Financial spreading is a systematic method for organising and analysing information from financial statements (such as income statements and balance sheets). When conducted successfully, financial spreading will achieve several objectives:
The problem is that any sort of financial analysis can be time-consuming. Consider this post in r/Accounting, where users note that financial analysis can take between 20 minutes and six hours. Consequently, analysing financial statements in bulk (e.g. for industry benchmarking, credit-risk assessment, auditing, etc.) consumes a high volume of company resources, such as time and costs.
However, you can accelerate the financial spreading process and make it more efficient using analytical tools, like databases, models and software. Let’s examine how financial spreading software can unlock these time savings.
Though financial spreading software will vary, here are a few typical features a user might expect:
Extracting data from financial statements is challenging due to the tedium and precision required. Likewise, it was also difficult for computers in the past due to the complex table structures and dense financial terminology.
Now, AI can read and extract financial data faster than humans. The extracted data (as in the title, line items and other unstructured data) will become structured into machine-readable text.
Standardised data is essential for risk management, ensuring:
A challenge with manually preparing financial spreads is that the output can be inconsistent due to your portfolio, credit manager or analyst’s preferences. Instead, automated data standardisation prevents manual errors or judgment from compromising uniformity.
Financial Statements AI is our financial spreading solution. When users upload financial statement PDFs, the software extracts the raw line items and standardises the data, ready for download in an Excel file.
In other words, it automates the extraction and standardisation process, leaving humans to complete the expert part of the financial spreading process, including the following:
When considering whether financial spreading automation is worth investing your time and resources into, there are two major considerations: What AI to use, and the role of human expertise in the financial spreading process.
AI virtual agents (based on Large Language Models) are not a sufficient solution for financial spreading due to their tendency to hallucinate. A hallucination is a plausible yet false piece of information. Consequently:
So, rather than using an AI virtual assistant, consider choosing a specialised solution trained on a financial data repository. Though AI virtual assistants may become hallucination-proof in the future, for now, they are not an enterprise-ready solution for financial spreading.
Financial spreading software can be helpful. But complete end-to-end automation is difficult to achieve.
One reason is that company standards for preparing financial spreads will vary. For example, the Risk Management Association notes that ‘Bank spreads reflect a more conservative view of the financials than GAAP, and whether it’s a GAAP-prepared audit or a GAAP-prepared company (prepared) financial statement, the bank spreading principles remain the same’.
Consequently, financial spreading processes will depend on the relevant accounting principles (along with) industry and individual company practices. Currently, it is challenging for software to be customised to meet these specifications. One way that software can help is through a customisable schema. However, AI is not yet at the stage where it can automate the financial-spreading process without manual intervention.
To quickly reference data, ensure that the software shows the origin points of the extracted line items. Multiple users (e.g. colleagues, analysts, auditors, etc.) can reference the same data confidently, knowing exactly where it came from.
Check the downloaded data’s accuracy, quality and speed across multiple tools.
Did you know that most teams only use 30-50% of their software’s capabilities? Be sure to explore all the features that should make your team’s workflow smoother.
If you’re looking to extract and standardise financial data quickly, Financial Statements AI is an industry-leading solution.
Start your free trial today. Contact our financial data project team by booking a demo by emailing us at hello@evolution.ai.
