27 June 2024, Kathmandu
Artificial intelligence (AI) is already being widely adopted in companies’ financial reporting processes, with a majority of businesses piloting or using it, and this is set to grow to almost universal levels over the next three years, according to global research from KPMG.
At the same time, companies expect AI to be increasingly used by their auditors to drive more proactive and predictive audits.
AI Transforming Financial Reporting
KPMG’s research titled AI in financial reporting and audit: Navigating the new era, surveyed 1,800 companies across six industries in ten major markets to understand how financial reporting executives feel AI adoption is progressing within the finance function, its impact on internal finance teams, and expectations for external auditors.
Alan Yau, Audit Innovation Leader, Partner, KPMG China, says: “The adoption of AI in financial reporting is gaining significant momentum in Greater China, with the use universally applicable to both auditors and clients, leading to greater productivity for financial reporting teams and enhancing talent acquisition and skills development.”
Among regions, companies in North America are moving at the fastest pace, with 39% of companies in the region selectively or widely adopting AI for financial reporting, followed by Europe (32%), and Asia Pacific (29%).
In terms of sectors, telecoms and technology businesses have made the most progress, with 41% responding that they are now selectively or widely adopting AI within their financial reporting processes, followed by energy, natural resources, and chemicals (35%). Consumer products and retail businesses, however, trail other industries (26%).
Companies are investing strategically and substantively in AI. According to the research, AI now accounts for 10% of the IT budget and is set to rise significantly. All surveyed companies said their boards have taken strategic action regarding AI.
Nearly two-thirds of respondents (64%) say they expect auditors to have the role of conducting a more detailed review of the control environment in relation to their use of AI in financial reporting. Over half (53%) foresee auditors carrying out an AI governance maturity assessment, while a third 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 the development and use of AI in financial reporting and auditing.
As a relative technology newcomer, fewer organizations are piloting or using it now (43%), compared to ‘traditional’ AI, but adoption is set to accelerate significantly over the coming three years. Indeed, over the next 12 months, leaders are set to prioritize genAI for financial reporting more than any other technology. Almost half (47%) will prioritize it, ahead of data & analytics (44%), process mining (39%), and cloud computing (36%).
Alan Yau added: “Looking ahead, businesses in Greater China are increasingly recognizing the immense potential of generative AI. In the realm of financial reporting, AI emerges as a formidable tool that not only enhances decision-making with insightful data analysis but also complements human expertise with its speed and precision. By automating routine tasks, AI enables financial professionals to devote more time to strategic planning and fostering client relationships. This symbiotic relationship between AI and human professionals is revolutionizing financial reporting, elevating service standards, and delivering unparalleled value to companies and their stakeholders.”
Businesses are very cognizant of the risks of AI, with data security, privacy and ethical issues being the top concerns. In general, there are currently more concerns over genAI than traditional AI, including cybersecurity issues and copyright & IP, alongside other areas such as privacy and hallucinations. Managing the risks and taking an ethical approach to AI implementation is critically important.
About KPMG China (AI Transforming Financial Reporting)
KPMG China has offices located in 31 cities with over 14,000 partners and staff: Beijing, Changchun, Changsha, Chengdu, Chongqing, Dalian, Dongguan, Foshan, Fuzhou, Guangzhou, Haikou, Hangzhou, Hefei, Jinan, Nanjing, Nantong, Ningbo, Qingdao, Shanghai, Shenyang, Shenzhen, Suzhou, Taiyuan, Tianjin, Wuhan, Wuxi, Xiamen, Xi’an, Zhengzhou, Hong Kong SAR and Macau SAR. Working collaboratively across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.
KPMG is a global organization of independent professional services firms providing Audit, Tax and Advisory services. KPMG is the brand under which the member firms of KPMG International Limited (“KPMG International”) operate and provide professional services. “KPMG” is used to refer to individual member firms within the KPMG organization or to one or more member firms collectively.
KPMG firms operate in 143 countries and territories, with more than 265,000 partners and employees working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. Each KPMG member firm is responsible for its own obligations and liabilities.
KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.
AI Transforming Financial Reporting
In 1992, KPMG became the first international accounting network to be granted a joint venture licence in the Chinese Mainland. KPMG was also the first among the Big Four in the Chinese Mainland to convert from a joint venture to a special general partnership, as of 1, 2012. Additionally, the Hong Kong firm can trace its origins to 1945. This early commitment to this market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience and is reflected in KPMG’s appointment for multidisciplinary services (including audit, tax and advisory) by some of China’s most prestigious companies.
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