Like many industries, accounting firms and CPAs must contend with labor shortages, wringing more efficiency out of already overworked staff. Forbes estimates that more than 300,000 accountants and auditors resigned during the Great Resignation of 2020 and 2021. The same article notes that the Bureau of Labor Statistics reports that there have been nearly 16% fewer accountants in the country since 2019, far more absences than can be accounted for by retirements.
To keep up, many firms are turning to artificial intelligence (AI) for a range of use cases, such as speeding up workflows and checking for errors or anomalies. What does this shift mean for CPAs? This post examines how AI is currently being used in accounting, how it works, and the pros and cons of AI adoption.
How AI Works for Accounting
AI in accounting encompasses a variety of machine learning applications, including natural language processing (NLP), generative AI like ChatGPT, computer vision for image and text recognition, and expert systems for improved decision-making.
Accounting processes are becoming more efficient and accurate using robotic process automation (RPA) and AI. RPA technology, along with AI algorithms, can now scan invoices and documents, extracting essential data without the need for manual entry. This technology can also identify duplicate payments in complex multi-page invoices, reducing the risk of overpayment or repeat entries.
How is AI Used in Accounting Today?
Large firms
The Big Four firms (Deloitte, Ernst & Young (EY), PwC, and KPMG) are catalyzing the trend of applying AI to accounting functions. These firms have bought into the idea that AI drives accounting efficiency by automating various processes, investing in proprietary solutions, and embedding tools like ChatGPT 4.0 into existing software and workflows.
These firms are deploying AI for several purposes, including:
- Auditing support – AI is vital in analyzing unstructured data and flagging potential fraud.
- IT – AI supports numerous IT functions, including development, cybersecurity, and many more use cases.
- Document review – Reviewing large contracts or tax codes is time-consuming. These firms have developed proprietary document review tools that can be searched and analyzed using NLP questions and prompts (like ChatGPT).
- Reselling AI solutions as a service – PwC partnered with OpenAI to package an enterprise version of ChatGPT internally and resold to its member firms.
Smaller Firms
AI is a great equalizer, offering smaller firms many of the same tools as the Big Four firms. According to a recent report, 8% of firms currently use AI, with 30% considering implementation. A majority of smaller firms that use AI do so for the following tasks and projects:
- Bookkeeping
- Tax research and advisory
- Tax return preparations
- Document review
General Business Functions
Accounting firms also implement AI for a variety of non-accounting activities, such as:
- Forecasting analytics
- Data analysis and visualization
- Scheduling
- Cash flow management
- Customer support and outreach
- Real-time translation
- Meeting transcription and summarization
- Coding support
- Legal document review
Also read: Diversifying Revenue for CPA Firms: Strategic Alliances with Investment Advisory Services
Benefits of AI in Accounting
- Increased productivity – Accountants are asked to accomplish more with fewer resources. AI helps CPAs achieve this by automating workflows, auto-generating reports, summarizing long documents, and scanning and inputting invoice data.
- Insights – AI is very good at spotting patterns. It can point out indicators of larger patterns in a dataset that might otherwise be overlooked. It can help identify areas within your organization where cost savings can be made.
- Combat burnout and staffing shortages – AI can handle many tedious accounting tasks, such as data entry or processing, freeing accountants to focus on more critical projects and empowering data analysts.
- Continuous audits – A common complaint of companies undergoing audits is that they slow company processes down during the audit process. Improve client relations and speed up audit reports by continuously receiving a stream of customer data as it comes in and instantaneously updating it with AI tools.
Challenges and Limitations of AI
- Accuracy – In a recent survey, 70% of respondents said accuracy was their main concern about using AI in accounting.
- Privacy and security – Data availability is one of AI’s key selling points, but protecting customer data from accidental exposure is a primary concern in a rapidly evolving cyber threat landscape.
- Consistency – AI may give varying responses to the same or similar questions.
- Nuance – AI does not understand context. Utilizing AI when legal language or other regulatory guidance is involved can be challenging.
Learn more: Technology Risk Management for Accounting Firms and CPAs
Will AI Replace Accountants?
In a word: NO.
At least, not anytime soon, and most likely, not ever. Accounting demands accuracy and thought. AI cannot think; it can only analyze and predict. And some soft skills, like fostering a long-term client relationship, will never be replaced by machine learning.
A rallying cry for AI implementation should be “augment, not replace.” In other words, your firm should use AI to expand employee capacity, not cull your workforce.
Use AI to Improve Service for Your Clients
Stanford University found that AI processing power doubles roughly every three and a half months. AI capacity and functionality will improve exponentially over the next few years.
Accounting firms can take advantage of the AI revolution, but it is essential to set realistic expectations. The best approach is to define what AI functions would generate the greatest rewards and then create an organizational implementation plan.
McGowan PRO has been helping accountants and other professionals navigate the shifting worlds of technology and compliance for over 30 years. Contact us to learn how we can best support the risks and rewards of your AI implementation.