AI in financial reporting and audit: Navigating the new era

A new report from KPMG has found three quarters of businesses globally are using artificial intelligence (AI), to some degree, in their financial reporting, and this is set to rise to 99 per cent over the next three years. 

While many are only piloting AI reporting at this time, there is widespread agreement that potential benefits include the ability to predict trends and impacts (65 per cent), real-time insights into risks (60 per cent), better data-enabled decisions and increased data accuracy (both 57 per cent), according to KPMG’s survey of 1,800 financial reporting executives.

The shift has implications for the audit profession with 64% of companies wanting their auditors to evaluate, and provide assurance, over their AI controls.

The report says there are risks to be managed, “notably around accuracy and security”. And as reporting increasingly occurs in real time, audits will also have to become increasingly real time.

Directors and boards need to be increasingly aware of:

• AI predicted to transform financial reporting: AI is revolutionising the financial reporting landscape, transitioning from traditional methods to a more interconnected, AI-powered ecosystem. This shift promises enhanced risk identification, anomaly detection and the generation of predictive insights. As companies increasingly adopt AI, they are poised to experience a financial reporting revolution, marked by smarter, more efficient processes and a departure from the limitations of human capacity in data analysis. This has the potential to lower financial reporting costs and shift the focus to analysis that supports board decision making.
•  Auditors as AI pioneers: Auditors are expected to be at the forefront of AI adoption, driving the transformation of financial reporting. Their role is expanding to include the evaluation of AI usage in financial reporting and providing assurance over AI controls. Among directors, 63 per cent think auditors should prioritize AI for identifying risks and anomalies and 60 per cent would like it to be used to support risk mitigation and internal controls. The report also notes that future auditors may play a business consultancy role “such as interpreting results and recommending business actions”. Boards will need to consider how they deploy internal audit resources to ensure AI risks are managed well at an appropriate level and to ensure that they are sufficiently satisfied that they can rely on audit opinions prepared using AI.
• Hurdles to overcome: Data security, privacy and ethical issues are the leading concerns identified in the report. Boards will need to consider the ethical frameworks that sit behind financial reporting and auditing and explore these with senior financial and audit staff, as well as ensuring that chief executives have a reasonable grasp of the way that the technology is being applied.

The upshot of this analysis is that AI is coming to a boardroom near you, even in the form of financial reporting and auditing.