Cognic Systems

Case Study

AI-Powered Quality of Earnings & Financial Due Diligence

An AI-powered Quality of Earnings platform combining financial anomaly detection, adjustment intelligence, document intelligence and evidence-driven workflows for financial due diligence teams analyzing middle-market M&A transactions.

ClientMid-Market Advisory & PE Sponsors
IndustryFinancial Services
CapabilityAI Engineering + Financial Analytics
Use CaseQuality of Earnings / Due Diligence
General LedgerFY2023 Q3-Q4
Date Account Amount Type
10/12/23 Consulting Fees $145,000 Debit
10/18/23 Management Bonus $220,000 Debit
11/04/23 Legal & Settlement $350,000 Debit
11/15/23 Warehouse CapEx $420,000 Debit
AI Analysis

Detecting anomalies…

Mapping accounts…

Linking supporting documents…

Generating adjustment ideas…

Adjusted EBITDA Bridge

Reported

-$1.2M

+$2.4M

Adjusted

From data to a clearer investment decision.
AI for Better Decisions →

16

Anomaly Detection Rules

Automated financial analysis across monthly and transaction-level data

3

Connected QoE Pillars

Financial Analysis → Adjustment Intelligence → Evidence & Questions

Multi-Year Financial Data

GL, Trial Balance, payroll and supporting transaction documents

Offline LLM Processing

Sensitive financial information processed inside the customer’s controlled environment

What is AI-powered Quality of Earnings automation?

AI-powered Quality of Earnings automation uses artificial intelligence, financial anomaly detection, document intelligence and analyst review workflows to identify potential QoE adjustments, connect findings to supporting evidence and streamline Adjusted EBITDA analysis during financial due diligence.

A Smarter Way to Approach Quality of Earnings

The Challenge

Manual analysis of large financial datasets, supporting documents and potential QoE adjustments.

The Solution

AI-assisted anomaly detection, adjustment classification, document intelligence and evidence-driven review.

The Outcome

A structured workflow connecting financial data, findings, evidence and validated QoE adjustments.

The Challenge

Financial due diligence teams typically spend significant manual effort reviewing large volumes of financial data and supporting documents. Important adjustments can be missed due to the time-consuming and fragmented nature of the process.

Large GL datasets
Multiple years of monthly data
Unusual expenses and revenue movements
One-time and non-recurring costs
Owner-related expenses
Limited visibility from Trial Balance data
Manual evidence collection
Manual Adjusted EBITDA bridge preparation
Security requirements

Traditional QoE Analysis vs. Cognic AI-Powered Workflow

Due Diligence Stage Traditional Manual Workflow Cognic AI-Powered QoE Workflow
General Ledger Analysis Manual filtering and review of large GL datasets Automated financial anomaly detection across monthly and transaction-level data
Adjustment Clustering Analysts manually identify and group potential adjustments Findings classified into adjustment clusters using account, transaction, vendor, memo, timing and financial behavior
Evidence Linking Supporting documents manually located and reviewed Document intelligence connects supporting financial documents with proposed adjustments
Reviewer Validation Findings maintained across spreadsheets and working papers Analyst review with confidence scoring and validation
Adjusted EBITDA Bridge Manually assembled from findings Generated from validated QoE adjustments
Data Security Depends on deployment and data-processing architecture Offline LLM and controlled-environment deployment for sensitive financial data

The Cognic Quality of Earnings Engine

Three connected pillars that turn financial data into defensible QoE adjustments.

01 Financial Analysis & Anomaly Detection

Analyze financial data and identify unusual patterns across monthly and transaction-level data.

• 16 financial anomaly detection rules
02 Adjustment Clustering & Context

Classify findings into adjustment clusters based on:

• Account • Transaction • Vendor
• Memo • Timing • Financial behavior
03 Intelligent Questions & Document Requests

Connect proposed adjustments with:

• Invoices • Bills • Contracts
• Payroll records • Settlement documents
• Management responses
• Supporting evidence
Analyst Review

Validate findings with confidence scoring

Adjusted EBITDA Bridge

Generate from validated adjustments

QoE Report

Export working papers and reports

Inside the Cognic QoE Platform

A modular architecture designed for secure, scalable financial due diligence.

1Ingestion & Normalization
› General Ledger
› Trial Balance
› Payroll
› Invoices / Bills
› Contracts
› Settlement Documents
2Financial Analysis & AI
› 16 Anomaly Detection Rules
› Monthly & Transaction Analysis
› Adjustment Classification
› Document Intelligence (OCR/NLP)
› RAG & Vector Search
› Confidence Scoring
3Evidence & Analyst Review
› Findings & Adjustment Clusters
› Supporting Documents
› Management Responses
› Analyst Validation
› Audit Trail
4Financial Output
› Adjusted EBITDA Bridge
› QoE Report
› Validated Adjustments
› Supporting Evidence
› Reporting Output

From Financial Data to Defensible QoE Adjustment

Every adjustment in the platform maintains a traceable chain from financial data through findings, evidence and final QoE adjustment.

Financial
Data

Pillar 1
Finding

Pillar 2
Cluster

Adjustment
Type

Supporting
Evidence

Final QoE
Adjustment

AI / Automation Layer

Core AI capabilities that power the QoE platform.

Anomaly Detection
16 rule-based financial analysis checks
Adjustment Intelligence
AI-assisted classification of findings
Document Intelligence
OCR, NLP, RAG and vector search
Confidence Scoring
Multiple financial and evidence signals
AI Agents & Generative AI
Intelligent questions & document requests

Analyst Workbench

A purpose-built review interface for financial due diligence.

DateAccountMemoAmountFlagConfAction
03/31/2023Professional ServicesConsulting fee$48,500Unusual Spike92%
02/28/2023Rent ExpenseMonthly rent$120,000Round Amount87%
01/31/2023MarketingOne-time campaign$35,400Non-Recurring95%
12/31/2022Owner DrawManagement fee$75,000Owner-Related90%

Built for Sensitive Financial Data

The platform uses an offline / air-gapped architecture for sensitive financial data processing.

Offline LLM
Customer-Controlled Environment
Secure Cloud Deployment
On-Premise Deployment
Data Protection
Controlled Data Processing

Technology Stack

Core frameworks & integrations powering the engine.

Generative AI
OCR/NLP
RAG
Vector DB
PostgreSQL
MongoDB
React
.NET
REST APIs
Power BI

What Changed

Key business and workflow transformations.

Faster identification of potential QoE adjustments
Consistent financial anomaly detection
Evidence-based confidence scoring
Reduced manual financial data review
Stronger analyst and reviewer audit trail

Built for Financial Due Diligence Teams

Target Audience / Who This Is For

Private Equity

Faster analysis during M&A transactions

M&A Advisory

Standardize review across engagements

Corporate Development

Repeatable AI-assisted diligence workflow

Modernizing Your Diligence or Building an In-House QoE Engine?

Cognic designs and deploys private AI due diligence platforms for financial advisory teams, private equity sponsors, family offices and corporate development teams.

Discuss your financial data workflow, anomaly detection requirements, evidence process and deployment architecture with our team.