Intelligent Process Automation in Audit Abigail Zhang Continuous Auditing & Reporting Lab Rutgers Business School 43rd WCARS 11/03/18 Introduction of myself(2nd year PhD student, start RPA projects in audit since more than 1 year ago) and my current work. Proposing the next step of process automation, IPA. Thanks to Miklos, Kogan, Andrea, Arion and Mauricio Set the tone: work-in-process, hope to get feedback, but ask questions after the presentation.

Overview Introduction “Auditor-in-the-loop” IPA ecosystem Audit workflow driven by IPA Implementation framework Ongoing and future research

Introduction … … … … … … RPA PPA IPA Audit workflow/process Pre-defined Process Automation (PPA): the patterns of the process are pre-defined by human. Task 1a Task 2a Task 3a … Activities Activities Activities Task 1b Task 2b Task 3b … Initial state Robotic Process Automation (RPA): run application software in the same way that a person works with that software. Activities Activities Activities Task 1c Task 2c Task 3c … Activities Activities Activities … … … Intelligent Process Automation (IPA): the patterns of the process can be learned and predicted by AI, and then recommended to human. Audit automation is not a new concept. Start from 1980s, what’s new is we have alternative ways to achieve automation. Audit workflow (example of audit planning to substantive testing) Start from an initial state and decide the first task to take, and based on the results of the first task, decide the second task, and so on. And within each task, there are activities. Example: in audit planning initial state: client raw data. Task 1: data cleaning, initial testing, substantive further testing Currently the workflow/process automation are predefined, meaning, …. And I call it PPA. And recently we have a new technique, RPA, to facilitate PPA. Our current work. Limitations: each and every situation. Can we make it more flexible? In terms of both inter-tasks, and intra-tasks. Patterns of the inter-tasks and intra-tasks PPA: every possible situation needs to be considered, structured data Outside IPA: inter-task patterns are learned Inside IPA: intra-task patterns are learned Process Automation RPA Objective: Establish a framework and build a prototype of IPA in audit, and evaluate their efficiency of effectiveness. PPA IPA

Artificial intelligence IPA Ecosystem in Audit IPA Ecosystem Artificial intelligence Machine learning Computer vision Virtual agent NLP/ NLG Others RPA Cognitive computing Other technologies Data analytics Drones Smart contracts Blockchain IoT What tools can auditors utilize? IPA ecosystem. Different parts are orchestrated to achieve this intelligent and flexible process automation.

The “Auditor-in-the-Loop” IPA Ecosystem IPA automate different types of audit tasks in different degrees. Orchestrated by the smart workflow.

The Audit Workflow Driven by IPA Smart workflow Smart workflow Smart workflow

Framework of Implementing IPA in Audit 1. Process understanding 2. Process redesign 3. Process modularization 6. IPA prototype testing and modification 5. Process orchestration 4. Process automation HP example. PPA/RPA Algorithm training and testing

Potential Application of IPA in Audit-Inventory testing AI and cognitive technologies Human Think Drones, NLP, IoT, etc. PPA/RPA In inventory testing. Based on the counted number, machine learning predict. Unlike RPA, which can only execute pre-programed procedures, IPA can “sense,” “think” and “act.” The data and information “sensed” by …will be forwarded to the thinking part. In thinking, when the AI and cc are not able to deal with certain tasks, it will forward them to a human and learn from what the human does. Then the thinking part will give order to the acting part, where the RPA will … If necessary, the sensing part will again obtain data from what’s been executed from acting, closing the loop and starting the circle again. Feel Do

Ongoing and Future Research Ongoing research RPA component of the IPA ecosystem Prototypes in audits Impacts on audits Future (not too far) research IPA in audits Impacts Especially small and medium sized audit firms.

“If we knew what it was we were doing, it would not be called research, would it?” -Albert Einstein Thank you!