AI is set to revolutionize financial reporting and audit, with many financial reporting functions adopting AI and generative AI. KPMG has formed alliances with major tech companies to develop innovative AI solutions and is investing heavily in embedding AI capabilities throughout its business to transform the audit.
Despite the potential benefits of AI, there are still concerns regarding transparency and data privacy. To ensure ethical use of AI, a system of quality control that combines human engagement and powerful AI models must be implemented. Financial reporting leaders believe that external auditors should take the lead in deploying AI responsibly and addressing the biggest risks.
Building on a solid foundation, financial reporting functions will accelerate the adoption of both AI and Gen AI.
Financial reporting functions are accelerating the adoption of AI and generative AI, with 65% of financial reporting leaders reporting their functions are using AI and nearly half (49%) having already piloted or deployed generative AI solutions. Additionally, 71% expect AI to be used extensively in the next three years.
While generative AI is a key priority among leaders, cloud migration, data & analytics, and robotic process automation are the top priorities today.
Financial reporting leaders expect AI to bring many benefits, including increased efficiency, more accurate and reliable data, and better detection of outliers. However, they are cautious about the hype with concerns center on the transparency of models (33%) and data privacy (32%).
72% of financial reporting leaders believe external auditors are ahead of financial reporting functions on using AI and expect AI to enhance audit quality.
Financial reporting leaders expect auditors to use AI to ask the right questions and challenge, conduct data analysis, and find new risks/anomalies.
The adoption of AI is hindered by concerns about the reliance on algorithms, changing regulatory guidelines, and data quality. Financial reporting leaders believe that auditors should evaluate their use of AI by conducting third-party attestation (29%) or detailed reviews of control environments (36%).
“Financial reporting leaders, but also investors, regulators, and other stakeholders in the capital markets expect AI to drive audit quality. They also expect auditors to understand and evaluate processes and controls, analyze transaction-level data for anomalies, and test more data in real-time,” said Scott Flynn, KPMG Vice Chair, Audit. “Considering both the scope and scale of AI’s impact on financial reporting, enhancing audit quality by using technology to stay ahead of emerging risks is expected.”
While AI anxiety among the workforce is commonly discussed, financial reporting leaders expect a boon to talent and diversity.
In fact, 52% expect AI to attract more talent to financial reporting roles and by a 6-to-1 margin, they believe AI will positively affect diversity, equity, and inclusion.
Auditors must lead in deploying AI responsibly, engage all stakeholders in the capital markets on best practices, and bring experts together to tackle the biggest risks.
However, ethical use of AI is not as simple as raising awareness or prescribing best practices. The use of AI must be governed by a system of quality control that elevates the role of deep human engagement and supervision.
Added Flynn, “As auditors, we must lead in deploying AI responsibly. At KPMG, we’ve already deployed AI solutions through Mindbridge on roughly 3,000 audits globally, and after a multi-month pilot, we have deployed more than 100 Audit Chat prompts on a KPMG GenAI tool leveraging KPMG’s audit methodology to enhance audit performance, documentation, and review across a variety of audit tasks. We expect to expand these efforts, further embedding AI into KPMG Clara – our global smart audit platform – to improve how we engage with company data, assess risks, and test.”
AI in Financial Reporting and the Audit was conducted between July 24 – August 4, 2023, and was fielded among more than 200 financial reporting business decision markers in the U.S who have authority or oversight for financial reporting, accounting, analysis, audits, and financial information.
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