Case Study 5: Accountancy as Non-Executive Director – AI in Financial Reporting

7 May, 2026

SCENARIO

You are an experienced accountant serving as a Non-Executive Director (NED) and Chair of the Audit Committee for a listed technology company. The company has recently implemented a sophisticated AI system that automates significant aspects of its financial reporting process, including complex revenue recognition calculations for long-term contracts and valuations of intangible assets acquired through recent acquisitions.

During the quarterly Audit Committee meeting, management presents financial results that show strong performance, attributing significant positive variances to efficiencies and insights gained from the new AI system. However:

When questioned by the committee, the CFO and finance team struggle to provide clear, concise explanations of how the AI arrived at certain key figures, particularly regarding judgmental areas like asset valuation assumptions. They refer to the system’s complexity and proprietary algorithms.
The external auditors express reservations, noting challenges in obtaining sufficient appropriate audit evidence regarding the AI’s internal logic and controls. They mention difficulties in independently verifying the AI-generated outputs beyond reconciling them to source data fed into the system.
You notice a lack of documented board-level discussion or approval regarding the implementation scope and risk assessment of this new AI system impacting core financial reporting.
Another NED raises concerns about whether the board fully understands the implications of relying on AI for figures that underpin market communications and regulatory filings.

Ethical Considerations

Integrity

Does the board have sufficient assurance that the AI-generated financial statements present a true and fair view, fulfilling the principle of integrity in financial reporting? Is relying on poorly understood AI outputs consistent with straightforward and honest reporting to shareholders and regulators?

Objectivity

Is the committee maintaining sufficient professional scepticism towards management’s presentations and the AI’s outputs? Could the allure of AI or management assurances be overshadowing an objective assessment of the reported figures and the associated risks?

Professional Competence and Due Care

Does the board and audit committee possess, or have access to, the necessary expertise to oversee and challenge management’s use of AI in financial reporting? Has the board exercised due care in understanding the risks (e.g., bias, errors, lack of transparency) associated with this technology before relying on it for critical reporting?

Confidentiality

Are there adequate controls over the sensitive financial data being processed by the AI and the proprietary AI models themselves to ensure confidentiality is maintained?

Professional Behaviour

Could reliance on inadequately understood or validated AI for financial reporting lead to non-compliance with accounting standards, listing rules, or director duties? What are the reputational risks to the company and its directors if the AI-generated figures are later found to be materially misstated?

Possible Course of Action

Require Deeper Explanations: Insist that management provide clearer, understandable explanations of the AI’s methodologies for key judgements, potentially requiring input from the AI developers or independent experts.
Challenge Management & Auditors: Probe both management and the external auditors on the specific steps taken to validate the AI outputs and the sufficiency of audit evidence obtained. Question the auditors on how they are adapting their procedures to address AI risks.
Seek Independent Assurance: Recommend that the Audit Committee commissions an independent third-party review of the AI system’s controls, logic, and outputs, focusing on its use in financial reporting.
Enhance Board Expertise: Advocate for board and Audit Committee training on AI fundamentals, risks, and governance relevant to financial oversight. Consider appointing advisors with specific AI expertise if needed.
Review AI Governance: Insist on a formal review and board-level approval of the governance framework for the AI system, including risk management protocols, controls, oversight responsibilities, and ethical guidelines.
Document Concerns: Ensure that the committee’s concerns, questions, and the responses received regarding the AI system are thoroughly documented in the meeting minutes.
Consider Reporting Implications: Discuss the potential need for disclosures regarding the use of AI in financial reporting and any associated uncertainties or risks in the company’s external communications (e.g., annual report).

Recommendation

As Audit Committee Chair, recommend that the committee does not approve the quarterly financials for release until management provides satisfactory explanations and assurance regarding the AI-generated figures, supported by adequate evidence from the external auditors or independent experts. Propose a formal review of the AI system’s implementation, controls, and governance, with findings reported back to the full board. Stress the importance of the board exercising its oversight duty by ensuring it understands and is comfortable with the risks and implications of using AI in critical financial reporting processes before relying on its outputs. Recommend urgent development and board approval of a comprehensive AI governance framework.