AI in financial reporting and audit

As with other business processes, artificial intelligence (AI) is transforming financial reporting and auditing. In the past, these financial activities have stereotypically been seen as time-consuming exercises, requiring statistical sampling methods and manual checking of financial data. But AI is changing that — helping businesses create smarter and more joined-up information flows with better identification and response to risk and a much greater ability to detect anomalies and outliers.

Our report “AI in financial reporting and audit: Navigating the new era” which surveyed 1,800 financial reporting executives, including 100 Irish companies across six industries, ten countries and jurisdictions, finds that 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.

While there are hurdles to overcome — notably around data privacy and security — the benefits that could be reaped in the areas of insight generation, trend and anomaly detection, risk control, and data-enabled decision-making could power us into a new era where financial reporting is smarter and better than we have ever seen before — all subject to laser-focused and highly granular AI-enabled auditing processes. Companies worldwide expect their auditors to lead and inspire the transformation of financial reporting through AI.

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Transforming financial reporting in Ireland

At KPMG, we are investing in technology to enhance our audit approach and transform the audit experience, allowing for richer, faster analysis of data, and the provision of valuable insights to clients”.

Emer McGrath

Partner, Head of Audit

KPMG in Ireland

In Ireland, nearly two-thirds (63 percent) of financial reporting executives and board members companies are either piloting or using AI in financial reporting. The adoption is expected to reach 100 percent within the next three years. Meanwhile, globally 72 percent of businesses are now piloting or using it, and this is set to grow to 99 percent over the same period.

Our research confirms AI is already having a profound effect on how companies operate, including their systems, processes, controls and governance over financial reporting, and this is set to accelerate in the next few years.

Auditors expected to lead the way

AI is not only transforming financial reporting but also having a significant impact on auditing, bringing new analytical capabilities and insights. Irish survey respondents expect their auditors to lead the AI transformation and inspire and drive the transformation of financial reporting. The majority (83 percent) believe that their auditors are ahead or equal with them in adopting AI for financial analysis, compared to 82 percent globally.

Key global facts

64 % of companies surveyed expect auditors to have a role in evaluating their use of AI in financial reporting, providing assurance and attestation over their AI controls.

100 % of companies said their boards have taken strategic action regarding AI.

Nearly 72 % of companies surveyed are piloting or using AI in financial reporting.
In three years, that is expected increase to
99 % of companies.

57 % of companies said they will be implementing gen AI for financial reporting over the next three years.

AI now accounts for 10 % of the IT budget and is set to rise significantly in the next year.

Key Irish facts

Almost two-thirds 63% of Irish companies surveyed are piloting or using AI in financial reporting.

In three years, that is expected to increase to 100% of companies.

66 % of Irish boards have developed a vision and strategy for AI adoption.

AI now accounts for nearly 10% of the IT budget and is set to rise significantly in the next year.

Top benefits of AI include:

68 % predicting trends and impacts

65 % enabling better data-enabled decisions

62 % providing real-time insights into risks and increased data accuracy

Boards are actively governing the use of AI

Both global and Irish boards of directors understand the strategic importance of AI and are taking steps to ensure that it is responsively used across their businesses. They see AI adoption as a game changer. Two-thirds of Irish survey respondents said their board had developed a vision/strategy for AI adoption, and over half (53 percent) have set up policies and governance aligned with the company’s values and ESG goals.

Deploying AI in the audit

AI should be seen as a tool to enhance our capabilities and drive organisational success.

Keith Stafford

Partner

KPMG in Ireland

Businesses expect their auditors to take full advantage of AI’s powerful capabilities and are looking to their auditor to deploy AI in the audit for three primary purposes:

Improve the efficiency and accuracy of audits
Develop more proactive, continuous and predictive procedures
Gather data and value-added audit insights

Global companies want their auditors to take it one step further: 68 percent want their auditors to prioritise using AI for data analysis and quality management, followed risk and anomaly identification (60 percent) and risk mitigation and internal controls (59 percent). Similiarly, nearly 7 in 10 (69 percent) of Irish respondents prefer their external auditor to prioritise using AI for data analysis and quality management, followed risk and anomaly identification (54 percent) and risk mitigation and internal controls (52 percent).

Adopting AI presents challenges like data privacy or accuracy. However, its benefits, such as improved efficiency and decision-making, make it worthwhile.

Powerful benefits from AI – with Gen AI the next big focus

Companies that embrace AI for financial reporting see a myriad of benefits. Irish financial reporting executives cited top advantages like predicting trends and impacts (68 percent), enabling better data-enabled decisions (65 percent) and providing real-time insights into risks and increased data accuracy (both 62 percent). Looking forward, generative AI (genAI) is expected to become a big priority, with 62 percent of leaders planning to prioritise it over the next year, ahead of data and analytics (37 percent) and cloud technology (36 percent).

AI now accounts for nearly a tenth (8 percent) of the average IT budget and over half (57 percent) of Irish respondents plan to increase their investment in AI-related activities by over 25 percent within the next year.

Managing the risks – companies want auditor assurance and attestation

AI will transform financial reporting and auditing, connecting data sources to enable teams to rapidly identify and respond to risk.

Niall Savage

Partner, Head of Private Enterprise, National Chairperson of Audit Committee Institute

KPMG in Ireland

In the future, companies expect their auditors to have a more important role in evaluating the use of AI in their financial reporting processes and potentially providing assurance and attestation over their AI controls.

Over half of the Irish respondents (57 percent) say they expect auditors to have the role of conducting a more detailed review of the control environment about their use of AI in financial reporting. Sixty percent foresee auditors carrying out an AI governance maturity assessment.

In comparison, over a third (37 percent) expect to ask them to provide third-party attestation over the use of AI technology. However, this is an area where regulation needs to move and maintain pace with the rapid pace of development of the use of AI in financial reporting and auditing.