AI and Financial Reporting

There is much discussion concerning the use of AI in preparing and auding financial reports.  But very little is being said (as far as I can see) about how AI can assist users of financial reports.

AI will be transformative for users of financial reports.

AI has the ability to upload information from financial reports directly into users’ models.  AI agents will have to be trained to do this.  And financial reports will need to clearly label information so that AI can find the relevant information and correctly insert it into users models.  But AI will make the preparation of models to value businesses much easier.

XBRL tagging of data fields in financial reports ceases to be relevant.  AI can find information based on natural language labels.  Regulation mandating the use of XBRL can be withdrawn.

AI models can find the information wherever it is placed in financial reports so long as it is adequately labelled.  The placement of information in financial reports will no longer need to be dictated by financial reporting standards.  IFRS 18 with its focus on placement of information in financial reports is no longer necessary.

As placement ceases to be important when preparing financial reports management will be able to tell their own story in their way (provided all the information required by regulation is included).  The way that this story is told will provide users with additional information points not currently available due to prescriptive formatting of financial reports.

What does this mean for users, preparers, regulators and auditors?

Users not already using AI will need to start using AI or be left behind by their competitors.

Users should be challenging regulators to allow preparers the freedom to tell their own story in a way that gives users more information about the attitudes of management.

Preparers need to be alert to (and canvassing for) changes to regulation to allow them to tell their own story in their own way.

Regulators, including standard setters, need to understand how AI will change the way financial reports are used and adapt regulations/standards accordingly.

Auditors will not be impacted much by changes in how users access financial reports.  They will still be required to provide assurance over the same numbers.  It is just that the formats will change.  More effort may be required to ensure information is adequately labelled to enable AI to find it.  The actual audit process will not change (other than due to the added capabilities AI can bring to the assurance process, but that is not a subject for consideration in this blog).