AI and Accounting: Threat or Opportunity?

From David Wood on LinkedIn (May 2023). David is a PhD currently teaching at Brigham Young University in Provo, UT. He holds a BS in Business, a MAcc, and an MBA:

“Exciting new data on how well #chatgpt performs on accounting content. In this working paper, we show that while ChatGPT initially struggled with accounting content, it has now progressed to be able to pass all parts of the CPA, CMA, CIA, and enrolled agent exams with an average score of 85.1%.
We believe this is the first large scale evidence of AI being as smart as, or smarter than, accounting professionals. The graph below shows how ChatGPT 3.5 performs and then the incremental improvement from adding GPT 4, few-shot training (just providing 10 examples before testing), and then allowing ChatGPT to access other resources like a calculator.”

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Worried about this? Here’s a synopsis that sheds a little light on where we’re headed:

Artificial intelligence (AI) has emerged as a disruptive force in the accounting industry, transforming traditional practices and opening up new possibilities. AI-powered software and systems have the potential to automate various accounting tasks, improve accuracy, enhance decision-making, and enable accountants to focus on higher-value activities. However, like any technological advancement, there are strengths, weaknesses, threats, and opportunities associated with AI in accounting, particularly in terms of its impact on job roles and the scale and cost considerations involved.

Strengths:

1. Automation: AI can automate routine and repetitive accounting tasks such as data entry, transaction processing, and financial statement preparation. This frees up accountants' time, allowing them to focus on more strategic and complex activities.

2. Accuracy: AI algorithms can analyze vast amounts of financial data with precision, reducing the risk of human error and enhancing the accuracy of financial reports and forecasts.

3. Data-driven insights: AI-powered analytics tools can extract valuable insights from financial data, enabling businesses to make informed decisions, identify patterns, detect anomalies, and optimize financial operations.

4. Cost and time efficiency: By automating labor-intensive tasks, AI can potentially reduce costs associated with hiring and training additional accounting personnel. It can also expedite the accounting process, leading to faster and more efficient financial reporting.

Weaknesses:

1. Lack of contextual understanding: AI systems may struggle to understand nuanced financial contexts, complex regulations, and subjective judgment calls that often require human expertise.

2. Limited interpretability: Deep learning models and complex algorithms used in AI can lack transparency, making it challenging to understand how decisions or recommendations are made, potentially raising concerns about compliance and accountability.

3. Initial setup and training: Implementing AI systems in accounting requires substantial upfront investment in infrastructure, data integration, and training. This can pose challenges for smaller businesses with limited resources.

4. Ethical considerations: The use of AI in accounting raises ethical concerns, such as data privacy, security, and potential biases in algorithms that may impact decision-making.

Threats:

1. Job displacement: Automation powered by AI has the potential to replace certain routine accounting tasks, potentially leading to job displacement for professionals involved in those activities. However, it is crucial to note that AI is more likely to augment and reshape job roles rather than completely eliminate them.

2. Skills gap: The adoption of AI in accounting necessitates upskilling and reskilling of the workforce. Accountants need to acquire proficiency in working alongside AI systems, leveraging their strengths, and focusing on higher-value tasks that require human judgment and critical thinking.

Opportunities:

1. Enhanced advisory role: With routine tasks automated, accountants can shift their focus to providing strategic insights, financial planning, risk management, and advisory services. This allows them to add more value to the organization and develop stronger client relationships.

2. Advanced analytics and forecasting: AI enables accountants to analyze large datasets and perform sophisticated financial modeling, enhancing their ability to identify trends, predict future outcomes, and improve decision-making.

3. Scalability and customization: AI systems can scale effortlessly, handling vast amounts of financial data and adapting to evolving business needs. They can be customized to specific industry requirements, leading to more accurate and relevant insights.

Scale and Cost Considerations: The scale and cost implications of AI in accounting depend on various factors such as the size of the organization, the complexity of accounting operations, and the level of AI implementation. Larger enterprises may benefit from economies of scale, as they can leverage AI systems across multiple departments and locations. However, they may face higher initial setup costs and challenges associated with data integration. Smaller businesses may have cost constraints, but they can still adopt AI solutions through cloud-based platforms or by leveraging AI tools integrated into accounting software.