Navigating The AI Era In Financial Reporting

FLYNN: “The potential benefits of AI are driving every conversation with financial reporting leaders. In the next year or two, the fear of missing out on AI will be replaced with just missing out.”

• In the next three years, 100% of U.S. financial reporting leaders report they will be either piloting or using AI in financial reporting, up from 71% today.
• As for GenAI, 97% of financial reporting leaders will be either piloting or using GenAI in financial reporting in the next three years, up from 46% today.
• In the previous survey, 18% of leaders said they do not use AI in financial reporting with 10% specifying no specific time for rolling out AI solutions.
• Additionally, in the survey from last year, 10% said they were “not using or considering” GenAI in financial reporting.

FLYNN: “The depth of AI and GenAI’s capabilities certainly surprised many, and it’s clear companies are focusing on investing in the technologies that will better enable the use of AI, such as cloud, data, and ERP.”

• 19% of U.S. financial reporting leaders are going beyond planning and piloting, and using AI this year, behind cloud technology (77%), data and analytics (55%), and Enterprise Resource Planning (54%).
• Next year, however, U.S. financial reporting leaders will be prioritizing GenAI (58%) the most among all technologies, followed by process mining technology (45%).

“The benefits of AI compound as companies organize their data, move to the cloud, and integrate AI across processes. In that context, how companies invest over the next few years will shape competitive positioning and the role of finance functions in business strategy,” said Thomas Mackenzie, KPMG U.S. and Global Audit Chief Technology Officer.

• On average, U.S. companies are spending 10.1% of their IT budgets on AI-related activities today, compared with 9.9% across all countries studied. U.S. companies intend to boost their overall AI budgets by 16.9% next year, and by 24.6% over the next three years.
• Some are moving faster: 30% plan to ramp up their AI budgets by between 25% and 74% over the next three years. 

FLYNN: “In the era of compound volatility, companies are navigating a multitude of risks, but the value that AI can deliver financial reporting teams demands prioritization.”

• AI Leaders in the U.S. spend nearly 12% of IT budgets on AI-related activities today and expect to increase that investment 25% next year and nearly 28% in the next three years.
• Boards of Directors for AI Leaders are more likely to have established mechanisms to monitor and/or measure AI impacts (71% of AI Leaders vs. 45% of other U.S. companies), met with management to understand AI activities and plans (61% vs. 48%), and set up policies and governance aligned with ESG (Environmental, Social, Governance) goals (79% vs. 69%).
• AI Leaders are also more likely to have developed principles for using AI, ensured tech leadership is involved in systems integration discussions, piloted AI initiatives to validate ROI (Return on Investment), and more.
• AI Leaders are more AI-ready from a technology perspective due to greater progress on implementing key enabling technologies and processes. These include cloud migration (94% of AI Leaders are at mid or full implementation vs. 72% of other U.S. companies), standardization of workflows (89% vs. 70%), establishment of common data basis or single source of truth (84% vs. 70%), and standardization of system landscape (60% vs. 48%).
• Most importantly, compared to those just beginning to use AI, Al Leaders are far more likely to report a host of benefits from AI-enabled reporting, including enhanced staff skills due to AI assistants (42% of Leaders vs. 30% of Beginners), ability to predict trends and impacts (62% vs. 51%), and greater ability to identify data outliers and anomalies (31% vs. 21%).

FLYNN: "As companies engage more with AI and GenAI in financial reporting processes, new barriers and challenges are driving critical thinking on risk mitigation strategies. Education is paramount, but a more holistic approach to responsible AI use is critical to building and preserving trust.”

• Across all U.S. companies, top benefits expected in three years include real-time insights into risks, fraud, control weaknesses (73%), increased data accuracy and reliability (67%), and lower costs (62%). In addition, 60% expect greater ability to predict trends and impacts.
  
• Despite industry concerns that AI will disrupt the workforce, some believe it will act as a magnet for talent and innovation. 34% expect AI to attract talent, while 26% believe AI will help fill staff shortages. 37% believe AI assistants will enhance staff skills.
• Financial reporting leaders indicate certain barriers identified last year may have eased.
  • Thirty-one percent of financial reporting leaders indicated ethical concerns, such as bias or misinformation is a barrier to adoption, down from 48% last year.
  • Keeping up with regulatory changes has also fallen to 41% from 49%.
  • Risks from using algorithms without human oversight fell from nearly half to 35%.

• Meanwhile, 56% of respondents identified data security and privacy concerns as the biggest barriers to companies’ adoption of AI, compared to just 32% of respondents last year. Other barriers include limited skills and talent (46%), difficulty gathering relevant and consistent data (44%), and inadequate funding and investment levels (43%).
• U.S. financial reporting leaders noted the most effective practices for mitigating GenAI risks include regular audits and monitoring (50%), education and training (50%), ethical frameworks (47%), and human oversight (42%). Other important actions include collaboration and regulation adherence, third-party reviews, privacy measures, and disclosures. 

FLYNN: “AI is fundamentally transforming the audit. We expect to deliver more real-time auditing with greater insights into anomalies and trends supported by deep evaluation of the control environment governing the use of AI in financial reporting.”

• In 2023, 61% of financial reporting leaders said that it was important for auditors to utilize AI in performing their analysis; today that number is 83%.
• Last year, 47% said they thought that GenAI would become a common practice among auditors in one to two years, and 46% foresaw it happening in three to five years. Now, 73% of financial reporting leaders expect the use of GenAI to become the norm over the next two years, and 23% believe it will happen in two to three years.
• Top areas that auditors should prioritize include risk/anomaly identification (65%), data analysis and quality management (65%), risk mitigation and internal controls (62%), and fraud detection (58%).
• Financial reporting leaders’ expectations of auditors in the future are highest in two areas: 66% expect their auditors will conduct a more detailed review of the control environment (slightly up from 64% last year), and 61% expect them to assess their AI governance maturity (considerably up from 53% last year).
• In addition, 33% expect their external auditor to provide third-party attestation over the use of AI technology.