Good morning, CFOs. KPMG’s U.S. assurance leader on how large accounting firms are stepping up their use of AI in auditing; India offers AI blueprint for developing world; plus, Smithfield Foods to build new plant.

Agentic AI startup Sierra CEO Bret Taylor, speaking at last week’s WSJ Technology Council Summit, talked about the shifts he’s seeing in the economics of AI software and noted how AI could be used for various tasks including doing a company’s quarterly financial audits.

The WSJ Leadership Institute’s Mark Maurer checked in with Christian Peo, KPMG’s U.S. assurance leader, about how large accounting firms are stepping up their use of AI in the auditing of companies’ financial information. In an interview with Mark, Peo discussed the latest ways in which KPMG is applying the technology, from revenue analysis to scouring hundreds of pages of accounting rules. Edited excerpts follow.

How has the audit process changed for reviewing revenue?

Peo: You get a revenue ledger and the way that it's always been done is you do a statistical sample. Out of thousands, maybe millions, of transactions, you're picking a few hundred or maybe a thousand. From that sample, I can infer if the rest of the population is or isn't accurately stated. It's fine, it's what we've done for a long time. But transaction scoring actually looks at every single transaction. It runs through each transaction through a series of tests and says, hey, these are the ones that you probably ought to look at more closely.

Instead of relying on a second- or third-year person to take the first crack at it, the first crack is done by AI. Sometimes the decisions that have to be made are pretty significant. The reviewer can see it and can adjust in real time and AI will go and rethink it and re-document it.

How about accounting rules?

Peo: Firms usually make a checklist to make sure that companies’ financial statements are done in accordance with U.S. generally accepted accounting principles. If you printed it out, the checklist would be 400 pages. The auditor has to go through and say this disclosure is not applicable; this disclosure is applicable but it's not material; or this disclosure's material and therefore should be in the financial statements.

Sifting through that is a monumental task. No one really likes doing it. The client has to do something similar. We have a tool where you run the financial statements through an AI comparison against the FASB codification. AI can compare it against competitors or similar-type companies and it can fill out the disclosure checklist and leave a trail for the reviewer to see why it said it was immaterial to you. The reviewer can agree or disagree.

How much time does AI help save with that?

Peo: AI does it in minutes, whereas it takes hours and hours for a human to do that. It's way more accurate. It's easy to make a simple mistake if you're going through 400 pages of that, but a machine doesn't get tired.

Will partners always need to sign off?

Peo: You can have a different large language model be the checker. You can run it through three or four different LLMs and compare. The LLM is actually doing a really good job. Even though we've run it through two different LLMs and I came up with the same answer, we have senior people on the engagement team doing that. But there's going to come a time when we don't feel like we need to do that anymore. It's probably rapidly approaching. The technology's already here for us to do that.

But there's two things stopping us. We're still trying to satisfy ourselves through our own system of quality control. We're going to have to get the Public Company Accounting Oversight Board to change their profession-wide standard. Their standards are written in a way right now where that senior person is required; it's not optional.

—Mark Maurer

Monday

Equity and fixed-income markets closed in observance of Presidents Day.

Tuesday

Earnings: Amrize, Builders FirstSource, Cadence Design Systems, Devon Energy, DTE Energy, Energy Transfer, EQT, Expand Energy, FirstEnergy, Genuine Parts, Kenvue, Labcorp Holdings, Leidos Holdings, Medtronic, Palo Alto Networks, Republic Services and Vulcan Materials

Wednesday

Earnings: American Water Works, Analog Devices, Booking Holdings, Carvana, CF Industries, Charles River Laboratories International, CRH, DoorDash, eBay, Edison International, Garmin, Global Payments, Host Hotels & Resorts, Insulet, Invitation Homes, Molson Coors Beverage, Moody’s, Nordson, Occidental Petroleum, Omnicom Group, Texas Pacific Land and Verisk Analytics

The Census Bureau releases the durable goods report for December.

The Census Bureau reports new residential construction data for both November and December.

The Federal Open Market Committee releases the minutes from its late January monetary-policy meeting.

Thursday

Earnings: Akamai Technologies, CenterPoint Energy, Comfort Systems USA, Consolidated Edison, Copart, Deere, EPAM Systems, Evergy, Extra Space Storage, Live Nation Entertainment, Newmont, Pool Corp., Quanta Services, Southern Co., Targa Resources and Walmart

The National Association of Realtors releases its Pending Home Sales Index for January.

Friday

Earnings: Lamar Advertising and PPL

The Bureau of Economic Analysis releases the personal consumption expenditures price index for December.

The BEA reports its advance estimate of fourth-quarter gross-domestic-product growth.

S&P Global releases both its Manufacturing and Services Purchasing Managers’ Indexes for February.

After holding the line on price increases, some companies are starting a new round of hikes. Companies from Levi Strauss & Co. to McCormick & Co., among others, say they are raising prices early this year on items from bluejeans and spices to housewares and industrial products.

Companies had raised prices last year after tariffs hoisted costs. Yet starting in the fall, many firms held off on increases and sometimes offered discounts to capture holiday shoppers. That pricing break is over, Ruth Simon reports.

📰 Other headlines

• Goldman Sachs Plans to Scrap DEI Criteria for Its Board
• Starboard to Push for Big Shake-Up of Tripadvisor’s Board
• Thomas Pritzker, Named in Epstein Files, Retires as Hyatt Executive Chairman
• Tax Deadlines Accidentally Got Turned Off for Three Years. Now What?
• Smithfield Foods to Build New South Dakota Pork Plant
• Micron Is Spending $200 Billion to Break the AI Memory Bottleneck
• With a Frugal AI Strategy, India Offers Blueprint for Developing World
• Marketplaces Are the Next Frontier in Publisher Deals With AI Companies
• BlueScope Relegates Plans for U.S. Midstream Growth
• Genuine Parts Plans to Split Into Two Companies
• Lenders to Commercial Real Estate Owners: Pay Up Now
• Secondaries Boom Fuels Hiring Scramble and $1 Million Sign-on Bonuses

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The Wall Street Journal's CFO Journal offers corporate leaders and professionals CFO analysis, advice and commentary to make informed decisions. We cover topics including corporate tax, accounting, regulation, capital markets, management and strategy.

Follow us on X @WSJCFO. The WSJ CFO Journal Team comprises reporters Kristin Broughton, Mark Maurer and Jennifer Williams, and Bureau Chief Walden Siew.

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