The UK Financial Reporting Council (FRC) has published its opening guidance and offered clarity to the audit profession on the application of artificial intelligence (AI).
The guidance aims to facilitate a structured approach for integrating AI equipment within audit processes and clarify documentation requirements, thereby fostering innovation in the quality assurance of audit.
Developed with the input of the FRC technology working group, the guidance is intended to assist auditors and central teams in audit companies in the development and use of AI equipment.
It also sets out the regulatory expectations for third -party technology providers serving the audit industry.
Executive Director of FRC Mark Babington Regulatory Standards said: “AI equipment is now moving beyond experimentation to become a reality in some exploration scenarios. When used responsibly, they have significant potential to improve audit quality, support market confidence, drive innovation and ultimately contribute to the UK's economic growth.
“The FRC continues to support and encourage innovation in audit. This guide aims to demonstrate how AI can improve audit work as well as clarify FRC expectations around proportionate, appropriate documentation of AI uses.”
“We recognize that this area is moving quickly and will continue to engage across the profession, both in the UK and internationally, to support innovation and the appropriate use of AI.”
The FRC thematic review, conducted alongside the guidance, provides insights into the certification processes for new technologies in the six largest audit companies.
It highlights good practice that is essential for maintaining audit quality and summarizes companies' methods of authentication of automated equipment and techniques for audit purposes.
The key features of the guidelines include a two -part structure with an explanatory example of AI application in audit and principles for documentation.
The guidelines adopt a broad and innovative definition of AI, which deals with machine learning and deep learning models, and promotes a balanced approach to documenting to avoid excessive precision.
It also recognizes the varying levels of clarification required depending on the context and use of AI.
The principles outlined are versatile and apply to a wide range of AI use cases in audit. They are in line with the five principles of the UK Government and apply for equipment obtained from third party providers.
Although the guidelines are comprehensive, it is not prescriptive and does not introduce new regulatory requirements, emphasizing support for innovation within the current framework.