Navigating audit’s future: AI, ESG and compliance

1. The Dawn of AI-Driven Innovation

While technology has been progressively enhancing the quality and efficiency of audits for some time, the advent of agentic AI represents a monumental shift in capabilities. This latest iteration of artificial intelligence can identify patterns, anomalies, and risks to facilitate autonomous decision-making, transforming the profession.Christina Larkin, the EY Oceania Digital Assurance Leader, observes that the current application of technology is "light years away" from where the industry stood just a decade ago. She recounts that in 2017, EY made what she terms "a couple of big bets" to shape the future of digital auditing."Our initial focus was on creating technology-enabled auditors," Larkin says. "Then, from approximately 2022 through to 2025, with the emergence of generative AI tools, our strategy evolved to integrate AI with people at the centre of the process."She continues, "We are now on a path toward having our auditors function much like air-traffic controllers for AI. We are transitioning to a reality where auditors provide the strategic direction and critical oversight needed to guide agentic AI workflows."At EY, audits are now underpinned by the EY Canvas online audit platform and the EY Helix data analytics platform. "The third component is our AI and automation capability," Larkin explains, "and all three of these pieces fit together seamlessly within our integrated technology platform."Blockchain technology has also generated considerable buzz within the auditing world because of its transparent and decentralized ledger system. Tony Corry, Director of Technology Assurance and Advisory at PKF Brisbane, acknowledges that this technology holds significant promise, but notes that AI is currently occupying the driver's seat in terms of industry transformation."Blockchain enhances the accuracy and efficiency of an audit because it renders any transaction nearly impossible to alter," he states. "However, the technology is still in a state of evolution. I also believe the audit industry must upgrade its own processes to effectively incorporate a client's use of this technology."As artificial intelligence continues to reshape the audit function, Corry stresses that governance will assume a vitally important role."It is imperative that there are firm policies in place for audit teams to adhere to, along with an expectation that they use AI responsibly," he says. "For instance, I believe it is widely understood that you must not input client-specific data into a public tool like ChatGPT."

2. A Sharper Focus on Environmental, Social, and Governance (ESG)

Across the APAC region, including in markets like Singapore, Australia, New Zealand, and Malaysia, climate reporting has become mandatory for specific entities, with comparable directives anticipated in China and Hong Kong. As investors and stakeholders demand greater transparency regarding environmental, social, and governance (ESG) initiatives, the scope of auditing is naturally extending to encompass non-financial disclosures."Sustainability reporting and the associated assurance requirements are poised to transform not only the data we scrutinize but also the very procedures we perform," says Larkin, while also highlighting the challenges that must be addressed. "The degree of maturity in non-financial disclosures is nowhere near the level we see with financial disclosures—one primary reason being that non-financial information often exists in scattered, disparate systems."She adds, "I anticipate that between the present and 2030, a substantial amount of work will be dedicated to increasing the maturity, trust, and reliability of sustainability datasets and, from an audit standpoint, augmenting our procedures with AI to handle this."Larkin expects that the digital capabilities already developed for financial audits will be repurposed for non-financial audits. However, she cautions that this will demand "a huge amount of upskilling for auditors, because the variety of datasets they will need to examine will suddenly expand.""I suspect that in five years' time, auditors will be required to collaborate very closely with a broader range of disciplines, such as data scientists and environmental engineers, more so than they have to date," Larkin predicts. "I believe that this collaborative ability is a skill that auditors will have to become more adept at."

3. Navigating a Complex Regulatory Spotlight

Auditing is, by its nature, a highly regulated profession. Yet, the process of collaboration among international regulatory bodies to harmonize standards is intricate, and the pace of regulatory reform lags significantly behind the current rate of technological advancement.The International Auditing and Assurance Standards Board (IAASB) is making efforts to close this gap by introducing a new Technology Position, designed to help it adapt its work practices and keep pace with technology. While this represents a positive step, Tiffany Tan, Audit and Assurance Lead for Policy and Advocacy at CPA Australia, asserts that more action is required."The rate of change in fields like AI, blockchain, automation, and data analytics is exponential, whereas the standard-setting and regulatory processes are inherently slow," Tan explains. "By the time a new standard is fully developed, the technological landscape may have already shifted, making it a constant challenge to maintain relevance."Tan continues, pointing out that it isn't just the speed of change that complicates alignment between audit technology and its regulatory framework; it is also the character of modern regulatory strategies."Current auditing standards are principles-based and designed to be technology-neutral, which can create difficulties in interpretation," she notes. "There is often uncertainty about how to apply existing standards to novel, technology-driven audit procedures, such as the verification of blockchain transactions."The evolving regulatory landscape for auditing is also being shaped by other pressures, including an erosion of the trust that underpins audit quality. Although in most instances, trust in audit quality is well-founded, recent breaches of audit independence among major firms and several high-profile corporate collapses have placed audit quality and ethics under intense global scrutiny.In response, governments and regulators in the United Kingdom and the European Union have implemented changes affecting the operation of the audit market. Meanwhile, an Australian Parliamentary Joint Committee report on structural challenges in the industry recently recommended granting the Australian Securities and Investments Commission (ASIC) enhanced powers to pursue enforcement action against audit firms themselves, not just individual auditors.Another significant catalyst for regulatory change in the audit sector is the growing global commitment to environmental sustainability. ASIC Commissioner Kate O’Rourke has noted that ASIC’s financial reporting and auditing surveillance program for the 2025–26 period will be expanded to encompass sustainability reports."We strongly encourage entities that will be required to prepare a sustainability report for financial years commencing on 1 January 2025 to begin their preparations for these obligations now," O'Rourke advises."ASIC will adopt a pragmatic and proportionate approach to these new reporting requirements and will be supporting preparers through the provision of regulatory guidance. We recognize the crucial role that auditors will play in providing assurance over these sustainability reports."

4. New Frontiers Demand New Skillsets

The converging influences of artificial intelligence, ESG reporting, and regulatory shifts will necessitate the development of new skills across the entire audit profession. At EY, for example, this upskilling includes training in areas like prompt engineering."In a certain sense, I believe auditors are inherently well-suited for this, as they have always been required to provide clear guidance and direction to their more junior colleagues. In a similar fashion, when you are crafting a prompt for an AI, you need to give exceptionally clear direction and be able to articulate your requests in a way that will yield the results you need," says Larkin. "Furthermore, when you receive those results, you must apply a level of auditor judgment and skepticism, which is a critical skill that has to be honed over many years as an auditor."Tony Corry suggests that auditors will not need to master the intricacies of a computer programming language like Python, but they will require a strong conceptual grasp of how AI functions. "Will auditors need to know how to write Python scripts? No, they won't, but they will likely need to know the basics of how a Python script operates within an AI tool.""I also think auditors are going to need a solid understanding of how AI and data analytics work," Corry adds. "There has been a growing emphasis on this skill set for the past five years, but the ability to use a data analytics tool and then clearly interpret the results for a non-technical stakeholder is going to become significantly more important."While skill development is squarely on the audit industry's agenda, the persistent talent shortage remains a formidable challenge. Rachel Kay, a Business Director for Finance and Accounting at the recruitment firm Robert Walters, confirms that the demand for auditors continues to be strong across all levels of the profession."We are seeing fewer graduates pursuing accounting qualifications, yet the demand for highly technical accounting professionals has simultaneously risen due to stricter regulatory requirements and increased scrutiny on financial reporting," she says.Kay also notes that with technology assuming a more prominent role in the auditing process, proficiency in data analytics and automation tools has become highly prized among employers. "Auditors are also now expected to stay continuously updated on regulatory changes and to provide valuable insights that go beyond traditional financial assessments."