How Artificial Intelligence can change the world of Accounting and Finance

Artificial intelligence (AI) is a computer science term that describes the ability of computers to replicate the human ability to learn, evaluate, solve problems and make decisions. AI is used in accounting and finance for various purposes such as detecting fraud, automating routine tasks, and making informed decisions. AI also helps accounting and finance industries to save time, money, and gain a competitive advantage.

In this article, I will highlight some of the ways that AI can change the world of accounting and finance, and what skills are needed to embrace this technology.

Fraud detection

Fraud is a major problem for businesses and organizations, costing them billions of dollars every year. According to the 2020 ACFE Report to the Nations, certified fraud examiners estimate that organizations lose 5% of revenue to fraud each year2. Financial statement fraud schemes are the least common, but most costly, carrying a median loss of $954,000. Asset misappropriations is the most common fraud that occurs, with a median loss of $100,0002.

AI can help detect and prevent fraud by analyzing large amounts of data and identifying anomalies, patterns, and outliers that may indicate fraudulent activity. AI can also learn from previous cases and improve its accuracy over time. For example, AI can flag transactions that are unusual for a specific customer, vendor, or employee, or that deviate from the normal patterns of behavior. AI can also alert auditors and investigators to potential fraud risks and provide evidence for further analysis2.

By using AI for fraud detection, accounting and finance professionals can reduce the amount of loss sustained by organizations, increase the trust of stakeholders, and focus on more value-added tasks.

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Automation

Automation is another key benefit of AI for accounting and finance. Automation refers to the use of technology to perform tasks that are repetitive, manual, or time-consuming. Automation can improve efficiency, accuracy, and consistency of accounting and finance processes.

Some examples of tasks that can be automated by AI include:

• Data entry and reconciliation: AI can extract data from various sources such as invoices, receipts, bank statements, and tax forms, and enter it into the accounting system. AI can also reconcile data across different accounts and systems and flag any discrepancies or errors.
• Reporting and analysis: AI can generate reports and dashboards based on predefined criteria and parameters. AI can also provide insights and recommendations based on data analysis. For example, AI can forecast cash flow, revenue, expenses, profitability, and other key performance indicators.
• Compliance and auditing: AI can help ensure compliance with accounting standards, regulations, and policies by checking data quality, accuracy, completeness, and validity. AI can also perform audits by sampling data, testing controls, verifying transactions, and generating audit reports.

By using AI for automation, accounting and finance professionals can save time and resources, reduce errors and risks, and enhance the quality and reliability of their work.

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Decision making

Decision making is another important aspect of accounting and finance that can be enhanced by AI. Decision making refers to the process of choosing among alternatives based on information, criteria, and goals. Decision making can affect the performance and outcomes of accounting and finance functions.

Some examples of decisions that can be supported by AI include:

• Credit decisions: AI can help assess the creditworthiness of borrowers by analyzing their financial history, behavior, income, assets, liabilities, and other factors. AI can also provide credit scores, ratings, limits, terms, and conditions based on predefined models and rules.
• Investment decisions: AI can help evaluate investment opportunities by analyzing market trends, risks, returns, and other factors. AI can also provide portfolio optimization, asset allocation, and trading strategies based on predefined objectives and constraints.
• Risk management decisions: AI can help identify, measure, and mitigate risks by analyzing internal and external data sources. AI can also provide risk scores, ratings, and reports based on predefined models and rules.

By using AI for decision making, accounting and finance professionals can improve their judgment, speed, and confidence in choosing the best course of action for their organizations.

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Skill development

To leverage the benefits of AI in accounting and finance, professionals need to develop new skills and competencies that complement the technology. Some of the skills that are needed to embrace AI include:

• Data literacy: Data literacy is the ability to understand, interpret, and communicate data effectively. Data literacy is essential for accounting and finance professionals to use AI tools and systems, to analyze data outputs, and to make data-driven decisions.
• Critical thinking: Critical thinking is the ability to think logically, analytically, and creatively to solve problems and make decisions. Critical thinking is important for accounting and finance professionals to evaluate AI inputs and outputs, to question assumptions and biases, and to generate alternative solutions and scenarios.
• Emotional intelligence: Emotional intelligence is the ability to recognize, understand, and manage one’s own and others’ emotions. Emotional intelligence is vital for accounting and finance professionals to collaborate with AI tools and systems, to interact with clients and stakeholders, and to cope with change and uncertainty.

By developing these skills, accounting and finance professionals can enhance their value proposition, career prospects, and professional satisfaction.

Conclusion

AI is transforming the world of accounting and finance by enabling fraud detection, automation, and decision making. AI also requires accounting and finance professionals to develop new skills such as data literacy, critical thinking, and emotional intelligence. By embracing AI, accounting and finance professionals can improve their performance, efficiency, and effectiveness in their roles.

References:

1: Artificial Intelligence in Accounting — University of North Dakota Online. https://onlinedegrees.und.edu/blog/artificial-intelligence-in-accounting/

2: Embracing the role of artificial intelligence in accounting and finance: contemplating the changing skillset expectations | Emerald Insight. https://www.emerald.com/insight/content/doi/10.1108/DLO-01-2021-0016/full/html

3: Business implications of AI within tax & accounting | Reuters. https://www.reuters.com/legal/transactional/business-implications-ai-within-tax-accounting-2021-06-30/

4: How AI Will Impact The Accounting And Finance Industry? https://www.hostbooks.com/us/blog/how-ai-will-impact-the-accounting-and-finance-industry/

5: Artificial intelligence in Accounting & Finance — LinkedIn. https://www.linkedin.com/pulse/artificial-intelligence-accounting-finance-ankit-jain

6: 29 Examples of AI in Finance 2023 | Built In. https://builtin.com/artificial-intelligence/ai-finance-banking-applications-companies