Blasi Sunshine Golf Enterprises (BSGE), a publicly traded company based in Fort Myers, Florida, is preparing to host its annual "Sunshine Swing" golf tournament. The event is a significant revenue generator and attracts golfers from across the country. CEO John Blasi and CFO Stephanie Clemente are discussing the upcoming audit. In the BSGE boardroom overlooking the 18th hole, John Blasi and Stephanie are deep in conversation.
John: "Stephanie, why are we spending so much on these auditors? It's just a legal hoop we have to jump through, right?"
Stephanie: "Actually, John, it's more than just a legal requirement. The audit is crucial and beneficial to us for several reasons."
John: "But we've been running company for years without issues. What's changed?"
Stephanie: "Well, to answer your question, it’s important to understand what’s happened in the past. Auditing has been around since ancient times, but it really took off during the Industrial Revolution. After the 1929 stock market crash, the need for independent audits became clear. The Securities Acts of 1933 and 1934 made audits mandatory for public companies like ours."
John: "Interesting, but why do they seem to focus on analytical procedures so much?"
Stephanie: "Analytical procedures help identify unusual fluctuations or relationships in financial data. For golf tournaments like we host, for example, they could reveal inconsistencies in revenue reporting, unexpected expenses, or even potential fraud."
John: "Fraud? In our company?"
Stephanie: "It's not about suspicion, John. It's about assurance. These procedures give our stakeholders confidence in our financial reporting. Remember the Enron scandal? That led to the Sarbanes-Oxley Act of 2002, which further emphasized the importance of thorough audits."
John: "I see. So it's not just about compliance, but also about maintaining trust and credibility?"
Stephanie: "Exactly. Plus, these procedures often uncover inefficiencies or areas for improvement in our operations. They're a valuable tool for us, not just a legal obligation."
John Blasi: "Alright, you've convinced me. Let's make sure we give the auditors everything they need. But, I still believe that without rules and regulations, there wouldn't be the need for audits to the extent of applying analytical procedures, considering the big data environment we’re in and with our use of Artificial Intelligence.”
Requirements
Prepare a two-page memo that addresses (1) the CEO's declaration that audits are needed only because the law requires it and (2) the impact of AI on audit engagements. You should research and discuss in your memo the ways in which AI is being used in the audit field and its potential effects on analytical procedures.
For this case, you will brainstorm with your group members and use all resources available to you to develop the main points you want to make in your memo. However, for Case 1, you are to individually write your memo in your own words, such that each team member will submit their own individually written memo.
During brainstorming, consider and discuss how AI can enhance data analysis, identify anomalies more efficiently, and potentially reduce audit costs. The team needs to address CEO John Blasi's concerns about the extent of audits in a big data environment. Explain how AI, while powerful, can only partially replace human judgment and expertise in auditing. Highlight the role of auditors in evaluating AI-generated insights and ensuring audit quality. Summarize the key points, recap the importance of analytical procedures, even in the age of AI, and emphasize the role of auditors in providing assurance and protecting the company's reputation.
Recommended Key Points to Address
Legal and Assurance Role of Audits: The memo needs to address and emphasize that audits are not just legal requirements but are vital for financial integrity and stakeholder trust.
Impact of AI in Auditing: The memo needs to address how AI tools can streamline data analysis and identify irregularities but cannot replace human expertise.
Ongoing Need for Analytical Procedures: Despite technological advances, human auditors are essential for understanding and judgment in financial reporting.