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#Expert Research: The Use of AI in Financial Reporting

Artificial intelligence (AI) is developing into an amazing tool to help humans across multiple fields, including medicine and research, and much of that work is happening at Emory University’s Goizueta Business School. Financial reporting and auditing are both areas where AI can have a significant impact as companies and audit firms are rapidly adopting the use of such technology. But are financial managers willing to rely on the results of AI-generated information? In the context of audit adjustments, it depends on whether their company uses AI as well. Willing to Rely on AI? Cassandra Estep, assistant professor of accounting at Goizueta Business School, and her co-authors have a forthcoming study looking at financial managers’ perceptions of the use of AI, both within their companies and by their auditors. Research had already been done on how financial auditors react to using AI for evaluating complex financial reporting. That got Estep and her co-authors thinking there’s more to the story. “A big, important part of the financial reporting and auditing process is the managers within the companies being audited. We were interested in thinking about how they react to the use of AI by their auditors,” Estep says. “But then we also started thinking about what companies are investing in AI as well. That joint influence of the use of AI, both within the companies and by the auditors that are auditing the financials of those companies, is where it all started.” The Methodology Estep and her co-authors conducted a survey and experiment with senior-level financial managers with titles like CEO, CFO, or Controller – the people responsible for making financial reporting decisions within companies. The survey included questions to understand how companies are using AI. It also included open-ended questions designed to identify key themes about financial managers’ perceptions of AI use by their companies and their auditors. In the experiment, participants completed a hypothetical case in which they were asked about their willingness to record a downward adjustment to the fair value of a patent proposed by their auditors. The scenarios varied across randomly assigned conditions as to whether the auditor did or not did not use AI in coming up with the proposed valuation and adjustment, and whether their company did or did not use AI in generating their estimated value of the patent. When both the auditor and the company used AI, participants were willing to record a larger adjustment amount, i.e., decrease the value of the patent more. The authors find that these results are driven by increased perceptions of accuracy. It’s not necessarily a comfort thing, but a signal from the company that this is an acceptable way to do things, and it actually caused them to perceive the auditors’ information as more accurate and of higher quality. Cassandra Estep, assistant professor of accounting “Essentially, they viewed the auditors’ recommendation for adjusting the numbers to be more accurate and of higher quality, and so they were more willing to accept the audit adjustment,” Estep says. Making Financial Reporting More Efficient Financial reporting is a critical process in any business. Companies and investors need timely and accurate information to make important decisions. With the added element of AI, financial reporting processes can include more external data. We touched on the idea that these tools can hopefully process a lot more information and data. For example, we’ve seen auditors and managers talk about using outside information. Cassandra Estep “Auditors might be able to use customer reviews and feedback as one of the inputs to deciding how much warranty expense the company should be estimating. And is that amount reasonable? The idea is that if customers are complaining, there could be some problem with the products.” Adding data to analytical processes, when done by humans alone, adds a significant amount of time to the calculations. Research from the European Spreadsheets Risks Interest Group says that more than 90% of all financial spreadsheets contain at least one error. Some forms of AI can process hundreds of thousands of calculations overnight, typically with fewer errors. In short, it can be more efficient. Efficiency was brought up a lot in our survey, the idea that things could be done faster with AI. Cassandra Estep “We also asked the managers about their perspective on the audit side, and they did hope that audit fees would go down, because auditors would be able to do things more quickly and efficiently as well,” Estep says. “But the flip side of that is that using AI could also raise more questions and more issues that have to be investigated. There’s also the potential for more work.” The Fear of Being Replaced The fear of being replaced is a more or less universal worry for anyone whose industry is beginning to adopt the use of AI in some form. While the respondents in Estep’s survey looked forward to more efficient and effective handling of complex financial reporting by AI, they also emphasized the need to keep the human element involved in any decisions made using AI. What we were slightly surprised about was the positive reactions that the managers had in our survey. While some thought the use of AI was inevitable, there’s this idea that it can make things better. Cassandra Estep “But there’s still a little bit of trepidation,” Estep says. “One of the key themes that came up was yes, we need to use these tools. We should take advantage of them to improve the quality and the efficiency with which we do things. But we also need to keep that human element. At the end of the day, humans need to be responsible. Humans need to be making the decisions.” A Positive Outlook The benefits of AI were clear to the survey participants. They recognized it as a positive trend, whether or not it was currently used in their financial reporting. If they weren’t regularly using AI, they expected to be using it soon. I think one of the most interesting things to us about this paper is this idea that AI can be embraced. Companies and auditors are still somewhat in their infancy of figuring out how to use it, but big investments are being made. Cassandra Estep “And then, again, there’s the fact that our experiment also shows a situation where managers were willing to accept the auditors’ proposed adjustments. This arguably goes against their incentives as management to keep the numbers more positive or optimistic,” Estep continues. “The auditors are serving that role of helping managers provide more reliable financial information, and that can be viewed as a positive outcome.” “There’s still some hesitation. We’re still figuring out these tools. We see examples all the time of where AI has messed up, or put together false information. But I think the positive sentiment across our survey participants, and then also the results of our experiment, reinforce the idea that AI can be a good thing and that it can be embraced. Even in a setting like financial reporting and auditing, where there can be fear of job replacement, the focus on the human-technology interaction can hopefully lead to improved situations.” Cassandra Estep, is an assistant professor of accounting at Goizueta Business School, and a co-author of the forthcoming study looking at financial managers’ perceptions of the use of AI. She's available to speak about this important topic - simply click on her icon now to arrange an interview today.

Reddit Shares Expected to Commence Trading on NYSE | Media Advisory

In a move emblematic of the digital age's intersection with traditional finance, Reddit, the vast online community platform, is poised to debut its shares on the New York Stock Exchange (NYSE). This event marks a significant milestone for the company, celebrated for its user-generated content and vibrant forums that span every conceivable interest. For investors, tech enthusiasts, and users alike, Reddit's transition from a private to a public entity opens up discussions on the valuation of online communities, the future of digital platforms, and the implications for the broader stock market. Key sub-topics include: Initial Public Offering (IPO) Details: Insights into Reddit's valuation, share pricing, and the IPO process. Impact on the Tech Industry: What Reddit's public listing means for the tech sector and other social media platforms. User Community Reaction: How Reddit's dedicated user base perceives the move to go public and potential changes to the platform. Market Performance and Investor Sentiment: Analysis of investor interest, market trends, and the potential for Reddit's stock. Corporate Governance and Strategy: The shift in Reddit's management approach post-IPO and strategic plans for growth. The Role of Digital Platforms in Modern Investing: How Reddit and similar platforms influence investor decisions and market dynamics. For journalists seeking research or insights for their coverage on this topic, here is a select list of experts. Scott Stratten President & CEO · UnMarketing Samantha Bradshaw Doctor of Philosophy Candidate · Oxford Internet Institute David Meerman Scott Marketing Strategist, Keynote Speaker, Bestselling Author Sean Thoennes, Ph.D. Associate Faculty - Media Psychology · Fielding Graduate University To search our full list of experts visit www.expertfile.com Photo by Brett Jordan

Expert Podcasts: In Corporate Valuation, Customers are King

From investors to managers, business leaders need to understand the true value of companies, but many of the traditional methods are outdated and incomplete. Emory University Goizueta Business School's Professor Dan McCarthy joins to discuss customer-based corporate valuation, including the critical role customer lifetime value plays in driving a company’s success. For more insight and if you're interested in knowing more, then check out Dan's conversation that includes why customer data points are most important to monitor and how investors and managers stand to benefit from this approach. It's right here on the Goizueta Effect podcast. Dan is an Assistant Professor of Marketing at Goizueta Business School. His research centers on customer lifetime value, limited data problems, data privacy, and the marketing-finance interface. He is regularly featured as a key expert, with recent coverage in the Harvard Business Review, Wall Street Journal, Fortune, The Economist, and CNBC. If you're looking to connect or arrange an interview – simply click on his icon now to book a time today.

Environmental economics expert Dr Brock on COP26

A number of climate experts from the University of East Anglia will be available for interview during the COP26 climate conference in Glasgow. Their areas of expertise range from the impact of climate change on biodiversity, climate geoengineering and carbon removal, to the impact of climate change on sovereign credit ratings, carbon uptake by the oceans, and gender and climate change. Among them is Associate Professor in Microeconomics, Dr Mike Brock, from UEA's School of Economics. His research areas and expertise cover environmental and behavioural economics, recycling and environmental valuation. He explores how (and why) people behave in a more sustainable or environmental way. Particular projects include financial incentives to encourage recycling through lottery techniques and the use of competitive rankings on personal use of energy to stimulate energy reduction. Mike has also explored people’s behaviours towards wildlife – for example why people flock to see newly-identified species of birds and the environmental of that behaviour.

Why customers hold the key to a company’s true valuation

When determining a fair valuation for a company—especially in anticipation of an initial public offering (IPO)—investors often rely heavily on “top down” approaches focusing primarily on traditional financial measures to do so. But what if this approach doesn’t paint the full picture? Daniel McCarthy, assistant professor of marketing at Emory’s Goizueta Business School, is building the case that augmenting traditional data sources with customer behavior data gives investors a more accurate company valuation. For the past several years, McCarthy and Peter Fader, professor of marketing at the Wharton School of the University of Pennsylvania, have worked to refine a customer-driven investment methodology they created. “Customer-based corporate valuation (CBCV) simply brings more focus to how individual customer behavior drives the top line,” they explained in “How to Value a Company by Analyzing Its Customers,” an article published in the Harvard Business Review (HBR) earlier this year. “This approach is driving a meaningful shift away from the common but dangerous mindset of ‘growth at all costs,’ towards revenue durability and unit economics—and bringing a much higher degree of precision, accountability, and diagnostic value to the new loyalty economy.” Fader, McCarthy’s PhD advisor while he was at Wharton, had done some of the seminal work on forecasting customer shopping/purchasing behaviors. This helped build baseline expertise for how one could go about the customer-level modeling. McCarthy recognized that this behavioral modeling could be put to good use in a financial setting, if done the right way. “There was this untapped source of intellectual property that’s been accumulating within marketing over the last 30 years,” McCarthy said. While other academics have done some conceptual work in the area, none, McCarthy noted, had done so in a way that was consistent with how financial professionals go about performing corporate valuation. McCarthy and Fader merged these well-validated customer-level models with standard corporate valuation methods, then put their resulting valuation tool head-to-head with alternative approaches. They found that their CBCV model subsequently outperformed. A full article on this subject is attached, within it, you will find key CBCV highlights such as: Using unit economics to more accurately predict revenue forecasts Gaining access to the right data The CBCV model is also good for managers and for customers Working to have publicly traded companies adopt CBCV McCarthy’s work on the CBCV methodology has earned him a number of awards, including the MSI Alden G. Clayton, American Statistical Association, INFORMS, and the Shankar-Spiegel dissertation awards. If you are a journalist covering this topic or if you want to learn more about this work or customer-based corporate valuation – then let our experts help. Daniel McCarthy is an Assistant Professor of Marketing at Emory University's Goizueta School of Business where his research specialty is the application of leading-edge statistical methodology to contemporary empirical marketing problems. If you are looking to contact Daniel – simply click on his icon now to arrange an interview today.

Full speed ahead or time to pump the breaks when it comes to investing in ride-share companies?

There’s been a lot of talk and even some screaming from early investors about the state of ride-share stocks like Uber and Lyft. Since its IPO, Uber has been a rollercoaster ride for those who got in early. “When Uber stock (UBER) went public on May 10, it looked like a disaster. At minimum, underwriters look for a stock to close slightly above its offering price. Uber’s shares dropped 7.6% to $41.60 in the first day of trading and closed well below the offering price of $45. But a funny thing has happened since. After closing down as much as 18% from its IPO price, Uber stock has rallied 21% to close at $44.92 per share on Thursday. The stock eclipsed the IPO price during intraday trading for the first time on Wednesday and closed at exactly $45 that day.” June 07 – Barron’s But let’s be honest, unless you’ve got a crystal ball or a time machine – any stock is a gamble. How the market reacts, how the company performs and even how CEOs behave can dictate big gains or drastic falls. Steve Jones is a Professor of Finance at Indiana University's Kelley School of Business – he lent his perspective to the topic. “As far as which stocks to buy, there are never right or wrong answers – It’s just a question of a person being able to assess risk or potential returns. The IPO prices indicate the market has discounted Uber and Lyft stocks and sees them as riskier than originally perceived to be. Now, they do offer potential for a good return… For example, Facebook stocks dropped then rebounded… Google dropped then rebounded. Lots of stocks that have not done well at first have come back. Will that be these two? "I think there’s potential for it. On the other hand, we have this situation where analysts are critical of the business models of both these companies. It’s not clear Uber drivers are going to sign up to do this in the long run at these kind of wages, and if they can’t underpay drivers, how do they make money? There is a criticism going on of the business model here, and if this model can become profitable, I think the stocks will take off. It’s questionable though, whether that’s possible or not. That’s what the market is going back and forth on right now.” Are you covering the track Uber investors are on, other IPO’s or companies that are disrupting not just the marketplace but also the stock market?  Then let our experts help with your stories. Steve L. Jones is an expert in the areas of asset valuation, corporate finance, financial markets, and investment management. He’s available to speak with media regarding these topics – simply click on his icon to arrange an interview.

What will the “new” NAFTA mean for business in Canada?

The "new" NAFTA - officially renamed as the Canada-United States-Mexico Agreement (CUSMA) in Canada, but is referred to as the United States-Mexico-Canada Agreement (USMCA) in the media - could be a benefit for businesses. While tariffs are being lifted and reduced trade talks thaw – it appears that the USMCA is a win/win/win for businesses on every side of the border. The new trade accord has free-trade when it comes to manufacturing, importing, exporting and resourcing. The USMCA sounds great, but will those rays reach areas like Northeastern Ontario? Will our resource and mining industries benefit? Also, what about our emerging technology sector? There is a lot to be figured out as this new trade deal goes through the approval process in Canada and America. Luckily, we have experts who can help! Marc Boivin, Manager at Freelandt Caldwell Reilly LLP, is an expert in the areas of organizational finance, assets acquisition, business valuation and transactions. Contact Marc to arrange an appointment regarding this topic by clicking the contact button below. Sources: