Industrial Revolution 4.0 (IR 4.0) and Impact on Auditing

Industrial Revolution 4.0 (IR 4.0) and Impact on Auditing

Fact – What is IR 4.0?

• Industry 4.0 refers to the 4th industrial revolution driven by digital technologies such as:

  • Big data and analytics
  • Artificial intelligence (AI) and machine learning
  • Internet of Things (IoT)
  • Cloud computing, robotic process automation (RPA), blockchain researchgate.net+1

Elaboration – Impact on Auditing

1. More data, more powerful testing
   • Auditors can use data analytics and AI to test entire populations instead of small samples, increasing coverage and accuracy. rsm.global+2accaglobal.com+2
2. Continuous / real-time auditing
   • With integrated systems and IoT, auditors can perform continuous monitoring, not just once a year.
3. Change in skills
   • Auditors need skills in data analytics, IT systems, cybersecurity and understanding of new technologies. papers.ssrn.com+1
4. New risks
   • Cybersecurity risks, algorithm biases, system failures, and reliance on automated controls create new audit risks. researchgate.net+1
5. Job redesign, not just job loss
   • Routine tasks may be automated, but auditors are still needed for judgement, scepticism, and assessing complex risks.

Example

• A large retailer uses cloud-based ERP and AI to manage inventory.

• The auditor:

  • Uses data analytics to test all sales transactions for unusual patterns (e.g. high discounts, weekend postings).
  • Reviews IT general controls and AI configuration.

• This is faster and more thorough than manual sampling, but the auditor must understand how the AI works and what could go wrong.