Artificial Intelligence (AI) And Its Importance In Accounting

History of AI

What is AI? How has technology changed the work of accountants in recent decades? Discuss Opportunities from the use of AI and Threats from the use of AI.

Since the introduction of computers, developments have been going to enhance the performance of the machines. Recent researches have successfully achieved their target with the help of Artificial Intelligence (AI) (Gasser 2014). It is acknowledged as one of the greatest boons of modern engineering that has revolutionized the world market with its vast and diverse capabilities as well as functionality. AI is uncongenial to the psychology; however, it is most beneficial in the case of the accountants ( Watts 2017). Initially the technology was developed for the military usage; however, dried up flow of investment in the technology development, bring it to the world market back in 1970s (Zhang 2016). Since then there has been various development in this perspective and lead AI to become where it is now. Whether it is medical science or the ecommerce, AI is present everywhere, which aids smooth performance of the business. It acts as the bridge between the human thinking capability and machine capabilities that allows machines to replicate the human thinking capabilities (Nilsson 2014). Moreover, AI let the machines perform like humans and allow reducing the magnitude of human effort for any work.

This business report is meant to research on the accounting theory and contemporary issues of accounting from the accountants’ perspective. This section of the assignment focuses on the AI and its importance on the work of accountants. First segment of the report portrayed that there are various views regarding the introduction of AI in the accounting and the scale of benefit varies widely depending upon the scope of its usage. Moreover, the report has highlighted the risk analysis of AI, in order to assess the scope of being benefited from this technology from the accountant’s perspective. To conclude, the report has mentioned various recommendations for the AI to make it more beneficial for the accountants and has given a reflection on the feedback provided by the manager.

The US Department of Defence has introduced AI back in 1956; however, during that time it was not available in public domain (Cohen and Feigenbaum 2014). Usage of AI was limited to the defence usage and it has constrained the popularity of this technological advancement. Back in 1970, Defence Advanced Research Projects Agency (DARPA) for the very first time used it for street mapping, and with this AI came into the public domain (Flasinski 2016). Year 2003 was the time, when DARPA introduced intelligent personal assistants, which brought the AI to the world market, and make it popular.  Owing to its diversity and application, it become famous in world market and by the end of 2011, it become a global standard to use it in the fields like medical, banking, household and automotives and mobiles (Wenger 2014). However, one of the best usages of the AI was in the field of accounting. It has revolutionized the accounting industry from various perspective and the report will provide highlights on these issues on the subsequent part of this report (Glymour, Scheines and Spirtes 2014).

AI and Accounting

Until now, various advantages regarding the AI have been discussed, but what about the definition of the AI. Considering the various journals and argument of John McCarthy, who is the father of AI, there are four different definition of AI as portrayed below:

A system, which can think like humans	A systems that thinks rationally
A system, which performs like humans	A system that acts rationally

Table 1: Definition of AI

Source: (Created by Author)

From table 1, various definition of AI has been observed and it can be perceived that AI is the achievement of science and engineering that makes computer; computer controlled robots and let them act like humans and take decisions rationally. According to the John McCarthy computer was developed long ago, however is it possible for a machine to act like humans and think rationally? The basic question initiated the researches on the AI (Brown 2014). Previously researchers were considering the each definition separately for developing AI as showcased in table 1. However, as the research continued, researchers found that all the four definitions are necessary to construct AI.

Figure 1: Essential component of AI

Source: ( Copeland 2015)

Figure 1, portrays that AI not only includes engineering, moreover there is philosophy, maths, psychology, biology, sociology and neuron science. These essential components of AI not only make it technologically updated but also promote it as the replication of human being.

Accounts is one of the most vast and important section of any business that controls the profitability of the firm. With the help of accounting theory, firms judges their aggregate demand, production capacity and set their market strategies. Ever growing effect of technology in the field of accounting has made it efficient, productive, user friendly and reliable from the ethical perspective. Moreover, technology has made the accounting potent enough to assess what is wrong for the firm and what is good. Most of these developments came into existence once AI has been introduced in the accounting, back in 1980 (Pannu 2015). Since then, there have been various instances, where AI has been used in the accounting and it has revolutionized the financial analysis, reporting to the core. One of the most prominent developments that AI has brought in accounting is the expert system, which was meant to make the accounting calculations interactively and make it simple for the accountants. However, it need to be considered that AI is at their nascent stage, which not yet potent enough to replicate the human psychology, thinking capability and rationality. Researches regarding AI for accounting began back in 1980s and since then it has been evolving each day to become potent enough to compete with humans.

Definition of AI

The accountants have embraced automation since long time and it has enhanced the effectiveness and efficiency of their task. AI was the brainchild of the computer engineering, however with expansion of market and trading, aggregate supply also got enhanced that had provided a scope in front of the AI to be introduced in the world market. Introducing such a great technology in the field of accounting has far-reaching effect. It has effectively brings in opportunities in front of the accountants to let them perform better and enhance their performance by providing required data at required time.

Researchers argue that AI possesses scope of radical changes to the accountants as the system of accounting simultaneously over takes the human efforts with the help of automation. This not only enhanced the performance, moreover it has simplified the duties of the accountants. For instance, specialized accounts software can do the work of accountants with the help of inserted data and reduce the scope of errors. With reduced effort and lower error, companies face almost no additional tax and it aids to have a sustainable company framework.

AI is growing at a rapid scale in all the industries and the reason behind this growth is its advantages. Observing the growth of automation one can perceive that it will assume more decision making task reducing the work of humans. Accounting has been using technologies science decades in order to improve what they work upon and deliver. Aim of using AI in accounting purpose is meant to develop the business and enhance the scope of quality of the deliverables leading to a better sustainability of the business (Kumar et al. 2016). AI has great scope in various fields; and when it comes to accounting, then it has wide amount of possibility to make the business more sophisticated. Opportunities from the use of AI in various fields have been mentioned below:

• Bank reconciliation – It is simple book keeping in accounting terms and it maintains all the cash flows and cash that bail out from the account. Machine has learned how to count and how to keep records of entries. Firms equipped with AI can automatically generate the accounting information (Tapiero 2017). It will enhance the scope of data adequacy and reduce the time of operation. Bank reconciliation with AI can easily trace out any discrepancy in data, which will not only aid the firm to trace the source but also highlight who is responsible for this action.
• Risk assessment – Risk assessment is one of the important tasks of accounting. With the help of AI, firms can now successfully assess the risks for the firm by comparing data from its competitive agencies (Crawford 2016).
• Analytical calculation – Calculation needs sophisticated knowledge and accuracy. AI has both the accuracy and sophistication. With these advantages, AI can easily calculate the outcome if proper data are inserted and rules to perform the task has been mentioned in the system (Bench-Capon 2014).
• Auditing – Auditing is one of the main task of accounting. To be true AI is not even potent enough to do the entire auditing task alone; however, it has become eligible enough to aid the accountants to do auditing (Issa et al 2016). AI for accounting firm can be programmed to have required knowledge about the accounting system and the firm’s expense policy. Using those data, it can help accountants to do their duties. One of the best things in this regard need to be mentioned is that, AI can perform simultaneously with data from various firms (Kokina and Davenport 2017). This will give the accountants an upper hand to perform their duties faster and smoothly as compared to before.

Considering this wide array of benefits of AI, one can easily say that it is one of the best options to make the business scenario better (Rich and Waters 2014). With reduced scope of error and higher efficiency in the work, AI can revolutionize the accounting too. However, various researchers argue against the AI in accounting. Moving forward, les look into the facts that can act against the AI.

With rapid growth of business, technology is growing at a rapid speed too. From medical science to business, everything has some prominent amount of automation in it leading to an age, where human effort will be minimal and machine effort will be maximum. Some people observe it as a good opportunity to reduce the trace of work for the humans, however there are researchers too, who argue that it will bring in such a period, where sustainability of the humankind will be at stake (Kanal and Lemmer 2014). From the accounting perspective, various benefits have been discussed in previous section of the report, however in this regard it would be beneficial to mention the drawbacks of AI in accounting too. It will aid the company to decide, whether they should bring in AI in their accounting or it would be better to let be done by the humans. Threats from the AI in accounting are as follows (Howrvitz 2014):

• Reduced jobs – Due to enhanced scope of automation in accounting, one of the main concerns is that the humans will lose jobs and it will lead to lower disposable income (Javanmardi et al. 2014). With lower disposable income, aggregate demand will fall and it will lead to reduction in production. Less production means, less job opportunity and less jobs means lowered amount of tax for the government. In this way, economy will move towards the vicious circle of poverty and life of human kind will be at stake.
• Lack of judgemental ability – AI has capabilities to replicate human thinking and human actions; however, they are at the primitive stage. It can handle stock market with automation to some extent; however, when it comes to maintain Enterprise Resource Planning, then AI is not potent enough (Megill 2014). It cannot determine what goes into credit and what goes into debit. A lot of judgement is required in the case of accounting and besides this, data entry requires knowledge from other fields too in order to make a auditing complete, which is beyond the scope of AI until now.
• Lack of adequacy – Big accounting firms are nowadays using AI in order to make their task error free and ideal for the smooth transition of business towards a phase where automation will do most of the work. According to expectation of the researchers, it is desired that there will be growth in employment of the CAs and CPAs in coming decades due to the lack of adequacy of skills in the AI technology. For AI utilizing statistics, data analytics, risk management and other technical knowledge in one field is beyond their capabilities due to their primitive growth in the field of accounting (Olczak et al. 2017).
• Not a cost effective solution – AI is not a cost effective option that can make the accounting world upside down. It has great potential; however, there are drawbacks too, apart from the fact that for small and medium size firms, it is beyond their scope to have it due to their high cost of acquire and even more cost of maintenance. In order to match with the ever-changing requirement of the accounting, the firm has to upgrade the programming of AI and let it become smarter. In case of any breakdown or mal performance, cost of repair is high because it requires huge amount of technical knowledge regarding AI and need to handle big amount of data.
• Cannot work without machine language – Accountants do their work with huge amount of data that always cannot be transformed in machine language. Due to lack of scope of transforming all the data in machine language, it would not be possible for AI to work smoothly.
• Cannot overcome human storage – Machine have huge storage, however, it has not yet achieved that greatness, where it can store as much data as a human brain. When it comes to accountants, then they have to use various rules, clauses and analytical tool for each different task. Till now it is beyond the scope of machines to understand what is required for what that makes it constrained usage in the field of accounting (Copeland 2015).
• Lack of ethical consideration – One of the major issues of AI not being favoured in accounting is that it lacks ethical consideration (Russell 2015). Accountants do work with highly confidential data that includes strategy measurement of the firm, growth model, Figures regarding sales and profit. AI cannot work without internet, and through this, hackers can eavesdrop the sensitive data of the firms.

Components of AI

Well, though there is various drawbacks in AI, however it is perceived that AI can benefit the human race in long run by reducing the scope of error in working field. When it comes to accountancy, then one can easily say that AI is not yet potent enough to overtook the duties of accountants, however there is ample scope of development.

Above analysis showcase that there is various importance of introducing AI in accounting, however, there are risks related with it too. Following recommendations can be used in order to reduce the threats for the AI and enhance the efficiency in this technology for enhancing the performance of both the AI and internal control on accounting on behalf of the firm:

• AI possesses the power to become devastating in case if it goes to wrong hands. Thus, researches of the firm need to provide more effort to their R&D and make the system safe from the evil hands.
• Cost of maintenance of AI is comparatively higher than the regular methods. Thus, it would be better for the company to make it cost effective by introducing more researches in this tech.
• From accountants’ perspective, AI has high potential to theft of data. Thus, company need to focus on its security measurement.
• AI has capability to reduce human efforts; however, it can effectively reduce disposable incomes of the employees. Thus, company need to ensure a balance between machine and human effort, so that balance environment can remain present in the company.
• Machine does not have the ability to withstand against every externality and technology has not yet suppressed the human capability. Therefore, it would be better for the company to introduce AI in a sustainable manner.

These are the recommendations that a company need to follow regarding AI. It will not only provide better sustainability to the company, moreover, aid the brand to check their internal control with better accountability.

Conclusion:

AI is one of the essential and technologically upgraded wings of computer science. With development of computer technology and demand of technologies that can reduce the human effort, researches regarding AI had stimuli back in 1970s. The report has analyzed the development of AI and then it has traced out how it has influenced the work of accountants. Main purpose of this business report was to highlight the importance of AI in the accounting profession. The report has found that AI can greatly influence accounting, by bringing in latest automation technology in the task. For instance, with cloud-based technologies like XERO accounting software; loyalty of the accounting firms has improved greatly. Moreover, margin of errors has now decreased very much, leading to better performance of the accountants. It was seen from the analysis that there are various opportunities in front of the AI for the accounting domain that is yet to be explored, however there are risks too. AI is highly improved and technologically upgraded; however, there is scope of data loss and hacking due to excessive usage of internet that can hamper the ethical issue of the accountants. Moreover, AI has scope to reduce the employment, leading to high inflation. Moving forward to the next section, the report has highlighted various recommendations from the accountants’ perspective for the firm. These are aimed to enhance the efficiency and accountability of the AI for the accountant. From the above analysis about AI, it can be portrayed that it has great amount of possibility to make this field highly technical and efficient that has good amount of accountability. To conclude, it can be said that with immediate implementation of the above-mentioned recommendations, AI will be beneficial for the firm.

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