Auditing Firms Count on Technology for Backup

Big four pour money into cutting-edge tools to take over rote tasks, identify suspicious patterns; KPMG strikes deal with IBM

KPMG LLP will soon have a new assistant to help it examine corporate America’s books: Watson.

The auditing firm is forming an alliance with International Business Machines Corp.’s IBM Watson artificial-intelligence unit to develop high-tech tools for auditing and its other businesses. The deal is expected to be announced Tuesday.

Other auditing firms also are enlisting cutting-edge technology to help them review their clients’ finances. Deloitte & Touche LLP has its Argus and Optix. And Ernst & Young LLP and PricewaterhouseCoopers LLP have their own smart tools.

The Big Four are pouring hundreds of millions of dollars into new technologies, betting they will make audits more accurate and comprehensive, giving investors greater assurance that a company’s finances are sound.

The new tools automate critical but rote tasks, letting auditors focus on more substantive issues. The tools can examine all of a client’s transactions, instead of just a sample, reducing the chances of missing a problem, the firms say. They also make auditors better able to detect patterns in a client’s finances worth investigating for errors or fraud.

The technology push stems from several factors, including a desire to improve audits, in part to satisfy regulators who are insisting the firms do so; audit clients who are upgrading their own technology in a move toward harnessing “big data”; and competitors who are using technology to make their own push into parts of the auditing firms’ business, such as consulting.

Terms of KPMG’s deal with IBM aren’t being disclosed, but it represents “a pretty significant investment” on KPMG’s part, said Steve Hill, the firm’s head of innovation. He said Watson could help KPMG “fundamentally improve” its audits. “You teach it to do things an auditor might do,” he said.