Audit organizations, trust and their relationship with ethical automated decision making

Audit organizations, trust and their relationship with ethical automated decision making
By Jay Venkata | July 5, 2019

The world runs on trust. Worldwide billions of dollars are spent every year on developing, and maintaining trust. Any transaction, whether it be supply chain, finance or healthcare related requires trust between people, businesses and entities. As an individual consumer, you are making decisions based on trust on an almost hourly basis. This goes from trusting the safety of your meals to trusting the financial transactions done through your bank. Audit organizations and regulators, both private and public, are responsible for maintaining this trust in society. I work at one of the Big 4 global audit firms. At the core of what each of these audit companies do is giving assurance to businesses and governments. The mission statement of my company actually is ‘Solving complex problems and building trust in society’. But what does trust look like in this digital world?


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Trust in the Digital World

In yesteryears, audit organizations would primarily base their decisions on financial ledgers, and sources of decisions can be razored down to select executives or managers. Manual and paper based processes could only be kept track of manually. However the trend towards automating business processes, and their associated accounting and strategic decisions is causing an interesting challenge for regulators. A realm of work historically led by humans such as deciding on credit card applications can increasingly be automated. There is now a need for alternative methods to develop the same level of trust again. One solution to this issue is to focus more on independently auditing the underlying algorithms. Audit firms may need to have technical staff who can work alongside the functional experts to decode the algorithms and get to the root of any errors or biases that could affect the decisions and outcomes. Hence there is a need for accounting colleges across the world to focus on these interdisciplinary skills that will make students more ready for their careers post graduation. Another challenge is that most businesses and governments do not seem very willing to publish algorithms, the data used to train them or the inferences made from the data.


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Auditing the algorithms

A longer term solution that could be effective is to work alongside the government to create transparency and openness standards that are applicable to all organizations. These types of guardrails exist already in financial statements and reporting, which are managed closely by the SEC in the US. The GDPR currently has a requirement to use “appropriate mathematical or statistical procedures” to avoid or reduce risk resulting from errors or inaccuracies. The French administration also announced that algorithms developed for the government use will be made publicly available, so that society at large can verify their correct application. There needs to be a similar push worldwide for rigorous standards on automated processes and decision making to create algorithmic accountability.


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Blockchain improves trust in transactions through distributed ledgers

This trend towards improving and automating trust could happen naturally as we move towards technologies like Internet of Things and Blockchain, which will create end-to-end traceability for products and transactions in a cheap and ubiquitous manner. However the case for auditing algorithms is clear. Audit firms and regulators need to be one step ahead of the organizations they are auditing at all times and this applies to the current scenario where the stakes couldn’t be higher- ensuring the integrity of data flow and decision making.

Works Cited

  • Abraham, C., Sims, R. R., Daultrey, S., Buff, A., & Fealey, A. (2019, March 18). How Digital Trust Drives Culture Change. Retrieved July 7, 2019, from https://sloanreview.mit.edu/article/how-digital-trust-drives-culture-change/
  • O’Neil, C., & Schermer, B. (2018, July 30). Audit the algorithms that are ruling our lives. Retrieved July 7, 2019, from https://www.ft.com/content/879d96d6-93db-11e8-95f8-8640db9060a7
    What is Blockchain Technology? (2018, September 11). Retrieved July 7, 2019, from https://www.cbinsights.com/research/what-is-blockchain-technology/
  • Likens, S., & Bramson-Boudreau, E. (2019, May 02). Blockchain Promises Trust, But Can It Deliver? Presented by PwC – MIT Technology Review. Retrieved July 7, 2019, from https://events.technologyreview.com/video/watch/pwc-blockchain-trust-likens/

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