AI for accounting and financial reporting

Using artificial intelligence to augment your capabilities

5-minute read

With a number of new artificial intelligence (AI) tools available on the market, accounting and bookkeeping are old professions with newfound powers. Indeed, a number of apps can now automate routine tasks such as data entry, transaction categorization, and invoice processing, allowing accountants to focus on strategic, value-added activities.

“When it comes to accounting and financial reporting, AI can be a valuable assistant, helping SMEs become more efficient,” says Jonathan Pastrikos, Director, Business Innovation and Technology, BDC.

For instance, Ai can help you:

Make fewer errors
Raise up real-time insights
Monitor key business indicators
Detect anomalies
Identify trends
Aid in reporting and forcasting

Here is how AI is changing accounting and financial reporting, and how your business can leverage its power.

The quickest and easiest way for your accounting team to start leveraging AI is to harness the embedded AI capabilities of modern accounting or business software.

How is AI used in accounting and bookkeeping?

Small and medium-sized enterprises (SMEs) can use AI to help them with accounting as well as financial and operational reporting in a number of ways. Although still relatively new to the market, many SMEs who use AI do so as part of their accounting software, since building custom AI tools and models from scratch remains difficult and costly.

According to Pastrikos, “Several popular accounting and business software already offer embedded AI capabilities, and their sophistication will continue to increase. The quickest and easiest way for your accounting team to start leveraging AI is to harness the embedded AI capabilities of modern accounting or business software.”

One key area SMEs can benefit from using AI is data capture. For companies with high transaction volumes, manual data entry is a tedious, repetitive and low-value task. By using AI to automate this work, SMEs can save time, effort, and free up their accountants to work on higher-value activities.

Many accounting applications, for example, allow you to scan documents and automatically create transaction records in a fraction of the time it would take a human. They can accurately identify the customer or vendor, dates, product descriptions, dollar values, as well as many other details, then categorize the transactions and even match the invoice to the purchase order. Once completed, the accountant can review, edit and approve the generated transactions.

Can AI replace my accountant or bookkeeper?

AI cannot replace accountants, but it can allow for accounting teams to spend their time on higher-value tasks.

“AI does not replace accountants,” stresses Pastrikos. “It’s a tool to complement their work, augment their capabilities, and help them work better and faster so they can focus their efforts on deeper analysis and strategic initiatives that can help the business grow.”

For instance, with AI tools accelerating data entry, time is freed up for your accountant to analyze your company’s financial data in depth, looking for opportunities to improve the company’s position. How are sales trending for various products, services, or channels? How are sales doing in certain markets? What adjustments can you make to reduce costs and increase profit? Do the financials support our strategic plans?

It is also important to note that AI technologies are not foolproof. They can and do make mistakes. For this reason, it is critical to rely on an accountant to validate and verify the work completed by AI tools.

AI will help you identify trends, gain insights and answer specific questions, such as ‘Why is profit increasing in this product or service category?

What accounting problems can AI help solve?

AI can help SMEs solve a number of accounting problems. Here are the most common challenges it can address.

Data entry errors	By automating data entry, AI saves time and minimizes human errors that can occur when inputting large volumes of data, such as missing values, typos, duplicates and formatting inconsistencies.
Fraud	AI can detect unusual patterns in financial data that may indicate fraudulent activity, enabling early detection and prevention. For example, AI can identify anomalies in key metrics, including real-time banking transactions, app usage, and payment methods, flagging suspicious activities for further investigation.
Forecasting	When it comes to all things financial, seeing ahead has always been a challenge for SMEs. With AI tools, however, forecasting is now easier. Indeed, AI algorithms can build models to forecast future financial metrics such as revenue, expenses, cash flow, and profitability, allowing you to prepare for upcoming challenges and opportunities with greater confidence.
Cost accounting	AI can analyze spending patterns and identify areas where costs can be reduced or optimized. It can provide you with insights into cost drivers and recommend strategies for better expense management.
Alerts and notification	AI-powered accounting software can monitor financial transactions in real-time and alert you about overdue invoices, upcoming payment due dates, discrepancies in payment amounts and upcoming transactions. Certain apps can also notify your team when cash reserves are low, or when there are significant changes in cash flow projections that require attention.

How is AI used in financial reporting?

AI allows SMEs to speed up financial reporting. It also lets them easily push their analyses one step further. Here is how SMEs use AI for this crucial task.

Data collection and integration	AI can automate the collection, aggregation, and integration of financial data from various sources such as ERP systems, CRM applications, e-commerce platforms and warehouse management software. This ensures data accuracy and completeness, while the automation of repetitive tasks accelerates the financial reporting process, helping SMEs meet reporting deadlines.
Data validation	AI algorithms can perform data validation and reconciliation tasks more efficiently than humans, ensuring that financial reports are accurate and consistent across different periods and sources.
Data analysis	AI-powered accounting applications can analyze large volumes of financial data quickly and accurately, identifying trends, patterns, correlations, and anomalies that may otherwise go unnoticed. “Newer systems even allow natural language processing,” says Pastrikos. “So you can ask questions such as ‘Who are my top customers?’ and ‘How many clients are 30 days past due?’”

Can AI generate and analyze financial statements?

Most accounting software can automatically generate financial reports, whether they are powered by AI or not. SMEs are already using them to generate a number of financial reports, including balance sheets, income statements, cash flow statements, and more. This reduces the time spent on manual report preparation and ensures timely delivery of accurate financial information.

Where AI can really help is in analyzing financial statements, says Pastrikos. “AI will help you identify trends, gain insights and answer specific questions, such as ‘Why is profit increasing in this product or service category?’”

How can small businesses start using AI for accounting and financial reporting?

To get started using AI for accounting and financial reporting, follow these five steps.

Assess needs and goals: identify specific areas where AI could add value in accounting and financial reporting. Determine goals such as improving efficiency, accuracy, or gaining deeper insights into financial performance.
Choose the right tools: custom AI tools are expensive. Start with basic accounting or business software with the AI capabilities that fit your needs and priorities, whether they be data entry, real-time financial reporting or predictive analytics. There are also many effective “add-on” apps that can be connected to your existing systems to enhance their capabilities or add functionality.
Prepare your data: ensure your financial and operational data is well organized. Verify that you are collecting the right information and integrate the data from all your company’s systems, such as your CRM software or e-commerce platform.
Train your team: new tools mean new skills. To harness the power of your new AI software, consider investing in talent upskilling. Help your accountants find the training they need to enhance their qualifications.
Seek expert advice: if this is your first foray in using AI for accounting and financial reporting, don’t hesitate to consult with specialists like financial advisors, consultants or technology providers. They’ll save you from obvious mistakes.

Next step

Identify use cases for AI in your business by downloading BDC’s free Get started with AI checklist