Why Artificial Intelligence is only the beginning for accountants

Written on May 16, 2017

By Ryan Watson, CPA

In a political climate riddled with ‘third rail’ issues, automation has emerged front and center in the national debate about the displacement of American workers.

But the introduction of technology to efficiently replace labor is hardly new – society has been grappling with this issue since the invention of the printing press.

The target of disruption is what’s changing. While historically automation has been confined to manual labor and manufacturing, emerging innovations are beginning to threaten the knowledge economy, too. Today IBM’s Watson is outperforming oncologists in the diagnosis of cancer and intelligent bots are writing the news. Automation and artificial intelligence are even edging into accounting technologies. But what does this mean practically and how can you prepare your firm for the future?

Defining Artificial Intelligence (AI)
AI is a machine or computer software that acts with general human intelligence. As humans, our general intelligence enables us to do things like perceive unfamiliar words by guessing their meaning in context or assess how fast a car is approaching and brake if we need to, mostly without conscious thought. We learn through experiences, and once we’ve observed something, we can pattern match for it the next time.

While human intelligence is certainly the benchmark, AI in the real world is often a weaker, more specific form of ‘intelligence’ - generally referred to as machine learning.

Machine learning systems work by ingesting enormous amounts of data and then applying algorithms based on patterns and rules derived from the data. These technologies are already present in our everyday lives, from automatic recognition of faces in photos on Facebook to detecting fraudulent activity on credit cards. Self-driving cars are some of the most prominent and ambitious examples of machine learning technology to date.

AI and machine learning in accounting
But how does all of this fit into accountancy? Well, IBM’s Watson isn’t just hard at work in the medical field. During the tax season the technology helped H&R Block's 70,000 tax professionals automate their tax filings. Watson’s senior vice president of business envisions that it will become a “really smart, virtual assistant.” And there’s already a long list of bots intelligently helping accountants and small business owners tackle everyday tasks, including helping accountants find new clients. Xero recently released a Facebook Messenger service powered by the Xero Advisor Directory that connects users with a suitable accountant. They’re also preparing to automate the classification of routine and complex entries using their massive data store of user behavior. In short, what can be automated will be.

With mobile document collection and management solutions like Hubdoc, we’re already on our way to zero data entry bookkeeping. Other tasks such as recording and classifying transactions, filling out compliance forms, and computing key KPIs and ratios are also being automated.

But just like in medicine, machine learning promises to move beyond basic processing and into intuition and even “cognition.” Imagine a big data engine that can monitor credit worthiness against thousands of indicators and approve financing in seconds. Or a tool that can perform real-time benchmarking against a perfectly comparable peer group. Consider what will happen if computers can complete smart forecasting based on company-specific and macroeconomic trends. These aren’t just hypotheticals; many tech companies are working on these solutions now.

What now?
So are accountants going to be replaced by robots? No, of course not. Fundamentally, human tasks break down into two categories: creative work and executional work. AI and machine learning threaten to replace all executional work, but fortunately for the humans, they’re still terrible at the creative.

If your firm focuses primarily or exclusively on compliance—executional work—you’ll need to pivot. Technology is not only reducing billable hours and applying pricing pressure to commodity services, but it’s also a drawcard. Clients are becoming less brand loyal, and they’re increasingly switching to firms that leverage technology for their benefit.

It’s not just for the sake of bringing in clients - compliance-only firms are facing immense challenges at retirement and sale because they aren’t future-proofed.

The answer? Move to the creative. Consider your approach similar to that of Volkswagen. In one of their engine production plants in Germany, they’ve implemented “collaborative robots”, working alongside people and taking over a physically demanding step in the engine assembly process. For accounting firms this might look less like a scene from The Jetsons and more like a fully integrated suite of AI-powered cloud software applications.

The principles though, are still the same. Leverage technology to automate what can be automated, and redeploy your time on delivering creative, value-added client service.

The simple truth is firms willing to adopt technology, exploit automation, and focus on proactive, real-time advisory, will be the (only) ones that survive and prosper.

Ryan Watson, CPA, is principal at Upsourced Accounting.

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