The European Union’s Artificial Intelligence Act (Regulation (EU) 2024/1689) is reshaping how financial and managerial accounting functions operate across Europe and beyond. As AI becomes integral to accounting, audit, and financial services, the Act introduces a rigorous, risk-based framework to ensure the safe, transparent, and accountable use of AI. This directly impacts how firms manage financial data, risk, and compliance. To learn more about these developments, read our latest insight by Baker Tilly Baltics partner Reinis Ceplis.
A Risk-Based Regulatory Structure
The EU AI Act classifies AI systems into four risk categories: unacceptable, high, limited, and minimal/no risk. This classification determines the level of regulatory scrutiny and compliance obligations for each system. For financial and managerial accounting, the most significant impact comes from the “high-risk” category, which includes many AI applications used in these domains.
High-Risk AI in Accounting and Finance
AI tools commonly used in accounting and financial services - such as those for transaction analysis, fraud detection, audit report generation, financial risk scoring, creditworthiness assessments, and anti-money laundering (AML) monitoring - are typically classified as high-risk under the Act.
These systems must comply with strict requirements:
- Registration and Documentation: High-risk AI systems must be registered in an EU database and maintain detailed technical documentation, including model development, data sources, and intended use.
- Risk Management: Firms must conduct risk assessments before deploying AI, implement risk mitigation strategies, and ensure ongoing monitoring for adverse outcomes.
- Transparency and Explainability: AI-driven decisions—especially those affecting financial reporting, credit, or compliance - must be explainable and auditable. Users must be able to understand and justify AI outputs to regulators, auditors, and clients.
- Human Oversight: Critical accounting and financial decisions made by AI require meaningful human review and intervention, safeguarding against errors, bias, or unintended consequences.
- Data Governance: The Act mandates robust data management, ensuring that all data used in AI systems is accurate, traceable, and lawfully sourced.
Integration with Existing EU Financial Regulations
The AI Act is directly applicable as an EU regulation, meaning it does not require transposition into national law and applies uniformly across member states. Importantly, it references and builds upon existing EU financial services laws, such as those governing internal governance, risk management, and market conduct. National financial supervisory authorities and EU bodies like the European Banking Authority (EBA), European Securities and Markets Authority (ESMA), and European Insurance and Occupational Pensions Authority (EIOPA) are designated to enforce the Act within the financial sector.
Oversight, Enforcement, and Penalties
The European Commission has established a centralized AI Office to supervise compliance, investigate incidents, and provide guidance on best practices. Each member state will also designate national authorities for enforcement. Non-compliance with the Act can result in significant penalties—up to €35 million or 7% of global turnover for severe breaches, such as deploying banned AI systems or failing to meet high-risk system requirements.
Transparency and Traceability in Practice
For accounting and audit professionals, the Act’s emphasis on traceability and transparency means that every AI-driven process—whether generating financial statements, analyzing transactions, or flagging suspicious activities—must be fully documented and explainable. This shift is driving firms to invest in AI governance, update internal controls, and ensure that AI systems are always subject to human oversight.
Phased Implementation Timeline
The AI Act’s requirements are being phased in:
- February 2025: Ban on unacceptable-risk AI systems and mandatory AI literacy for employees using AI.
- August 2025: Obligations for general-purpose AI models, including transparency, documentation, and copyright compliance.
- August 2026–2027: Full compliance for high-risk AI systems, including those used in financial and managerial accounting.
Strategic Actions for Accounting Leaders
To comply and thrive under the EU AI Act, accounting and finance leaders should:
- Map all AI systems in use and assess their risk category under the Act.
- Update governance, risk management, and internal controls for AI-driven processes.
- Ensure all AI outputs are explainable, auditable, and subject to human review.
- Train staff on AI literacy and regulatory obligations.
Monitor regulatory updates and engage with supervisory authorities.
Conclusion
The EU AI Act is ushering in a new era of responsible, transparent, and accountable AI in financial and managerial accounting. By embedding compliance and robust governance into AI-enabled processes, organizations can harness the benefits of automation and analytics - while safeguarding trust, accuracy, and regulatory compliance in a rapidly evolving regulatory landscape.
Materials Used:
- [Software Improvement Group: EU AI Act Summary](https://www.softwareimprovementgroup.com/eu-ai-act-summary/)
- [EIMF: Truth Must Be Traceable—Implementing the EU AI Act in Accounting and Auditing](https://eimf.eu/truth-must-be-traceable-implementing-the-eu-ai-act-in-accounting-and-auditing/)
- [Lucinity: AI Regulations in Financial Compliance](https://lucinity.com/blog/a-comparison-of-ai-regulations-by-region-the-eu-ai-act-vs-u-s-regulatory-guidance)
- [Oxford Business Law Blog: Regulating AI in Finance](https://blogs.law.ox.ac.uk/oblb/blog-post/2024/12/regulating-ai-finance-how-eu-ai-act-shapes-financial-technologys-future)
- [BSR: The EU AI Act—Where Do We Stand in 2025?](https://www.bsr.org/en/blog/the-eu-ai-act-where-do-we-stand-in-2025)
- [Goodwin Law: EU AI Act—Key Points for Financial Services Businesses](https://www.goodwinlaw.com/en/insights/publications/2024/08/alerts-practices-pif-key-points-for-financial-services-businesses)
- [Xenoss: AI Regulation in the European Union](https://xenoss.io/blog/ai-regulations-european-union)
- https://www.softwareimprovementgroup.com/eu-ai-act-summary/
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