Innovative new guidance supports audit firm adoption of emerging AI technologies
The Financial Reporting Council (FRC) has recently published guidance for audit firms on using generative and agentic AI tools in audit engagements. The guidance sets out how firms can mitigate risks to audit quality posed by these tools, while supporting firms to realise the significant benefits these technologies offer – including improvements to the quality and efficiency of audit work.
Published in response to engagement with the market, and to support firms as they continue to adopt generative and agentic AI at pace, the guidance is the first from any audit regulator globally, and the second the FRC has issued on the use of AI in audit. It is not a response to identified quality deficiencies, rather it codifies good practice, promotes audit quality, builds confidence in the use of these technologies, and provides a conceptual foundation for future FRC work in this area.
The guidance offers a framework for thinking about how appropriate confidence in the quality of AI tool outputs can be obtained. It recognises that the nature and extent of mitigating activities is a matter of professional judgement that will vary depending on the tool and its intended use.
Read 'At a glance: Generative and Agentic AI Guidance'
The guidance also contains illustrative examples to support firms in applying the guidance to real-world scenarios, including summarising board minutes and using an AI tool to review contracts for revenue recognition testing.
Firms and responsible individuals should note that regulatory accountability for the deployment of AI tools and the quality of audit outputs remains unchanged. As set out in auditing standards, the human auditor is always accountable – this guidance does not alter that position. Firms are encouraged to consider how their use of AI tools fits within their wider quality management obligations under ISQM (UK) 1.
It should also be noted that there is guidance for AI use in tax work under the Professional Conduct in Relation to Taxation (PCRT) for firms providing taxation services to clients.
