– Leveraging Innovations in Artificial Intelligence
These days, many businesses are increasingly appreciating the power of Artificial Intelligence (AI) in their operations. According to the “Global State of Artificial Intelligence (AI), 2022 Report” published by a research firm, Frost & Sullivan, eighty-seven percent (87%) of organizations believe that Artificial Intelligence (AI) and Machine Learning (ML) will help them grow revenue, boost operational efficiency and improve customer experiences. To finance professionals, Artificial Intelligence (AI) can be used to streamline processes in financial reporting as well as financial analysis. What then is financial reporting and financial analysis to which Artificial Intelligence (AI) is being applied or required to improve outcomes?
Financial Reporting
Financial reporting is the accounting process of communicating financial information to individuals or institutions who need it to help them make informed decisions. These individuals or institutions are the stakeholders of the organization and can be internal to it or outside it. The internal stakeholders are the senior management and other employees of the organization while the external stakeholders include regulatory agencies, tax authorities, investors and lenders.
A financial report can come in many forms depending on the information needs of the user. This means that a financial report can either be done annually (at the end of a company’s financial year or on interim basis which can be monthly and quarterly, that is every three months in a year). Financial reporting is a crucial function for any organization and the general types of financial information are the balance sheet, income statement and statement of cash flows. statement of changes in equity as well as the notes to the accounts. To prepare these reports can be 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 as well as transparency. What this means is that sound decisions cannot be arrived at if financial reports are defective at birth and thus provide a weak foundation for financial analysis.
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 effect, help to make informed decisions about investments, mergers and acquisitions as well as other strategic initiatives.
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 when it is used to:
Automate Data Collection and Validation
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 mined and retrieved from those 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 effect, Artificial Intelligence (AI) not only helps to cut down the resource–intensive efforts but improves quality of financial reports as a result of automated data quality checks and validations.
Streamline Data Analysis
Another challenge in financial reporting is analyzing and visualizing large volumes of data and presenting them 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 to identify patterns, trends, and insights from those data and then generate reports, dashboards, and charts that are easy to understand and communicate to users. Artificial Intelligence (AI) uses what is known as natural language generation (NLG) to create summaries of financial transactions, provide concise narratives, and recommendations based on the data analysis and visualization.
Improve 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.
Harmonize Regulatory Interpretation
Financial reporting involves understanding and interpretation of regulations and standards which can be difficult and often subject to changes or amendments over time. But with the application of Artificial Intelligence, this challenge needs not be a burdensome one. With regulator-issued, machine–readable and machine-executable codified regulations, there has been significant reduction in the need for regulatory interpretations and therefore, reduced risks of misinterpretation and increased overall accuracy of reporting.
Enable 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.
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, letting investors chart investment growth and evaluate. As a result, Artificial Intelligence (AI) can turn your financial reporting from a burden into a competitive advantage.
Original Source: B&FT