Majority use AI in financial reporting, auditors expected to review use

With the vast majority of executives saying AI is already being used in their financial reporting processes, most expect auditors will provide assurance and attestation over their AI controls.

A KPMG survey found that a clear majority, 72%, of companies are piloting or using AI in financial reporting. In three years, this proportion is expected to increase to 99%, practically becoming as standard as spreadsheets. The degree to which companies will use AI remains uncertain, as only 10% say they have widely adopted AI in their financial reporting process.

When it comes to generative AI specifically, 30% of companies surveyed are piloting or using generative AI in financial reporting, 11% are already implementing it, and 2% are widely adopting it. Companies seem to have strong ambitions regarding generative AI in the future, as 57% said they plan to implement the technology for financial reporting, and 75% say they plan to embrace it in general over the next three years. The KPMG report noted a generative AI model can act as a search tool, comparison engine, summarizer and anomaly detector in one. The ability to create new content, analysis and ideas can make it more widely accessible to executives without deep technical skills.

This rise of AI in financial reporting is joined by expectations that auditors will start looking more closely at how companies use it. The KPMG survey found that 64% of companies expect auditors to have a role in evaluating their use of AI in financial reporting, providing assurance and attestation over their AI controls. 

As for what, specifically, these companies want their auditors to do, 64% of respondents 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. A little over half, 53%, foresee auditors carrying out an AI governance maturity assessment. About a third, 34%, expect to ask auditors to provide third-party attestation over the use of AI technology. However the poll also found a sizable minority, 24%, who expect the auditor's role to remain more or less the same with regard to technology. 

Some auditors are already examining AI usage despite the lack of formal standards and official frameworks (see story). Part of what enables professionals to move forward, despite lacking authoritative guidance, is there are already several aspects of AI usage that fit within currently existing standards, especially those concerning technology controls that have previously been applied to other areas, such as IT audit. Further, certain audit procedures, like linear regression, are intuitive to understand and apply to at least some aspects of AI.

However, a survey March (see story) found that only a small minority of audit executives report generative AI use in their own department. Only 12% of respondents said they currently use generative AI for audit-specific use cases. However, another 29% of executives have not implemented the technology yet, but intend to do so over the next year, and another 20% plan to adopt it in more than a year. Still, 39% of respondents said they do not use generative AI and have no plans to do so in the future. 

Audit clients have a different impression, according to the KPMG survey. Most companies believe their external auditors will be using generative AI as a common practice within less than two years on average. Leaders expect it to happen even faster — in just 18 months. The vast majority of companies, 82%, believe their auditors are ahead or equal with them in the adoption of AI for financial analysis. Another 85% believe their auditors understand their company's use of AI for financial reporting moderately to very well, with over half saying well or very well. 

In terms of how leaders would like auditors to use AI, the strongest contenders were predictive analysis (leveraging the ability of models to adapt continuously to new data and generate scenarios that show potential outcomes and impacts); improve speed of delivery (identify trends, anomalies and potential risks in real time, improving responsiveness); and document and data gathering (through automated data extraction, document classification and organization, and text analysis and summarization.)

"Businesses are looking to their auditors to lead the AI transformation due to their deep understanding of financial reporting processes and ability to identify areas where AI can add the most value," said Matt Campbell, chief technology officer of KPMG UK's audit practice, in a statement. "By understanding the value that advanced AI can bring to the audit process, we are able to provide more in-depth insights into the financial health of an organization and protect the growing needs of businesses, investors, and audit professionals."

To get this data, KPMG surveyed financial reporting executives and board members at 1,800 companies across six industries, 10 countries and jurisdictions, and varying revenue sizes. Survey respondents included financial reporting executives with decision-making authority and oversight over financial reporting, accounting, analysis, audits and financial information. They came from companies with revenue between $250 million and over $1 billion. The countries surveyed include Australia, Canada, France, Germany, Japan, Ireland, Netherlands, U.K., U.S. and Spain. The poll was conducted between February — March 2024.