No, because it's still the risk assessment. You can't detect fraud, adjust on journal entries. There are many, many other dimension to this as we know, in particular for the most complex ones, but where we can with technology, we are bringing it into help.
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The risk with that as the second example just to illustrate is if you just bring in technology, you are not necessarily making the lives of our auditors easier to really embrace that technology and to use it. And that is why we started this program by also saying it needs to be integrated. These capabilities can't come as an add-on that you just pull in and you need a lot of experts here. It needs to be very seamless in the delivery. And that is why the program that we launched, that 1 billion investment also focuses on the user experience making it much more intuitive, which tools are available to our people and so they have easier access to when actually should use them, when they need it. So that's part of our investment here as well.
Mike Cohn (
Oh yeah. I was wondering with the 1 billion investment if this goes through with the majority of EYs partners and member firms and ending up voting to split the global network, will those technology assets, that 1 billion investment, would that be split between the auditing assurance practice and the new consulting company? Any idea how that would work if this split happens?
Marc Jeschonneck (
Look the technology that we are investing in definitely benefits multiple services and the EY firm, the organization after a split focused on assurance that partnership would be focused using that technology in a multidisciplinary way, which means that ultimately we need to ensure, and we are ensuring that all of the technology that we need in both sides of the businesses are in hand of the people. The same for that corporate that actually delivers consulting work. Some of our extraction utilities. To give you one example, when we extract journal entries from e O P systems right now are relevant to our colleagues in consulting as much. So what we basically do is that we copy that, we clone that technology and give it at hand of both of the firms. That's part of the IP that these people need to deliver the services. But the 1 billion investment is focused today on the assurance business and therefore also will benefit that part of the eyy organization that will keep the brand that partnership that also includes then the audit firm.
Mike Cohn (
Thanks, Marc and Paul. Well, I wanna thank you both for joining us today on our episode. This episode of On the Air was produced by Accounting Today with audio production by Kellie Malone. Please rate or review us on your favorite podcast platform and see the rest of our content on accounting today.com. Thanks again to our guests, Marc Jeschonneck and Paul Goodhew of EY, and thank you for listening.