Corporate reporting & AI - opportunities and risks

To date, advancements in technology have primarily focused on back-office accounting functions and processes. The use of technology is already enabling finance departments to create more efficient processes and better controls for their accounts payable/receivable, risk management and business forecasting functions. However, attention is now turning to corporate reporting which has traditionally been a complex area with a high degree of human input, particularly with regard to judgements and interpretation of requirements. Whilst, historically, it may have been perceived there was little room for technology to play a leading role in corporate reporting, it is evident that the way companies manage and govern data in light of advances in technology now warrants additional consideration.

It is only relatively recently that companies admitted to trading on UK regulated markets were required to produce their annual financial report in the electronic reporting format specified in the TD ESEF regulation. Producing annual reports in a structured digital formal has started to bring corporate reporting into the digital era. Using a structured digital format enhances transparency for investors and other stakeholders by making it easier to access, analyse and compare data in annual reports.

Artificial Intelligence (AI) - the ability of a digital computer (or computer-controlled robot) to perform tasks commonly associated with intelligent beings - is a potential game-changer for corporate reporting. The Financial Reporting Lab (the Lab) started looking at AI back in 2016 and has subsequently issued “Artificial Intelligence and corporate reporting - How does it measure up?” and most recently issued an insight report on “AI, Emerging Tech and Governance”. By the end of the year, there are wider plans for the FRC to publish further case studies that explore the intersection of AI and tech with guidance and frameworks and for the Lab to analyse how companies include AI in annual reports and consider emerging good practices. Whilst this is a still a developing area it is evident that AI is becoming increasingly important.

AI can bring speed and efficiency to corporate reporting through the ability to process, structure and analyse copious amounts of data effectively. Potential uses for AI in corporate reporting arise at various stages and for different parties. These include:

• Production phase: Building efficiency into the collation of data, analysis and commentary used in the annual report.
• Validation phase: AI is already helping to provide improved quality in the audit process as it enables analysis of more complete sets of data and transactions. AI can further enhance validation processes surrounding the annual report.
• Investor analysis phase: The use of AI in investment analysis enables better forecasting and predicting skills and wider, deeper and faster coverage of markets. AI can also be used to look at alternative unstructured data sources which help make it possible to make decisions based on more data in less time.

Data analytics using AI and data mining can also help with the ability to detect fraud or errors in financial statements. The use of AI certainly takes Benford's law (the law of anomalous numbers) to a new dimension.

The emergence of OpenAI’s ChatGBT and more recently Google’s latest AI-powered chatbot, ‘Bard’ bring further opportunities. Whilst primarily helping to automate repetitive tasks and analyse large amounts of data, the potential for using technology such as ChatGBT not just to analyse but to produce corporate reporting are enormous and are likely to have a significant impact in the corporate reporting arena in the near future.

It is clear that the impact that technology may have on corporate reporting presents massive opportunities for companies, but it also comes with potential risks attached. For example, in corporate reporting care is particularly needed in application of reporting requirements, ensuring information is fairly presented and ensuring data sources are accurate.

Proceed with caution

AI can certainly help provide valuable insight and also look to make many tasks quicker, more accurate and more efficient. Although in many respects we are still in the ‘early days’, the use of AI in corporate reporting is likely to more forward at a fast pace. Whilst companies will need to embrace innovative technologies, companies will also need to consider carefully how much they can delegate to the new tools and ensure they understand where these heavily networked tools obtain their information and what they do when they cannot find what they were looking for. ChatGPT and AI more generally is unlikely to completely replace the human touch.

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