Artificial Intelligence: The Accounting Killer?

Early in my career, like many others, I decided to leave the world of public accounting. Done were the days of being a cog in the powerful wheel. Hours spent taking client data and formatting it for the next person in line were no longer for me.

If you apply for any role in this industry, you'll inevitably see "Big 4" experience listed as the first requirement. I had now checked this box off, and the only thing left behind was my spinning desk chair and the smoke trail as I ran from the windowless pit to the streets.

When you leave your Big 4 career, you often begin work for a private company whose engagement you either worked on or managed for seasons on end. You'd be wise to remain in the same industry (audit, tax, advisory) to continue advancing your career. The value you now added could be bartered for more time to see you go to a happy hour or kiss your children goodnight.

But my experience was far from that. When I left, I decided it was time to be done with my tax-focused agenda, and my goal was to become a valued internal finance professional for whichever organization would have me.

Ultimately, that decision caused a shift in perspective on what it meant to be an accountant and opened my eyes to the industry's direction.

I prepared the only way I knew how for my upcoming interview: restudying everything outside of tax in my CPA Prep book and rebuilding the basic foundation of turning debits and credits into valuable data. The more time passed, the more I prayed that I had covered everything baseline to avoid embarrassment in my journey for a new paycheck. But when it came time for the first interview, I eagerly entered the conference room only to find two items placed idly on the table: a keyboard and a mouse.

The CFO and Controller followed closely behind, introduced themselves, and ran through questions to ensure I could communicate effectively. These trivial questions were simply the preamble before the real show started. A vibration took over the room as a vinyl screen dropped from the ceiling and lit up with a cluster of spreadsheet numbers. The instructions to follow were simply terrifying: "What are these numbers trying to say?"

As I reflect on this event, I now realize how programmed I was to think that there was only one correct answer to this question. Smoke blew out of my ears like a steam-powered machine as my mind worked to make something bashfully out of nothing. I did my best to generate any metric to save myself from embarrassment, and when it was finally time to present my findings, they fell on neutral gazes. The interview ended, and I left the building thinking my hope was squashed.

A week later, I surprisingly received a call from the CFO extending me the opportunity to work for him and his team. He later explained that the exercise had no correct answer; its sole purpose was to assess how one processes data. At the end of the call, I gladly accepted the position; my new boss gave me a snippet of information that would change how I perceived the accounting industry.

"Accounting is a dying profession. Technology has taken over the debits and credits, so there is no need to be focused there. To stay afloat, you need to leverage the resources to enhance your processes and create the script management needs to make strategic decisions."

Accounting has benefitted tremendously from the advancement and creation of technology. In the early days, the only indication of a company's financial health was scribed in a paper ledger. Then, the introduction of Microsoft Excel was generational, saving endless hours for the everyday accountant and single-handedly advancing the industry's capabilities. But as evolution continues and technologies grow exponentially, accounting software has become a stand-alone industry. Companies are beginning to see Excel is outdated, inefficient, and prone to human error, creating more of an incentive to eliminate their old ways.

Technology is far from its peak, and now businesses are being presented with the most significant crossroads since the inception of "the cloud." Once synonymous with talking robots, the creation of artificial intelligence ("AI") has expanded its reach to the business world, dramatically transforming operations by increasing efficiency and lowering costs. Excel replaced the calculator, but will "AI" replace the accountant?

It has been well documented that artificial intelligence has already begun replacing the jobs of data entry clerks, telemarketers, factory workers, cashiers, and even drivers. It is a technology that has gained momentum in volatile and disruptive environments, as proved by its advancement during the COVID-19 pandemic. Without a doubt, business leaders find artificial intelligence exciting, but for the everyday working man, it can be perceived as apocalyptic.

Leaders all across the world of client services have debated artificial intelligence and its place in business. Still, the question I'd like to explore is, "What does artificial intelligence mean for the accounting industry?"

There is a valid argument that accounting remains largely a human process, and regardless of how far technology advances, it will remain as such. Human skills such as judgment, creativity, agility, and emotional intelligence are essential, and per "The World Economic Forum's 2023 Future of Jobs Report," it is the industries that require these skills that are likely to experience the least amount of job loss to "AI." The U.S. Bureau of Labor Statistics occupational outlook for accountants and auditors over the next decade is expected to increase by 4%, while all other occupations are expected to increase by only 3%.

The accounting industry remains dynamic and ever-evolving. Ensuring compliance and understanding of new rules and regulations has become an art in a world where emerging industries are more prevalent. The Big 4 accounting firms, who have boasted publicly about their heavy investment in artificial intelligence, have unanimously agreed, "Right now, a machine cannot take responsibility for an audit opinion." They have pointed out that human-to-human interaction is essential in any service engagement. Artificial intelligence lacks the ability to ideate and create innovations by itself. It is argued by lacking human judgment, "AI" goes against the fundamental nature of any audit, tax, or advisory service.

One avenue to ponder is "AI" in auditing. In today's age, auditors must adhere to high standards in their work and their relationship with the audited entities. Most importantly, they must serve the public's (shareholder's) best interest as they evaluate and assess a company's financial reporting and health. Any deception or misreporting will accompany criminal and civil liability to the auditors and the firm.

Imagine the risk to the shareholder should a machine oversee an audit opinion. Who in nature would be held accountable should the opinion be misleading? Would this create new ways for companies to circumvent the audit process and bury material information? Would the checks and balances of an audit fall entirely out of line?

While an audit opinion is only one high-level example, what concerns does artificial intelligence pose for entry-level and bookkeeping accounting positions?

An old colleague of mine shared an interesting story. He worked for several years in private equity as a Management Company Assistant Controller. His main responsibilities included overseeing the company's accounts receivable and payable, ensuring all invoices were paid or received promptly and booked accordingly. He explained there was a hand-off in leadership; after twenty-five years, the CFO retired, and the responsibilities were handed off to the experienced Controller. The company's back office was set in its old ways, using the same invoice workflow for nearly three decades later. Why? Because it worked, and everyone was comfortable with the process. Entry-level employees printed the invoices and placed them in a series of mailboxes to create a proper recording chain before being hand-signed by the CFO to indicate payment and completion. Though it took time and required physical paper, the system worked and established a clear set of checks and balances.

But, abruptly, the world changed. In March of 2020, the COVID-19 pandemic hit heavy and stiffly. Companies scrambled anxiously to adapt, mandated to close their offices and work remotely for two weeks. As we all know, two weeks turned into two years, and many companies faced the challenge of transforming their workflows to meet the demands of the new environment. The old colleague ambitiously turned to technology to support the company's invoice workflow and enhance the process. The more he researched, the more he realized that one specific software could dramatically change the process by eliminating the physical paper trail and any downtime the invoice took to exchange hands. Outlining his findings in a proposal, he illustrated that he could implement the software and save time for himself and his superiors, all for a low monthly fee.

Management accepted the proposal, and the software was integrated seamlessly. The colleague celebrated his success and looked forward to his newly created time to tackle new projects. Then he got fired.

The reason for the termination was that the company needed to cut costs to stay afloat during the pandemic. While this reason was a common trend at the time, the colleague knew the truth; by implementing the software and automating his work, he essentially created the opportunity for his work to be replaced at a much lower cost. There was no longer a need to pay for experienced labor when a few clicks of the mouse can do the work.

Experiences like this are becoming increasingly ordinary as businesses look to implement technology and artificial intelligence into their infrastructure. While it is universally agreed these implementations pose no threat to high-level positions, they remain a growing concern for entry-level positions responsible for day-to-day operations.

There is already an outstanding data set on how accounting firms use artificial intelligence. Day-to-day operations such as bookkeeping, client communication, data analysis, and cash management have been pulled from the hands of entry-level accountants and given to the machine. Unsurprisingly, the impact is massive and has transformed workflows, creating time savings, improved client services, and new scalability for organizations. It has enabled back offices to transition from being data recorders to more strategic advisors. From the leadership perspective, why would you rely on human capital when there is a more efficient and accurate alternative at a lower cost?

Businesses of all sizes are actively seeking to understand how artificial intelligence can enhance their services and processes. The curiosity driving this shift is creating automation of mundane tasks, reducing errors, and freeing employees to focus more on strategic objectives.

But this road isn't paved with golden bricks; there comes a trade-off and red flags. While fifty-one percent of back offices plan to implement artificial intelligence in the next six to twelve months, experts urge them to do so carefully. Those companies planning to implement this technology should be fully aware of the risks it may present.

The two most glaring concerns with artificial intelligence are data security and privacy. In a world where data has become the most impactful currency, any data breach could cause an organization to lose its customers' trust and risk its reputation.

Every time we use a machine, data is created and stored. Take your cell phone, for example. Any time we use our phones, someone somewhere is seeing our activity. While we often remain indifferent, the data created allows advertisers to understand our daily patterns and know when to disrupt them. We have all had the experience of being advertised something on social media just ten minutes after speaking it into existence. For businesses, artificial intelligence is their cell phone. Now, imagine the potential implications.

As mentioned, artificial intelligence is leveraged primarily for mundane day-to-day tasks, bookkeeping, client communication, and data analysis. While the predicament of using "AI" can swayed by increased efficiency and accuracy, we must widen our scope. The most mundane tasks in business are, in essence, the operation of taking data and formatting it to be helpful to the organization. By allowing artificial intelligence to handle this process, we enable direct access to our business's raw data, such as client confidential information, daily transactions, and even data blanketed by non-disclosure agreements. Raw data is the compass of your company's mission; without it, there would be no direction.

Knowing this, you need to know who has access to and ownership of this data. Otherwise, you may have opened yourself and your organization up to Pandora's box of problems.

There are many perspectives and debates on the advantages and disadvantages of artificial intelligence. Whether or not to implement it into your business is a significant decision that needs to be approached diligently. As discussed, "AI" can be leveraged to automate mundane tasks, create more effective workflows, and put more time in your pocket, but at what cost? Should your security be breached, and your raw data no longer be protected, have you developed an action plan to elevate the backlash? These are the questions that must be given thought.

As for the accounting industry, embracing artificial intelligence and not fighting against it is recommended. While "AI" currently only threatens bookkeeping and entry-level jobs, that will change with time. Make yourself accustomed to "AI" and remain curious about how to use it to your advantage. Artificial intelligence will not replace accountants, but accountants trained in AI will replace other accountants.

Finally, when I reflect on my interview and the CFO's perspective on the transformation of the accounting industry, I realize just how quickly things have changed. He was correct; the industry is changing, but at a faster rate than anyone would have expected. "AI" is no longer synonymous with talking robots, self-driving cars, and drone package delivery. It has far exceeded those goals and is becoming more integrated into our personal and professional lives.

This article was not written by artificial intelligence…

If you or your business want to optimize your processes or implement new technology, BluePen Advisors will help you.

www.bluepenadvisors.com

Visit www.bluepenadvisors.com/schedule or email info@bluepenadvisors.com to set up a time to connect.

Sources:

https://tax.thomsonreuters.com/blog/how-do-different-accounting-firms-use-ai/#:~:text=Bookkeeping%20automation%3A%20AI%2Dpowered%20software,of%20manual%20errors%20for%20firms

https://tax.thomsonreuters.com/blog/how-will-ai-affect-accounting-jobs/#:~:text=While%20accounting%20software%20and%20tax,workflow%2C%20including%20manual%20data%20entry. (Accessed: 23 January 2024).

https://nysscpa.org/news/publications/the-trusted-professional/article/big-four-agree-ai-will-not-replace-accountants-080923#:~:text=Currently%2C%20AI%20technology%20cannot%20replace,responsibility%20for%20an%20audit%20opinion

https://www.datarails.com/will-ai-replace-accountants/