EY ShinNihon applies artificial intelligence (AI) algorithms to automatically detect irregular journal entry data

Ernst & Young ShinNihon LLC (EY ShinNihon), an EY member firm, has developed algorithms to automatically detect irregular journal entry data using artificial intelligence (AI), which detects deviations by learning patterns of transactions. Digital Audit, a function launched by the firm to drive the use of advanced digital technologies in the audit work process, will sequentially roll out this technology for use with its audit clients. EY ShinNihon aims to realize efficient, thorough audit making use of advanced digital technologies such as these algorithms.

Traditionally, irregular journal entry data has been detected by auditors who set up search conditions based on certain assumptions and find data that correspond with such conditions. Meanwhile, our algorithms use machine learning, a core technology of AI, to analyze tens of thousands of patterns in order to automatically detect irregular data such as overestimated profits or underestimated expenses. This further enhances the quality of our audit by giving auditors the time needed to concentrate on analyzing the irregular data detected using AI.

In July 2016, EY ShinNihon launched a fraudulent accounting prediction model using AI to predict potential risks at audit clients by checking past instances of fraudulent activity and corrections available in published information such as financial statements. EY ShinNihon is now collaborating with Mr. Akinobu Shuto, associate professor of the Graduate School of Economics at the University of Tokyo, who is a leading researcher on accounting fraud prediction, to refine this model and expand the use non-financial data. With the introduction of the new algorithms using clients' internal information, a source of data far more expansive and detailed than public information, the firm can leverage both technologies in tandem throughout the audit work process to improve our ability to identify risks and detect irregular data.

EY ShinNihon launched the Assurance Innovation Laboratory (AIL) in November 2016, which performs research and development to implement cutting-edge digital technologies in audit, as part of "Smart Audit," a program to achieve thorough audit making use of advanced digital technologies. AIL will work together with the newly launched Digital Audit team of 100 professionals to develop and promote the use of tools for audit teams.

Going forward, we will pursue further technological sophistication and improvement of audit quality by combining the insights and experience accumulated by our audit professionals over the years with the latest digital technology.

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