Robot Auditors Won’t Have a Problem Giving Clients Bad News

By | March 22, 2017

Here’s something that won’t surprise anyone: A study from the University of Missouri found that auditors defer to information provided by management.

In the study, nearly 50 senior auditors from major accounting firms were asked to assess the cost of an explosion at a client’s facility based on memos provided by the company’s finance chief.

One group of auditors was presented with three hypothetical cost estimates that were close to the one that was disclosed to be the one preferred by management. A second group was presented with six estimates covering a broader range of outcomes. The first group was more than twice as likely to approve management’s ballpark cost figure than the second.

Presenting fewer estimates increased the probability that management’s estimate was deemed more credible, according to Nate Newton, an assistant professor of accountancy at University of Missouri and a co-author of the study. The appearance of a bias could have implications for auditing standards, he added.

It’s not complicated. Auditors are under a lot of pressure to complete work in a given (often inadequate) amount of time. So if management offers auditors a ballpark figure, it’s not difficult to imagine them leaning towards third party info that will get them closer to the client’s preferred figure. It’ll make future conversations with the client much easier, the engagement will finish on budget and, hey, we’ll see you again next year!

This isn’t far from ideal, of course. Auditors are supposed to be impartial, objective, independent. The bias towards management’s wishes has been one of the audit profession’s biggest problems since forever. Humans have a hard time being independent. We have feels!

This is part of what makes robot auditors so attractive, I think. Not only will Auditor Watson make fewer mistakes, it will have no qualms about providing a solution that the client doesn’t want to hear. Assuming the robot auditor is programmed to generate the most accurate results while remaining impartial, no amount of client kvetching will sway the response.

Deloitte CEO Cathy Engelbert wrote on LinkedIn yesterday that she told her son that he doesn’t have to worry about robots taking his job because, “I’ve never met a machine with courage and empathy.”

Funny, because the Missouri study seems to illustrate that courage is what human auditors lack. They don’t always have the necessary “courage” to look for the “correct” answer rather than the “preferred” answer.

Auditor Watson will spit out the best answer based on the variables for a situation, no courage or empathy required! Sometimes it will be the answer the client wants and sometimes it won’t, but there will be far less doubt about its technical accuracy and the robot auditor won’t care if the client gets mad.

Advantage: robots.

[WSJ]