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IMPACT OF ARTIFICIAL
INTELLIGENCE
Construction firms need to be cognizant of new technology such as blockchain and machine
learning, which have many uses applicable to the industry.

AND BLOCKCHAIN
TECHNOLOGY ON
THE CONSTRUCTION
INDUSTRY
DEBRA ODEN AND JONAH BARNES

his article dives into the audit on the horizon for auditing, leading many

T
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profession and the ever-advanc-
ing technologies that are being
introduced. New technologies
are changing the way auditors
perform their duties and improving the
quality of the services they provide. Topics
to be discussed herein include a history and
explanation of auditing (internal versus
external), regulations and legislature man-
dating the profession, how artificial intelli-
gence (AI) and big data are affecting or will
affect auditors and construction firms, and
how blockchain technology will influence
the profession and construction industry.
As one can see, there is much to anticipate
DEBRA ODEN, J.D., CPA (inactive), LL.M. Taxation, is a
professor of accountancy at Missouri State University in
Springfield, Missouri.
JONAH BARNES is a candidate to receive a Master of Accoun-
tancy degree from Missouri State University in Springfield,
Missouri in May of 2019. Jonah has accepted an audit
associate position at BKD, LLP, in their Kansas City, Missouri,
location upon completion of his graduate degree.
auditors to wonder about the future of the
profession. Will technology eventually take
over and push auditors to obsolescence, or
will auditors adapt to these changing tech-
nologies and harness them to improve their
level of service?
The future of the audit profession
Entry-level auditors’ responsibilities often
include the less complex areas of audits
such as cash, accounts payable, and fixed
assets. The main goal in auditing these
financial statement elements is to verify
that the client’s trial balance accurately
reflects the actual balance by evaluating
support and completing analytical testing
to help confirm that there are no material
misstatements. Other members of audit
teams with more experience typically test
other areas of the trial balances through
similar yet more in-depth testing. At the
completion of the audit, all testing
performed is compiled to issue an opinion

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on whether a company’s financial statements
L
are presented fairly, in all material respects,
in accordance with the financial reporting
framework. This opinion, if unmodified,
allows all users of the financial statements
to have confidence that the statements are
accurate enough to base business decisions
on them.
Auditors need to be adaptable in almost
every way and need to approach all situations
with professional skepticism. Each new
client presents a new work environment
with its own specific dynamics and person-
alities. An auditor needs to be able to read
the situation and dynamics within the work-
place to make clients more comfortable
speaking with the auditor. The more com-
fortable the client is with the auditor, the
more sufficient the audit evidence is that
can be collected, whether by inquiry, obser-
vation, or inspection of documentation.
While adaptability is a necessary skill, effi-
ciency is the ultimate goal for auditors. If
an auditor can increase efficiency through
the use of emerging technology and complete
audits on or under budget, the firm will
become more profitable and less work will
need to be completed in the long run. This
also saves the client money, making it a
win-win situation.
This drive to always improve, adapt, and
become more efficient has been the bench-
mark of the auditing profession since its
inception. AI applications are now being
tested by the larger public accounting firms.
Technology is improving, and AI is poised
to take a hold on the industry. Auditors are
trying to find ways to make these
technologies work for them to allow CPAs
to work smarter, not harder. With the
industry evolving continuously to catch up
with advancements, future and current
auditors all have one question in common:
“What will the audit of the future look like,
and will it be completed by humans or will
the profession be taken over by automation
and AI technology?”
In this day and age, every person knows
the value of money. Money can open so
many doors for people; it can buy new pos-
sessions, pay for luxury services, and even
make one more money. Investing is becoming
more and more prominent in the world
because it is becoming easier to invest
without a wide knowledge of financial
FUTURE OF AUDIT
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markets. Investing is a form of passive
income that does not require very much
upkeep or attention if one plans to invest
over the long term. As investing in the
financial markets has increased so much,
investment companies have capitalized on
the market by making it simpler to invest.
These investment companies created mobile
applications for investing, meaning any
person over the age of 18 can invest in almost
any type of security at their fingertips at
any time. With the ease of access and the
low barriers to entry, investing can seem
risk-free, as though anybody can make
money with no problem, but this is not the
case. Investors need to have confidence in
the companies in which they are investing.
The way investors gain confidence in their
potential investments is through review of
their financial statements. Auditors provide
a service to these companies looking to draw
investments from the market by performing
audits on the companies. The audit opinion
issued at the end of an audit allows the
potential investors to rest assured that there
are no material misstatements on the
financials that they analyze.
To grasp how auditing has gotten to
where it is today, one must take a look back
at the history of accounting and auditing
in the United States. The accounting pro-
fession is not a newly formed profession.
The development of the profession took THIS DRIVE
TO ALWAYS
place during the Industrial Revolution. IMPROVE,
During those times, railroads were the ADAPT, AND
newest trending industry. Accountants BECOME MORE
were tasked with reporting and controlling EFFICIENT HAS
costs, production, and operating ratios. BEEN THE
BENCHMARK OF
The railroads nudged accounting firms into THE AUDITING
producing mechanisms for fraud detection PROFESSION
and accurate financial reporting. The next SINCE ITS
large leap in the accounting profession INCEPTION.
came soon after the stock market crash of
1929. The Securities Exchange Act of 1934
created the U.S. Securities and Exchange
Commission, commonly known as the SEC. 1
The SEC was given authority to put
accounting standards into effect as well as
auditor oversight functions. Along with
standard-setting authority, the SEC was
required to enforce the mandate that
publicly traded U.S. companies submit
various periodic financial reports to the
agency in a timely fashion. To assist the
SEC with ensuring that these reports were
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created in accordance with generally
accepted accounting principles, CPA firms
were eventually required to provide
assurances about the financial information
in the reports. 2 According to the American
Institute of Certified Public Accountants
(AICPA), audit practices during the 1930s
were not conducted independently and gen-
erally depended upon the information and
data provided by management. They were
often inaccurate or skewed to make the
reported performance better than the reality.
This is the root of distrust and low investor
confidence in the markets for securities in
the United States. Americans realized that
THE PURPOSE OF there needed to be higher levels of
AN AUDIT supervision and decided to put legislation
OPINION IS TO
into place to provide headway for the
VERIFY THAT THE
FINANCIAL auditing profession.
STATEMENTS Even after the Securities Act of 1933
THAT POTENTIAL and Securities Exchange Act of 1934, cus-
INVESTORS tomary audit practices such as confirming
ANALYZE WHEN
receivables and taking a physical
CHOOSING
WHICH inspection of inventory were not required
SECURITIES TO until fraudulent activities took place at
INVEST IN ARE McKesson & Robbins in the late 1930s.
NOT MATERIALLY Only after this fraud was discovered and
MISSTATED.
publicized widely did the AICPA issue
its first Statement on Auditing Procedure,
which required receivables to be confirmed
and inventory inspections to be conducted
as a part of an audit. As the years have
gone by, the profession has needed to
alter the rules many times to adapt to the
current context and capabilities of accoun-
tants and their machines. For example,
the first operational electronic accounting
system in the United States, known as
UNIVAC, was unveiled in 1954. Soon
after, during the early 1960s, auditors
considered auditing using computerized
machines. When IBM first produced the
IBM System/360 in 1964, it was a signal
to auditors that accounting and accounting
systems would soon start moving away
from the more traditional and outdated
manual audit and toward using comput-
erized technology. The number of
computers in U.S.-based companies
quadrupled from 1962 to 1967. 3 With this
computerized technology boom came
higher levels of security risk to companies.
In response, accounting firms had to
develop micro-based computer assisted
audit tools designed to aid in automating
22 CONSTRUCTION ACCOUNTING AND TAXATION JANUARY/FEBRUARY 2019
the audit process. As the need for computer
assisted audit tools increased, third-party
firms became involved in the production
of programs for auditing. This allowed
the accounting firms to focus on providing
a complete service rather than working
on innovating technologies. These external
products gave way to standardized audit
tools such as Audit Command Language
and Interactive Data Extraction and Analy-
sis, which offered significant advantages
over the programs of the previous period.
The Sarbanes–Oxley Act of 2002 was
designed to fix auditing of U.S. public com-
panies, consistent with the official name
of the legislation in the U.S. Senate: The
Public Company Accounting Reform and
Investor Protection Act of 2002. 4 The Act
was passed as a response to accounting mal-
practice in the early 2000s, when large fraud
scandals such as Tyco International Ltd.,
Enron Corporation, and WorldCom, Inc.,
damaged investor confidence in the quality
and validity of financial statements released
by corporations. These large publicly traded
corporations are now required by the SEC
to release financial statements every fiscal
quarter with far more disclosures than
before Sarbanes–Oxley. Sarbanes–Oxley
also established that assurances about
internal control practices and operations
as well as financial reporting quality were
the responsibility of both management and
auditors.
With every financial statement that is
issued, an audit opinion is generally issued
by an external auditor. On the other hand,
internal auditors work within an organization
and report to its audit committee and/or
directors. 5 They help to design the company’s
organizing systems and develop specific risk
management policies. The work of an internal
auditor tends to be continuous and based
on the internal control systems of a business
of any size. External auditors are independent
of the organization they are auditing and
report to the company’s shareholders. They
provide their opinion on the truthfulness
of the company’s financial statements and
perform work on a test basis to monitor the
systems in place. The purpose of an audit
opinion is to verify that the financial
statements that potential investors analyze
when choosing which securities to invest in
are not materially misstated. If an auditor
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confirms these financial statements with an
unmodified or unqualified opinion, investors
can have confidence that the company is
not editing its numbers or books to look
more attractive to those potential investors.
If one takes a step back and looks at the
profession from afar, one can see that it is
a very stable job in regard to the longevity
of the career. The Sarbanes–Oxley Act has
been in place for 16 years, and, as long as
this act and the Securities and Exchange
Act of 1934 are in place, the external audit
profession will exist and thrive in the United
States. Investors will continue to invest,
which requires research into corporations’
financial statements. These investors will
need to have confidence that the numbers
they see on these statements are valid and
accurate.
As technology advances, AI is becoming
more prominent in the auditing world. This
trend can make it seem like machines may
replace the people who are auditing, but this
is a common misconception. Reports of tech-
nology and machines replacing accountants
by the thousands are likely overblown because
capable accountants will be needed to oversee
and utilize the advanced technology. 6 As
technology companies continue to experiment
and innovate, more and more of these new
AI programs are being placed into service
with the larger public accounting firms such
as Deloitte and Ernst & Young (EY). As
employees of these firms have said, these
programs are not meant to replace people;
they are meant to help auditors automate
tasks that have been conducted manually for
decades, such as data-matching and the con-
firmation process. In performing these kinds
of tasks, there is no judgement involved.
When auditors utilize AI to perform these
tasks, it allows them to increase the quality
of their audits by spending more time focusing
on advanced analytics and helping the client
make decisions. Thanks to AI, auditors in
the future will have more of an advisory role.
AI also improves audit quality by evaluating
entire populations of data rather than
sampling data, as has been customary in the
profession for years. This ensures the entire
population of data is checked, reducing risk
of misstatements on financial statements
and, ideally, finding all errors.
The capabilities that the new AI
applications will bring to the auditing pro-
FUTURE OF AUDIT
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fession can be summed up as “cognitive com-
puting.” Cognitive computing is technology
that stimulates human thought processes in
a computerized model. Accountants use
cognitive computing because it combines
AI and machine learning to simplify,
machine-assist, and transform how
information is obtained, how accountants
interact with applications to perform knowl-
edge tasks, and how decisions are made. 7 As
cognitive computing technology advances,
common audit practices like sampling will
become unneeded, as mentioned previously.
Cognitive computing technologies will be
able to ingest and catalogue all data involved
instead of only testing a small sample of a
population and extrapolating the error out
to the entire population. These advancements
will open auditors to the concept of the con-
tinuous, real-time audit, where they will be
assisted in their judgments — although the
human element will not entirely disappear.
The “continuous audit” has long been the
goal in auditing. The ability to verify each
transaction and update numbers by the
second could be a useful tool not only to
those in the auditing profession, but also to REPORTS OF
audit clients’ management. If a member of TECHNOLOGY
management has access to financials that AND MACHINES
REPLACING
are verifiably accurate in real time, they can ACCOUNTANTS
depend on those financials to make informed BY THE
business decisions. THOUSANDS
Closely tied with cognitive computing ARE LIKELY
is machine learning, which is based on the OVERBLOWN
BECAUSE
concept that algorithms can analyze large CAPABLE
amounts of data, learn from them, and then ACCOUNTANTS
predict something based on what was WILL BE NEEDED
learned. Machine learning can be used by TO OVERSEE
construction firms to provide real-time AND UTILIZE
THE ADVANCED
information to managers. Typical con- TECHNOLOGY.
struction reports provide information after
the fact; however, if machine learning is
used, they can identify risks before they
become problems. Fewer problems means
more profit for the firm in the long run.
New uses are being found for machine
learning in construction firms every day.
While most of the current focus in machine
learning is on the construction execution
phase, there is a push to use the technology
in the design and preconstruction stages
in the near future. 8
The Big 4 have already invested in
emerging technologies to get ahead of the
industry and create a competitive advantage.
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KPMG has an agreement with IBM to use
Watson’s AI unit, commonly known for
being nearly unbeatable at Jeopardy, to
develop high-tech audit tools. 9 Deloitte has
a 70-member internal corporate innovation
team that focuses all their attention on
emerging technologies. Eighty percent of
this team’s time is devoted to AI. Craig
Muraskin, Managing Director of Innovation
at Deloitte, explained the role of the internal
corporate innovation team as an accelerator
of innovation activities across each of the
firm’s businesses. 10 An illustration of the
payoff of Deloitte’s investment in AI can
be seen through the review of high volumes
of contracts. A team might comb through
hundreds of thousands of legal documents
looking for a change of control provision
during a client’s sale of a business unit.
Tasks like this used to keep dozens of
employees occupied for months, but now
a team of six to eight members can use an
AI system to complete the same task in less
than a month. It does not take an expert to
see how applications of AI are already saving
not only money but precious time for the
firm. Freeing up Deloitte’s employees from
the mundane and repetitive tasks of auditing
allows them to focus more on client service
and providing business advice to customers.
Deloitte is now able to provide a more com-
plete service to the customer, putting them
ahead of the game and their competitors.
EY, another Big 4 CPA firm, uses AI to
evaluate lease accounting standards. Once
new legislation or regulations are put into
AI CAN ALSO BE
place, large corporations like EY are forced
USED IN THE
CONSTRUCTION to take another look at thousands of leases
INDUSTRY TO to comply with the new laws. Using natural
PREDICT WHEN language processing, EY is able to perform
ASSETS WILL NEED this task three times more consistently and
MAINTENANCE.
twice as efficiently as previous humans-
only teams. Unfortunately, it is more
difficult for small to midsize firms to raise
enough capital to allow them to develop
and install programs using AI. The biggest
firms are taking the biggest steps in
innovation currently, but they are not
content. According to Steve Toy, Innovation
Lead at EY, “If you don’t innovate, the kid
in the garage down the street will. Her tech-
nology may not be there today, but it will
get better over time and soon replace your
human-based processes. You need to
innovate, or you will become obsolete.”
24 CONSTRUCTION ACCOUNTING AND TAXATION JANUARY/FEBRUARY 2019
AI can also be used in the construction
industry to predict when assets will need
maintenance. Using IoT (Internet of Things)
technology, a subset of AI, users can collect
data on machines, equipment, vehicles, and
utilities. 11 This data can be analyzed by the
IoT technology to predict when equipment
will need maintenance. Often, when equip-
ment breaks down, it stays out of service
for a prolonged period of time. Analyzing
the data outputs from the equipment using
the IoT allows users to predict the timing
of breakdowns. 12 Users can then take the
equipment out of use for preventative main-
tenance, which takes up less time than a
breakdown.
While AI is trending right now, the
industry’s eyes have turned toward blockchain
technology and how it could potentially
transform accounting. Before diving into
how it could change the industry, one must
first understand what a blockchain is and
how it works. In simple terms, a blockchain
can be described as an append-only
transaction ledger. What this means is that
the ledger can be written on with new infor-
mation, but the previous information, stored
in blocks, cannot be edited, adjusted, or
changed. 13 A blockchain is made of completed
“blocks” and is constantly growing in size
as new transactions (blocks) are recorded
and added in the order in which they take
place. The blockchain was originally
developed as the accounting method for the
cryptocurrency Bitcoin, but as it progresses,
people are discovering alternate uses for the
technology. The blockchain’s other uses
include reducing contract fraud by digitizing
contracts, facilitating real-time payments,
and promoting clarity in business agreements
and transactions (as it allows both sides of
an agreement to view a smart contract). 14
Because the blockchain is secure and clients
can trust that it is not edited, it is already
being used by clients of large and midsize
accounting firms. These large clients are
using blockchain technology to perform
tasks such as supplier management and pro-
curement within their enterprise resource
planning systems. With larger clients already
using blockchain technology, it is imperative
that CPAs and auditors of the future gain
knowledge on the subject. Audit professionals
need to invest time and effort in researching
these new technologies to analyze and evaluate
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the potential effects they will have on the
process of financial reporting. If use of the
blockchain continues to grow and AI allows
smaller accounting firms to bid on audit
clients that previously would have been too
big for them by automating tasks that have
historically been completed manually, then
even smaller regional firms could be exposed
to blockchain technology in the near future.
Even though there are clear advantages of
blockchain technology, CPAs also now have
concern for their future if the blockchain is
adopted by everyone. It can be described as a
peer-to-peer networking technology, and cryp-
tography allows for the creation of a distributed,
“triple-entry” ledger that can automatically
confirm and record transactions virtually and
is almost impossible to change after transactions
are recorded. The security and capabilities of
this “triple-entry” ledger would mean that all
transactions are accumulated and stored in
the blockchain, which cannot be changed. The
reason this concerns CPAs is that some feel
that there is not much left for the CPA to audit
if the blockchain is confirming and recording
every transaction. Others see the blockchain
as more of an opportunity for CPAs. With
blockchain technology having the capability
to provide real-time data, auditors can develop
software to continuously audit organizations
using the blockchain and eliminate labor-
intensive manual data extraction and audit
preparation activities. 15
Blockchain technology could also have
an impact on the construction industry. The
technology has the ability to execute trans-
actions immediately after a valid signature
has been provided. To illustrate, construction
firms could require clients to prepay into
an escrow account for work to be performed
that is then held until a subcontractor and
inspector have signed off that the work is
complete and up to code. Blockchain’s smart
contracts can be formatted to allow anyone
to invest in large construction projects, with
those investors receiving a percentage of
the rents generated by the property. In that
situation, the invested money would go to
the construction firm, guaranteeing their
payment. At the same time, the client would
be obligated to pay the investor the rents in
return for the investment in the project. 1 6
As more individuals have done research
on the blockchain and how it will affect
auditors, tax professionals, and bookkeepers,
FUTURE OF AUDIT
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another valid point has come forward to
suggest that auditing will not fall by the
wayside as a result of the blockchain.
Auditors assess that recorded transactions
are supported by evidence that is relevant,
reliable, objective, accurate, and verifiable.
The acceptance of a transaction into a
reliable blockchain may constitute sufficient
audit evidence for certain financial
statement assertions, such as the occurrence
of the transaction. However, an auditor
may not be able to verify certain details of
a transaction with sufficient audit evidence,
such as whether or not a product was deliv-
ered, just by using blockchain technology.
Other concerns regarding blockchain tech-
nology from an auditing standpoint include
difficulty determining if a transaction is
illegal or fraudulent, the potential for
incorrect classification of blockchain trans-
actions in financial statements, and the
possibility that exists for transactions with THE LARGEST
related parties to take place without the TAKEAWAY
auditor’s awareness. ACCOUNTING
The largest takeaway accounting profes- PROFESSIONALS
sionals should note about the blockchain is SHOULD NOTE
ABOUT THE
that while it has potential to disrupt the BLOCKCHAIN IS
industry and should be watched closely for THAT WHILE IT
the next few years, it will still need to gain HAS POTENTIAL
the trust of the market to succeed and thrive TO DISRUPT THE
in the future. As more large clients integrate INDUSTRY AND
SHOULD BE
the technology into their internal systems, WATCHED
CPAs and auditors will need to become CLOSELY FOR
familiar with it through education specifically THE NEXT FEW
related to blockchain technology. YEARS, IT WILL
Since auditing will be more integrated STILL NEED TO
GAIN THE TRUST
with technology and automation in the near OF THE MARKET
future, those in auditing should also be TO SUCCEED
focusing on learning data science. Being AND THRIVE IN
able to use computers and programs to THE FUTURE.
manipulate data will become one of the
most sought-after skills by employers in
the public accounting industry in the future.
According to Travis Webb, National Director
of Assurance Services at BKD, LLP (a top-
15 CPA firm headquartered in Springfield,
Missouri), data sciences would be a useful
double major or minor to accompany a
degree in accounting and would put a person
ahead of others when looking for full-time
positions post-college. This need for knowl-
edge does not pertain to students only, how-
ever. To prepare for the oncoming wave of
AI, CPAs should gain database and infor-
mation technology skills by taking on spe-
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cialized projects in their workplaces,
attending seminars, completing self-directed
learning, or taking classes. Staying ahead
of the curve will become necessary. Having
a solid basis in data management and a high
comfort level with new technologies will
give CPAs a competitive edge as AI use
increases in the field. 17 Auditors need to
have many personal and technical skills
ranging from talking to a client to
manipulating data in Excel to organize it
into a format that can be tested by audit
applications.
In conclusion, the auditing profession
in the United States has been in a state of
innovation for the last 100 years. Tech-
nological advances such as AI are capable
of completing mundane tasks for auditors
in the present that would have been com-
pleted manually in the past. With these
tasks becoming automated, the door has
opened for auditors to focus more on acting
as advisers to the client by helping interpret
financial data and answering questions
about potential business strategies. Another
factor that has the potential to disrupt the
profession is the blockchain and its related
technologies. Blockchain technology has
almost no ceiling; it just needs more
improvement and time before it can be
accepted and used in the normal course
of business by large corporations. Another
area of focus for auditors is data sciences,
as employers in the auditing industry are
looking for candidates who can manipulate
and organize data into a usable format.
As one can see, CPAs must participate in
continuing professional education to keep up
with the changes and technological advances
taking place in the world. As of right now,
nobody knows what the audit of the future
will look like, but one thing that is known is
that it will be heavily integrated with technology.
AI technology will allow auditors to save time
during an audit by using the intelligence to
sort through the thousands of documents they
would normally do by hand. This will save
clients money in the long run and allow auditors
to provide more advisory services. Construction
firms need to be cognizant of new technology
such as the blockchain and machine learning,
which have many uses applicable to the industry,
such as predicting when maintenance needs
to be done and utilizing smart contracts through
blockchains. Auditors will be able to help
26 CONSTRUCTION ACCOUNTING AND TAXATION JANUARY/FEBRUARY 2019
implement these technologies and advise clients
at the time of crucial decision-making. n
NOTES
1
Securities Exchange Act of 1934, amended through
P.L. 115-141, 3/23/2018.
2
“Blockchain technology and its potential impact on
the audit and assurance profession,” AICPA (White
paper). Available at: https://www.aicpa.org/inter-
estareas/frc/assuranceadvisor yser vices/blockchain-
impact-on-auditing .html.
3
B y r n e s , P. E . , A l - Awa d h i , A . , G u l l v i s t , B. , B r ow n -
Liburd, H., Teeter, R., Warren, J.D., Jr., and Vasarhelyi,
M . , “ E vo l u t i o n o f a u d i t i n g : Fr o m t h e t r a d i t i o n a l
approach to the future audit,” AICPA (White paper).
Available at: https://www.aicpa.org/interest areas/
frc/assuranceadvisor yser vices/downloadabledocu-
ments/whitepaper_evolution-of-auditing .pdf.
4
Sarbanes–Oxley Act of 2002, P.L. 107-204, 7/30/2002;
S.2673 - Public Company Accounting Reform and
Investor Protection Act of 2002, 07/15/2002. Available
at: https://www.congress.gov/bill/107th-congress/
s e n a t e - b i l l / 2 6 7 3 ; C o a t e s , J. C . I V, Th e g o a l s a n d
promise of the Sarbanes–Oxley Act, Journal of Eco-
5
nomic Perspectives 21, no. 1 (20 07): 91–116.
“Internal vs. external auditors, what’s the difference?”
C a r e e r s i n Au d i t . c o m ( S e p t 5 , 2 013 ) . Ava i l a b l e a t :
https://www.careersinaudit.com/article/internal-vs-
external-auditors-what-s-the-difference-/.
6
Ovaska-Few, S., How artificial intelligence is changing
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