The Impact of Automation on Tax Auditing and Practices

A tax audit is an audit of books of accounts conducted for ensuring compliance with the provisions of the Income Tax Act. In the case of corporates, the Companies Act already mandates that an audit should be performed. Hence, the requirement for a tax audit arises only for businesses which are not required to undergo an audit as per the statute governing the particular form of business organisation. The scope of a tax audit includes an examination or review of the books of accounts of any business or profession maintained by taxpayers, conducted by a Chartered Accountant (CA). The tax audit is performed from an income tax point of view.

The purpose of the tax audit is to check whether the calculation of income tax liability is correct and according to the provisions of the Income Tax Act. The tax audit certification from a CA allows the Income Tax Department to place confidence in the information submitted by the assessee in the return of income. The general definition of digitalization among the auditors is to only use the computer along with digital information. This implies the removal of paper acts and to transform all paper information into having all documentation digital, which in turn leads to limited usage of binders. This is considered to be a positive effect of digitalization on the profession by all auditors. Digitalization is pointed out as the usage of digital information instead of other information.

Robot Process Automation The term ‘Robotic Process Automation‘ (RPA) has been in use since early 2000. ‘Robotic Process Automation’ (RPA) sounds to be a physical robot that runs the human operations, but it is an automatic software configuration that replaces human tasks. RPA is a systematic method that includes computer programming stored in a computer store to automate the manual processes. RPA is a system that is easy to configure for running business operations; users can execute these without programming and independently automate by getting trained in just a few weeks. Robot Automation Process has been a significant advancement in the modern business world, and it has directly impacted World economic development. It has bought about rapid and fast-paced changes in the work environments among several business industries.

This has turned out to be a highly effective method of the company’s sustainability in the market. During ongoing development through Automation among different business environments, accounting has predominantly been machinated from being complex storage processes of data from physical storage, including papers and files for financial aspects like tax preparation, wages and salary calculation, invoice payments, debit, and credit payments/ledger preparation, etc. Typical work operations that software robots can undertake include: opening, reading, and sending emails, searching, extracting, updating, validating, and entering data across multiple applications, opening, reading and sending emails, data processing and formatting, decision-making. Human involvement is very necessary to manually feed the robot with processed data because robots are not yet capable of handling or processing unstructured data e.g. scanned documents etc.

They’re also a limitation in automating cognitive tasks. There is a lot of existing task that cannot be automated with present technology because these cognitive tasks have rules that can’t be modelled because they require the experience of staff. Benefits Now almost all of the auditor’s documentation is of digital nature.

By having all information digitally, the overall opinion from the auditors is that it allows the auditors to be able to work more efficient. When all documents are stored on servers, it entails an accessibility to documents in an easier way than before and makes it easier for auditors to search for specific documents than to have to scroll for them in different binders. The use of AI tools by the auditor may result in the auditor’s AI tool continuously identifying material transactions as they are posted (assuming controls are designed and operating effectively) and automatically performing procedures to validate those transactions (e.g., tying to bank transaction detail, assessing against contract terms), so the auditor only needs to assess if any additional procedures are required on assertions that could not be tested in real time. This type of real-time and continuous reporting may also be relevant to clients who want to implement it as part of their own control or internal audit function.

Timesaving by Automation in a process is beneficial for the company’s tangible benefit. Due to easy data handling procedures followed by reducing manual work, it helps the business save time for a more productive job. For accountants, the most significant help through Automation is during financial closing. With cloud-based technology, you can securely access your audit online, from anywhere, with a solution that updates your data and stakeholders in real time. Enable your audit team to work from the same document at the same time without worrying about version control.  With the cloud, there is no more check-out/sync or back-up/restore—all audit data is accessed seamlessly and in real-time. With sophisticated, multi-user content, trial balance, engagement management, and document retention management, the entire audit team has up-to-the-minute access to the entire engagement, from any location, without having to transfer, backup, restore, or refresh the audit files.  It is always possible to digitize the company’s processes with an accounting platform. For example, Payroll can be integrated with spend management software, allowing data integration from one space to another with accuracy and updates. RPA has the potential to renovate the thinking of business processes, IT processes, and workflow processes.

The finance process and accounting systems can be stored together on cloud storage to make processes easy. There are days when accountants search a large pile of files in the storage rooms, and the retrieval and review of documents from storage rooms take more time. But with new tools, it is even better, and Automation makes ledger items easy to store and categorize and find them easily. Over the years, the data storage on paper records has been reduced by government tax offices and many companies. The data storage has become easy to store by digital means or copies.

Challenges The effective use of AI often requires access to large amounts of data, including confidential client data, in order to learn relevant patterns and apply them to predict or suggest an output. Not surprisingly, clients may be resistant to providing access to this high-value data and information. Several high-profile cases of data breaches in the public domain have led to increased and stricter regulations around data, security and privacy. Auditors need to consider the risks associated with data and privacy, and design security protections commensurate with the sensitivity of the data. Organizations may have to face several challenges in implementing Automation in the existing process.

This might include data quality issues, Cybersecurity, data leakage, and privacy issues, high costs associated with the implementation of Automation, Impact of processing errors through bots, bot related errors can impact in generating incorrect results (This might require changes in software programming), further can increase the number of errors and mistakes, some other challenges include the requirement and importance of high skilled labour, which is presently a wide-ranged problem in every business.

This might require additional training to the existing human resources or requires requalification of the labourers. To upgrade employee skills, companies must invest high costs on hiring experienced consultants, which might again require effort, time, and money from the business. This can be highly challenging for organizations to implement. These come with disadvantages, and where organizational management sometimes could try for alternative solutions in these scenarios, further the existing human resources might have to face job losses in such cases. Accounting activities are closer to the accounting roles of the organization. Given that AI impacts and will continue to affect the accountant’s position, accounting teachers are called on to change their minds and improve the knowledge and skills needed for smart technology and their expanded business usage.

The accounting curricula are going to be reviewed, and graduates who are planning for accounting job must be highly adaptive and inclined towards the technology. Apart from the implementation of AI, there also includes the practical problems like the requirement of skill up-gradation of the existing workforce, software challenges which might include the technological bugs, data storage requires high data protection, which could be a major challenge, and Cost might be included as an important factor during the implementation which can be expensive. There might be some other issues, including the cloud data storage issues and time to process.

The use of AI technology cannot be avoided by firms, especially if they want to remain relevant in business in the nearest future. The efficiency, speed, and accuracy of Artificial Intelligence are yet to be matched. Accountants just have to welcome the AI technology and integrate it into maximizing professional output. Accounting Firms and accountants who are better equipped to adopt and implement AI technology in their accounting processes will become more valuable both to their clients and the world at large. Institutions of learning are already integrating AI into their accounting learning modules.

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