AI in financial reporting and audit: Navigating the new era

Research showed that the vast majority (87 per cent) of Canadian organizations, compared to 72 per cent globally, are already piloting or using AI in their financial reporting. In the next three years, this number is set to rise to 100 per cent as all organizations plan to adopt the use of AI across one or more areas of their financial reporting processes.

In preparation for this business transformation in the coming years, Canadian organizations are investing in AI, with 59 per cent of organizations currently allocating more than 10 per cent of their IT budgets towards AI technology (compared to 45 per cent globally).

87% of organizations are using AI in their financial reporting

72% Global

Boards of directors understand the strategic importance of investing in AI and are taking steps to ensure that AI is being used responsibly across their organization. In our survey, all organizations (100 per cent) say their Boards have taken strategic action related to AI, with 72 per cent working to develop a company vision and strategy for AI adoption (compared to 67 per cent global organizations surveyed), and 44 per cent forming an AI committee.

Organizations are expecting their external auditors to take full advantage of AI's powerful capabilities and lead the way in the transformation of financial reporting. 76 per cent of organizations believe that the use of AI is moderately to very important for their external auditors, along with data analytics (79 per cent) and automation (72 per cent). Most organizations believe that their external auditors are ahead or on par with them in the adoption of AI.

Canadian organizations who have embraced AI for their financial reporting are seeing a myriad of benefits. The top benefits identified include the ability to predict trends and impacts (75 per cent), having the ability to make better data-enabled decisions (66 per cent), and has given them access to more accurate and reliable data (61 per cent). At the same time, investing in AI has lowered overall costs (51 per cent) and given organizations the ability to attract talent (42 per cent).

While organizations have experienced an array of benefits from implementing AI into their financial reporting, organizations may also face challenges as they begin their implementation. Many challenges subside as organizations advance their use of AI.

Some of the barriers identified by Canadian organizations include concerns surrounding data security and privacy (58 per cent), and limited skills and talent in AI (59 per cent). 60 per cent of Canadian organizations also cited that keeping up with regulatory changes was a potential barrier to adoption (compared to 44 per cent of global organizations surveyed).

68% of organizations cite the ability to predict trends and impacts as a key benefit to incorporating AI into their financial reporting

Getting started on your AI journey

Determine your ambition: How important is AI to your organization or financial reporting function? Do you want to be an AI leader in your industry? How do you see your organization evolving based on AI? What are the opportunities presented by AI for your organization?

Determine your maturity based on our framework: Where do you fit in KPMG’s AI Maturity assessment? How much progress has your organization made in the use of AI for financial reporting? What actions around AI has your organization already taken?

Align your ambition, maturity and strategy: Are you funding AI sufficiently? Do you have established AI governance and frameworks? Are you addressing barriers to AI and financial reporting?

Look for support: Look to Leaders for ways to enhance your financial reporting with AI. As a starting point KPMG’s Trusted AI Approach, built on the principles of fairness, transparency, explainability, accountability, data integrity, reliability, security, safety, privacy, and sustainability, is a framework to help design, build, deploy, and use AI tech solutions in a responsible and ethical manner while also accelerating value and making the difference for clients, people and communities.

The road ahead

Organizations are ramping up activity around AI, including for financial reporting. Auditors will need to help guide and shape the financial reporting transformation, including through the development of AI-enabled auditing platforms that integrate with organizations’ systems and help bring the power of AI into the reporting ecosystem — analyzing entire datasets, identifying outliers or risks, and joining up financial and non-financial reporting to create a seamless, coherent reporting landscape.

AI for financial reporting and auditing is here now and will rapidly accelerate. We are standing on the cusp of a genuine financial reporting revolution: moving from the ‘digital age’ to the ‘AI age’ in which nothing will ever be quite the same again.

Harnessing the power of AI

At KPMG, we are committed to harnessing the power of AI to transform the audit experience, but at the same time recognize the inherent complexities that accompany such advancements. This journey is firmly rooted in a foundation of ethical conduct and responsible practices, guided by our Trusted AI Approach. This framework serves as an anchor, aligning KPMG services with core values while championing principles of transparency, explainability, fairness and accountability.

By infusing data analytics, AI and Azure Cognitive Services into the audit process, through the KPMG smart audit platform KPMG Clara, 85,000 audit global professionals who collectively work on hundreds of thousands of audits a year are empowered to focus more closely on higher-risk areas of the audit, sector-specific risks and challenges — to the benefit of both stakeholders and capital markets.

We are investing in extensive training and support for our audit professionals as they increasingly spend time both assessing clients’ AI processes and utilizing more AI tools and enablers in the audit itself. Our clients expect that audits will become increasingly real-time and more preventative than reactive as AI puts ever more powerful capabilities at the disposal of audit teams, and we are here for the transformation.

About our survey

KPMG surveyed 1,800 global financial reporting executives and board members in 10 countries (Australia, Canada, France, Germany, Ireland, Japan, Netherlands, Spain, the U.K., and the U.S.) across key industry sectors, including consumer and retail, financial services, energy and natural resources, technology and media, industrial manufacturing, and healthcare. The financial reporting executives are drawn from organizations with annual revenue over US$500 million and more than 250 employees. The survey was conducted from February to March 2024.