PCAOB and FRC Guidance on AI in Audit: What Every Audit Professional Needs to Know

PCAOB and FRC: Converging AI Expectations for Auditors

Audit standard setters on both sides of the Atlantic are accelerating their focus on AI competency requirements for audit professionals. While the frameworks differ in scope and enforceability, the direction of travel is consistent: auditors must develop and demonstrate competency in AI, both as a feature of client environments and as a tool in their own audit procedures.

PCAOB Staff Guidance on AI in Audit (2024)

The PCAOB's 2024 Staff Guidance addresses three key areas:

Auditors using AI tools: Where audit firms deploy AI in their own procedures (anomaly detection, risk scoring, evidence analysis), the engagement partner must ensure appropriate supervision, documentation and quality review. AI-assisted audit procedures must be documented in working papers with sufficient detail to enable a reviewer to understand what the tool did and how outputs were evaluated.

Auditing clients using AI: Consistent with PCAOB's existing auditing standards (including AS 2110, equivalent to ISA 315), auditors must understand significant AI systems used by audit clients in financial reporting processes. The 2024 guidance provides specific examples and documentation expectations.

Firm-level AI governance: Audit firms are expected to establish policies and training for AI tool use across engagement teams. Competency expectations for using AI tools in audit should be documented in firm quality management systems.

FRC Thematic Review Findings on AI in Audit

The FRC's Audit Quality Review (AQR) has consistently identified IT general controls — the category that most directly encompasses AI systems — as one of the most frequent areas of audit weakness. In the FRC's 2023 and 2024 AQR findings, IT-related weaknesses appeared in a significant proportion of inspected audits.

Specific AI-related FRC findings include: inadequate documentation of automated controls in client environments; insufficient testing of controls over management's use of AI models in estimate preparation; and failure to adequately assess the reliability of AI-generated data used as audit evidence.

Frequently Asked Questions

What does PCAOB Staff Guidance say about AI competency for auditors?

PCAOB's 2024 Staff Guidance establishes that: audit firms must ensure engagement teams have competency to use AI tools in audit procedures; AI-assisted procedures must be documented with sufficient detail; supervision requirements apply to AI tool outputs as to other audit work; and audit firms should develop training and policies for AI tool use. Learnsignal's AI for Auditors CPD programme is designed to meet these competency expectations.

What FRC guidance exists on AI competency for UK auditors?

FRC guidance relevant to AI competency for UK auditors includes: AQR thematic findings on IT general controls weaknesses; practice notes on the use of data analytics in audit; ISA (UK) 315 implementation guidance on technology-dependent environments; and FRC consultation responses on the use of AI in audit. The FRC's AQR team has indicated that AI-related audit quality will be a focus area in future inspection cycles.

How should audit firms document AI tool use in working papers?

Working paper documentation for AI-assisted audit procedures should include: identification of the AI tool used and its function; description of inputs provided to the tool; the outputs generated and how they were evaluated; limitations of the tool identified and addressed; the auditor's conclusion based on the AI-assisted procedure; and evidence of human review and sign-off. Both PCAOB and FRC guidance emphasise that documentation should enable a reviewer to understand what the tool did and how outputs contributed to the audit conclusion.