In the present world driven by modern technology, many businesses are increasingly appreciating the power of Artificial Intelligence (AI) in their operations. According to the “Global State of Artificial Intelligence (AI), 2024 Report” published by a research firm, Frost & Sullivan, eighty-nine percent (89%) of organizations believe that Artificial Intelligence (AI) and Machine Learning (ML) will help them achieve business goals revolving around increasing operational efficiency, supporting innovation and improving customer experiences.
To finance professionals, Artificial Intelligence (AI) can streamline processes in financial reporting as well as financial analysis. This article further looks at financial reporting and analysis with a seamless integration of Artificial Intelligence (AI).
Financial Reporting
Financial reporting is the process of presenting a financial information about a company or an organization to its stakeholders such as employees, regulatory agencies, tax authorities, investors and lenders. A financial report can come in many forms depending on the information needs of the user.
The general types of financial reports that provide useful information to stakeholders are the balance sheet (statement of financial position), Statement of Comprehensive Income, Cashflow Statement, Statement of Changes in Equity as well as the Notes to the Financial Statements.
In fact, to prepare these reports manually is time-consuming and prone to many errors in the process. Thus, activities like manual data entry from multiple sources and formats, complex calculations and changing regulations can create challenges for accuracy, efficiency, compliance, transparency and stakeholder communication.
What this means is that sound decisions cannot be taken if a financial reporting process is defective at birth and thus provides a weak foundation for financial analysis. That said, it is worth highlighting that financial reporting aims at providing relevant information for investment decisions, evaluate a company’s performance or complying with a regulatory requirement.
Financial Analysis
Indeed, there is a direct relationship between financial reporting and financial analysis. Financial reports provide the basis for financial analysis. That said, financial analysis is an in-depth examination of financial reports to reach a business decision.
It involves an examination of historical and projected profitability, cash flows, balance sheets and related risks. Financial analysis involves metrics or ratios to compare the trends of businesses’ financial performances which invariably help to determine their value. The analyses, in essence, help to make informed and a strategic business decision or initiative for growth.
Integrating Artificial Intelligence
In today’s fast-paced business environment, financial reporting as well as financial analysis is becoming increasingly complex and the emergence of Artificial Intelligence (AI) is to change the dynamics and make the process easy and smooth. Artificial Intelligence (AI) can facilitate financial reporting and analysis through:
Data Collection and Processing
It is a fact that financial reporting is traditionally labour-intensive and tedious since it involves the use of data from multiple sources such as your organization’s Enterprise Resource Planning (ERP) systems, spreadsheets, invoices, bank statements, tax forms which require validation after gathering them together. Leveraging on Artificial Intelligence (AI) in this processes can eliminate the burden.
This means that with Artificial Intelligence (AI), data can be autonomously extracted from multiple data sources and platforms to auto-populate reports. Artificial Intelligence (AI) automates this process by using what is known as natural language processing (NLP) and optical character recognition (OCR) to extract data and then classify and verify them. Artificial Intelligence (AI) flags irregularities, discrepancies in a data and alerts you to any forms of error or frauds.
The automation of the end-to-end process of financial reporting invariably reduces manual interventions and activities like mappings, checks, reconciliations and reviews. In essence, Artificial Intelligence (AI) not only helps to cut down the resource-intensive efforts but also improves quality of financial reports because of automated data quality checks and validations.
Improving Data Quality
One of the key aspect of financial reporting is ensuring that the data is accurate, consistent, and compliant with relevant standards and regulations. Artificial Intelligence (AI) can enhance data quality and compliance by using rules-based and predictive models to check and enforce data integrity, consistency, and validity. This helps to gain deeper insights, influence better communication to users of the financial reports.
Harmonizing Regulatory Interpretation
Financial reporting involves understanding and interpretation of regulations and standards that can be difficult and often subject to changes or amendments over time. However, the interpretation of accounting standards with the application of Artificial Intelligence helps to enhance consistency and understanding.
There has been significant reduction in the need for regulatory interpretations and therefore, a mitigated risk of misinterpretation and an improved accuracy of reporting. For instance, Natural Language Processing (NLP) is applied in standards analysis and Machine Learning-based for accounting classification, virtual IFRS assistants and IFRS bots for automated guidance.
Streamlining Financial Analysis
Another challenge in financial reporting is analyzing and visualizing large volumes of data and presenting it in a clear and meaningful way. The application of Artificial Intelligence (AI) makes it efficient to streamline this process by using its Machine Learning (ML) and data mining features for data validation and cleansing.
Those features have embedded predictive analytics for identifying patterns, trend analysis and insights, generating reports, interactive dashboards and charts that are easy to understand and communicate to users.
Thus, Artificial Intelligence (AI) uses natural language generation (NLG) to create summaries of financial transactions, provide concise narratives and recommendations based on the data analysis and visualization. In this regard, Artificial Intelligence (AI) is an enabler of real-time financial reporting and alerts.
Enabling Data-driven Decision-making
The ultimate goal of financial reporting is to provide useful information for decision making. It is worth knowing that Artificial Intelligence (AI) can enable data-driven decision making by using advanced analytics and cognitive computing to provide actionable insights, forecasts, and scenarios based on the data.
Artificial Intelligence (AI) also relies on natural language understanding (NLU) and conversational interfaces to interact with users and answer their queries and requests. Apart from that, Artificial Intelligence (AI) can also use reinforcement learning and optimization techniques to suggest optimal actions and outcomes based on the data.
Brief Takeaways
- Artificial Intelligence (AI) technologies such as Machine Learning (ML) and Natural Language Processing (NLP) use algorithms or procedures in financial reporting and analysis. That’s keeping pace with technological advancement and innovation.
- Artificial Intelligence serves as a tool for better risk management and helps in automated identification of financial anomalies and correcting same errors.
- In financial statement preparation, Artificial Intelligence (AI) provides for automated account reconciliation and journal entries. ReckSoft®, for instance, is globally recognized as an innovative software for big data account reconciliation concerning government institutions and large corporates.
- Artificial Intelligence (AI) streamlines financial reporting and enhances accuracy, efficiency of the process for real-time decision-making.
Conclusion
In the closing, Artificial Intelligence (AI) is not meant to replace human judgment and expertise, but to serve as an enabler and a powerful tool to improve the financial reporting process. By extension, a scalable Artificial Intelligence (AI) reporting solution can be used to codify the entire reporting process, from report interpretation to report generation as well as analysis.
It is worth re-emphasizing that Artificial Intelligence (AI) can easily analyze large volumes of data and identify trends by click of a button. Its integration into financial reporting and analysis helps users to forecast future performance and letting investors monitor their investments and other options on the market. As a result, Artificial Intelligence (AI) can turn your financial reporting from a burden into a competitive advantage.
BERNARD BEMPONG
Bernard is a Chartered Accountant with over 14 years of professional and industry experience in Financial Services Sector and Management Consultancy. He is the Managing Partner of J.S Morlu (Ghana) an international consulting firm providing Accounting, Tax, Auditing, IT Solutions and Business Advisory Services to both private businesses and government.
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