With the IFRS 16 accounting standard now in effect, businesses need to analyze, extract and balance an unprecedented amount of leasing data from their contracts and agreements.
Teaming with IBM, KPMG created a cognitive platform designed to quickly scan, search and identify relevant data points in customer business contracts, producing output for company accounting purposes.
Speeds process by 75%for IFRS 16 contract review and data output
Deepens partnershipswith customers by offering an IT solution for a critical need
Increases market awarenessas a leader in technology and business insights
Business challenge story
IFRS 16 presents new reporting challenges
From cars and office space to laptops and networking equipment, nearly every business relies on leasing agreements to finance assets and resources. But to comply with the IFRS 16 accounting standard introduced at the beginning of 2019, companies must now claim all leases on their balance sheets, including those previously classified as operating leases and considered exempt.
To meet the new disclosure demands, organizations must extract and analyze an unprecedented amount of data from their contracts and agreements. Without supporting processes and technology in place, the new requirement poses a daunting and potentially time-consuming challenge.
For KPMG, the development presented an opportunity to help its customers address a pressing requirement with the latest IT. “KPMG has a clear strategy to expand its scope and work more intensively with artificial intelligence and other new technologies,” says Stephan Rinck, Consultant for Cognitive Business Solutions at KPMG. “With IFRS 16, it identified an area where’s there’s a lot of need.”
To develop an offering, KPMG sought high-performance AI technology from a trusted IT provider. “We needed a stable, robust solution capable of scaling with customer demand,” says Rinck.
A cognitive tool to pinpoint relevant data
Impressed by the comprehensive capabilities IBM demonstrated during a proof of concept, KPMG chose Watson™ and IBM Enterprise Content Management technology. “KPMG’s needs went beyond simple data extraction,” says Rinck. “IBM was capable of providing an end-to-end solution.”
Working with IBM Digital Business Automation and Watson teams, KPMG created the KPMG Content Abstraction Tool (KCAT), a cognitive offering designed to quickly analyze contracts and identify data relevant for addressing the new IFRS standard. “There’s no better solution on the market for this than Watson,” says Rinck.
With IBM providing advisory services, KPMG used IBM Watson Knowledge Studio to teach KCAT to “understand" the language of leasing contracts. Training by the team provided the platform with a knowledge base specific to key data attributes within leasing contract content and the relationships between these attributes. Incorporating the IBM Watson Explorer platform, KCAT applies the Knowledge Studio machine-learning model to pinpoint relevant information for extraction.
The team also integrated Enterprise Content Management middleware, including IBM Datacap software to scan and prepare contracts for optical character recognition (OCR) processing, IBM Case Manager software to govern system workflows, and IBM Operational Decision Manager software to automate rules-based decisions.
Now, KCAT converts a company’s contract files into a machine-readable format and categorizes them by type — for example, real estate, technology or vehicle. The platform identifies relevant data points based on contract type and feeds the information to KPMG experts for validation. Finally, the tool makes the extracted data available in a structured format for an organization’s accounting platform.
Fast and cost-effective with higher quality
KPMG enterprise customers are now using KCAT to avoid error-prone contract review efforts that would demand valuable employee time and labor. “This is boring, time-consuming work,” says Rinck. “Even including our manual validation review, our solution completes the process in just 25 percent of the time. And we do this for an attractive price and with exceptional quality.”
For KPMG, delivering the solution deepens its long-term partnerships with customers while introducing a new revenue stream and bolstering its reputation as a technology leader. While other advisory firms have launched IFRS 16 reporting platforms, KPMG maintains a competitive edge by offering its solution as a service.
“Our customers don’t have to worry about implementing anything,” says Rinck. “They simply upload contracts to our secure environment and we produce the results they need.”
In addition to the leading cognitive technology and hands-on guidance IBM provided, KPMG appreciates the strength of the IBM brand and reputation in helping to launch and go to market with KCAT. “Whenever we pitch our offering, we emphasize that this is an IBM solution with IBM components,” says Rinck. “The market awareness of IBM as an IT solution provider is very helpful. IBM technology and KPMG domain expertise is an unbeatable combination.”
About KPMG AG Wirtschaftsprüfungsgesellschaft
As a global network of independent member firms offering audit, tax and advisory services. KPMG member firms operate in 147 countries, collectively employing more than 219,000 people, serving the needs of business, governments, public-sector agencies, not-for-profits and the capital markets through member firms' audit and assurance practices. In Germany, KPMG has over 10,200 employees and more than 20 office locations.
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