Artificial Intelligence and Cryptocurrency: The SEIAG’s Broad Perspectives are Necessary in a Changing Audit Landscape

Remarks as prepared for delivery.

Good morning, and thank you, Barb [Vanich], for starting us off this morning. It is a privilege to be with you today at our fall Standards and Emerging Issues Advisory Group (SEIAG) meeting.

I want to begin by expressing my appreciation for your willingness to share your insights and expertise that will ultimately advance the PCAOB’s mission of investor protection. We recognize that everyone is incredibly busy, and yet, you freely volunteer your time to be a part of the important work of the SEIAG.

That generosity of spirit is not lost on us, so it is our responsibility and commitment to ensure your time is put to good use and that your contributions are considered and ultimately help shape our priorities and inform our oversight.

Simply put, your advice is not just appreciated; it is essential.

Before I continue, please know that my remarks this morning are my own in my official capacity as an individual PCAOB Board Member and do not necessarily reflect the views of the full Board, my fellow Board Members, or the PCAOB’s dedicated staff.

We are in a time of rapid change, and our shared commitment to investor protection and audit quality has never been more important.

In a 2009 meeting of the Standing Advisory Group (SAG)—the precursor to today’s SEIAG—former PCAOB Acting Chairman Dan Goelzer said that the individuals advising the PCAOB on standards are “one of the key vehicles the Board uses to gain input and insight into how it should be directing its activities in setting public company auditing standards.”¹

This sentiment remains true. The current SEIAG continues to be one of the most important vehicles shaping our work – not just in standard-setting, but across our oversight activities. What makes this group so valuable is the breadth and depth of perspective each of you brings to this table. This is a diverse forum for the exchange of ideas, feedback, and insight.

SEIAG meetings provide us with the opportunity to pause, reflect, and consider whether we are asking the right questions: Are we focused on the right risks? Are we doing enough to prepare for what comes next, and is what we are doing working as intended, and if not, why not?

At the PCAOB, effective oversight is built, not just on inspections and standards, but on dialogue and engagement. That is why I believe the PCAOB is a “marketplace of ideas”, a space where investors, auditors, audit committee members, preparers, and the academic community—all represented here on the SEIAG—can engage openly on the expectations of investors as well as the opportunities and challenges facing auditors and preparers of financial statements. 

Our work should reflect broad perspectives across the financial reporting environment and implications for the audit, so we are operating with the knowledge to help us see the road ahead.

With that in mind, I want to focus my remarks on two areas: First, artificial intelligence (AI), and second, crypto.

Artificial Intelligence: Innovation and Accountability

Anton Korinek, an economist at the University of Virginia, recently gave an interview about the pace of technology, in which he said, “The internet was a minor breeze compared to the huge storms that will hit us. If this technology develops at the pace…leaders are predicting, we are utterly unprepared.”²

For example, ChatGPT reached one million users within five days of its launch. By comparison, it took Facebook ten months and Twitter two years to reach one million users.³

The rapid adoption of AI is astonishing, and we see a similar story playing out with the pace of AI use in financial reporting.

In the last week, the Wall Street Journal reported that companies are relying on generative AI to help draft their financial reports, not only writing the management’s discussion and analysis section, but gathering information for journal entries. What is more, it has been reported that certain companies are planning to use AI to produce the first draft of their financial statements as early as next year.⁴ 

While these advancements will likely improve productivity and reduce, if not eliminate, human error, for auditors in particular, there are questions about how to ensure there is still a human-in-the-loop or possibly more appropriately, a human-in-the-lead.

Given the significance of AI’s potential opportunities and challenges, the PCAOB cannot afford to take a wait and see approach.

Our response must be principled, adaptive, and deliberate. In professional services, like auditing, where critical thinking and professional skepticism are non-negotiable, the adoption of AI demands a heightened understanding of its impact and consequences from all of us.

This should be of no surprise to anyone, especially auditors, but AI is already being used to facilitate fraud. New image-generation AI models have sparked an increase in AI-generated receipts. In fact, one software provider said fake AI receipts were up 14% in September, compared to zero last year.⁵  The advent of free and accessible image generation software has made it easy for employees to quickly falsify receipts in seconds by writing simple text instructions to chatbots.⁶

A senior vice president at SAP Concur is quoted as saying, “These receipts are so good, we tell our customers, ‘Do not trust your eyes.’”⁷

At the same time that AI may be used to facilitate fraud, a significant challenge posed by AI is its potential to erode the auditor’s ability to exercise critical thinking and professional skepticism.

Researchers have already found that university students who use Large Language Models (LLMs) to complete writing and research tasks experienced reduced cognitive efforts but demonstrated poorer reasoning and argumentation skills compared to those students using traditional search methods.⁸

This finding offers a cautionary insight because while AI can relieve human auditors of administrative tasks, it may also compromise reasoning and judgment. As AI tools begin to influence judgment traditionally made by humans, auditors must grapple with how to uphold the principles that are critical to the financial statement auditor: due professional care, professional skepticism, independence, and accountability.

Stefano Puntoni, the Faculty Co-Director of Wharton Human AI-Research, has said that, when it comes to AI, “The challenge isn’t replacement, it’s readiness. Companies that invest in training, culture, and guardrails will be the ones that turn Everyday AI into long-term advantage.”⁹

This shift challenges us to think deeply, not just about what we do, but how we do it. That is why I am especially glad to be discussing this topic today. The PCAOB continues to uphold its place as a “marketplace of ideas”, where all participants in the financial reporting ecosystem can engage openly on the future of the audit. It is through this kind of dialogue that will ensure the PCAOB is best positioned to proactively respond and ensure innovation is matched by integrity.

I look forward to this part of our meeting and am particularly interested in hearing views by all members about the impact of the use of AI on audit evidence, and whether audit committee members have thoughts or views regarding the auditor’s use of AI.

Cryptocurrency: Oversight in Uncharted Territory

The second area we will be addressing today is cryptocurrency. As more public companies embrace crypto, it presents novel challenges to traditional audit procedures such as, for example, ownership and valuation.

Crypto is an area of focus in the PCAOB’s inspection program.

In fact, we have issued two Spotlight documents focused on crypto assets¹⁰ where we share observations from our inspections that highlight both good practices and areas where improvement is needed. These insights are part of our broader effort to bring transparency to how firms are approaching this evolving asset class.

We are not alone in this work. The AICPA has issued an auditor practice aid,¹¹ and other regulators¹² are also exploring how to address crypto in their frameworks.

It is clear there is a growing and necessary interest across the audit ecosystem for more information on crypto, and that is why it is so important that we are discussing this today. We welcome feedback about what you are seeing and what guidance, if any, may be needed.

Additionally, I am curious to hear your thoughts as to whether there is notable diversity in practice when comparing procedures that auditors are currently performing around cryptocurrency? And what challenges are driving such diversity?

Closing

I want to close with a reflection that the PCAOB’s strength lies not just in its statutory authority, but in its willingness to engage in the marketplace of ideas with all participants in the financial reporting ecosystem.

Going back to Professor Korinek’s warning about the rapidly evolving pace of technology and the risk of not being prepared. I believe the SEIAG’s work is helping to ensure the PCAOB is prepared for the opportunities and challenges that AI and crypto present.

Our north star remains investor protection. Innovation must never outpace accountability.

I want to again thank all members of the SEIAG for your partnership, your insights, and your commitment to the work of the PCAOB and the public interest. I look forward to today’s dialogue.

I will now turn it over to my fellow Board Members if they would like to say a few words. After that, we will open it up for your questions or comments.