Artificial intelligence (AI) is revolutionising the way countless industries operate. Financial accounting is no different, with many firms utilising AI technology to aid the transition to new standards. Here is a quick rundown of the key benefits of AI, and why accounting is the ideal environment for the technology.
Undoubtedly one of the biggest benefits of AI is that mundane tasks become automated, freeing up accountants to focus on providing those higher-level insights. MRI software company, Leverton, showed this when they assisted a leading accounting firm during the transition to IFRS 16. Their AI-enabled platform was enormously helpful in determining population and importing data, capturing the relevant data, extracting and validating data, and for ongoing data management and auditor communication. Not only was the project a success, but the transition was completed ahead of schedule.
Traditionally, data had to be manually extracted from lengthy contracts by accountants and auditors. Then this had to be interpreted, analysed and checked for compliance with IFRS standards. It is an arduous process that could easily take several hours to complete. With AI, much of this can be automated. Many AI-enabled platforms, such as Trullion, also offer a reporting function, which checks relevant accounting periods against the terms of the specific lease contract. In a further benefit, AI is less prone to human error, making it preferable for tasks such as data extraction.
AI, particularly machine learning (ML – a subset of AI), can be used to generate predictive models. Over time and with accurate data, these models can forecast revenues and other financial information. In addition, much of AI can now analyse unstructured data such as contracts and emails. When combined with industry specific knowledge, this could stimulate new insights to make financial accounting more accurate than ever.
AI is also promising in terms of anti-fraud protection. Many platforms, such as Trullion, use continuous tracking so that any document changes are logged. The modification history can be viewed at a later date. ML can also be used to model expected ‘normal’ activity, and therefore flag potentially fraudulent cases.
Education company, Tishadz provide specialist training to help accountants learn the new IFRS standards. They first use AI to assess the learner’s understanding of IFRS content. Then, this AI-assisted training gives immediate and regular feedback, showing the learner problem areas they need to target and providing personalised feedback on how to improve.
While the benefits of AI are compelling, there is still some resistance to uptake. In a 2019 survey, 60% of respondents said they did not trust AI-produced financial data to the same extent as traditionally-produced data. The key reasons are concerns over data privacy, security and poor data management. Some of the AI advantages, such as providing insights from unstructured data (e.g., emails sent by employees) would clearly cause ethical and legal concerns. In addition, the success of AI depends upon large quantities of data, so smaller firms may be wise to be wary of adopting AI in their business. AI adoption requires considerable time and investment and should not be undertaken without a full risk assessment.
Why accounting is the ideal environment for AI
Despite the potential challenges, many believe financial accounting is the ideal environment for the adoption of AI. Those working in the field already have the high-level mathematical skill and business knowledge, making them perfectly placed to reap the benefits of AI. In addition, technology in finance is a familiar concept. Accountants need high-quality financial data to assist with decision making and have been using technology to assist in this process for years. Therefore, they are likely to intuitively understand when and how to rely on such technology, and when to trust their human instincts.
Finally, much of the compliance process focuses on rule-based logic, making the field ideally suited to AI technology. Given these factors and the number of firms successfully using AI to assist the transition to new standards, we should be seeing a higher adoption of AI in the future.