Building Trust with AI in Audit: A Guide to FRC's New Guidance

AI is becoming standard in audit workflows—but trust hasn't caught up. The UK's Financial Reporting Council just released guidance that cuts through the hype: if you use AI in audits, it must be explainable, documented, and monitored.
The message is clear: automation is not a free pass. Auditors remain accountable, and too many firms aren't measuring AI's real impact. That gap between innovation and responsibility is where trust breaks down.
If you're building or buying audit tech, clarity beats complexity. Transparency isn't just a regulatory checkbox—it's your edge.

Importance of AI in Audit

AI is reshaping the audit landscape, offering unprecedented efficiency and insights. But with great power comes great responsibility. Let's explore why AI matters in auditing and the challenges it presents.

Explainable AI for Transparency

Explainable AI (XAI) is crucial for maintaining transparency in audit processes. It allows auditors to understand and explain how AI-driven decisions are made.

XAI techniques help break down complex algorithms into understandable components. This transparency builds trust with clients and regulators.

Auditors can use XAI to trace AI decisions back to source data, ensuring accuracy and reliability. This ability to "look under the hood" of AI systems is vital for maintaining audit integrity.

Audit Accountability and Responsibility

AI doesn't absolve auditors of responsibility. In fact, it amplifies the need for human oversight and judgment.

Auditors must remain accountable for AI-assisted work. This means understanding AI limitations and potential biases.

Regular training and updates on AI systems are essential. Auditors need to stay informed about the tools they're using and their impact on audit quality.

Trust in Audit Technology

Building trust in AI-powered audit technology is a gradual process. It requires consistent demonstration of reliability and accuracy.

Clients and stakeholders need assurance that AI is enhancing, not replacing, human expertise. Clear communication about AI's role in the audit process is key.

Regular validation of AI outputs against traditional methods can help build confidence. This approach shows that AI is a tool to augment, not substitute, professional judgment.

FRC Guidance on AI

The Financial Reporting Council (FRC) has released landmark guidance on AI use in audits. This guidance sets clear expectations for audit firms integrating AI into their processes.

Key Aspects of the New Guidelines

The FRC guidance focuses on three main areas: explainability, documentation, and monitoring of AI in audits.

Explainability ensures that AI decisions can be understood and justified. This is crucial for maintaining trust and meeting regulatory requirements.

Documentation of AI use must be thorough and accessible. This includes details on data sources, model selection, and decision-making processes.

Continuous monitoring of AI performance is essential. Audit firms must regularly assess the impact and accuracy of their AI systems.

Explainable AI and Documentation

Explainable AI is at the heart of the FRC guidance. It requires audit firms to use AI models that can provide clear rationales for their outputs.

Documentation plays a crucial role in explainability. Audit firms must maintain detailed records of:

1. AI model selection and training processes

2. Data sources and preprocessing steps

3. Decision-making criteria used by AI systems

This documentation serves as an audit trail, allowing for review and validation of AI-assisted work.

Monitoring AI Impact in Audits

The FRC emphasizes the importance of ongoing monitoring of AI systems in audits. This involves regular assessment of AI performance and its impact on audit quality.

Audit firms should establish key performance indicators (KPIs) for their AI systems. These KPIs should measure accuracy, efficiency, and consistency of AI outputs.

Regular reviews and audits of AI systems are necessary. This helps identify potential biases or errors early, allowing for timely corrections.

Combining Power and Clarity

The challenge for audit firms is to harness AI's power while maintaining clarity and trust. This requires a balanced approach that leverages technology without compromising professional judgment.

Bridging the Gap in Audit Technology

Bridging the gap between AI capabilities and stakeholder trust is crucial. This involves clear communication about AI's role in the audit process.

Audit firms should provide transparent reports on how AI is used. This includes explaining the benefits and limitations of AI in specific audit tasks.

Training programs for both auditors and clients can help bridge the knowledge gap. These programs should focus on demystifying AI and its application in audits.

Tracking AI Impact for Accountability

Tracking the impact of AI on audit processes is essential for accountability. This involves measuring both quantitative and qualitative effects.

Quantitative metrics might include:

• Time saved on routine tasks

• Increase in data processing capacity

• Reduction in human errors

Qualitative assessments should focus on:

• Improvements in risk identification

• Enhanced ability to detect fraud

• Increased depth of financial analysis

Regular reporting on these metrics helps demonstrate the value and reliability of AI in audits.

Building Trust with Transparent AI

Building trust in AI-assisted audits requires a commitment to transparency at every level. This starts with clear policies on AI use and extends to ongoing communication with stakeholders.

Audit firms should consider publishing regular reports on their AI systems. These reports can include performance metrics, updates on AI capabilities, and any significant findings or challenges.

Engaging with regulatory bodies and industry groups can help shape best practices. This collaborative approach ensures that AI use in audits evolves in a way that maintains public trust.