Following the transformative changes in artificial intelligence over recent years, tax and accounting has been frequently cited as one of the most immediate areas for disruption. Indeed, the profession's function of extracting data from documents and analyzing them against a predefined set of rules (e.g., the Tax Code) seems to be a perfect use case for AI. So, are tax accountants at risk of being replaced? Is the profession facing a pending crisis?
In my estimation, the answer is unequivocally no for a few reasons. First, the challenge of gathering, extracting and interpreting the data is far more complex than is often perceived. Second, the ability to fully understand a client's situation and manage the relationship is critical and extremely difficult to automate. And third, the significant shortage of accountants makes the potential for increased automation a welcome development, not a looming threat.
There is no doubt that the technology is here, or quickly coming, that can scan a document, extract the critical information, and plug that data into a software program to prepare taxes. And where that works, we should take advantage of it.
The problem that every actual practitioner knows is that documents require a lot of chasing and when they finally come in, they're in various forms, including poorly taken images, messy books and endless unnecessary pages from financial institutions. These create a level of complexity that current AI struggles to interpret correctly and requires human collaboration. This is especially true in the boutique accounting space, where clients are small-business owners and individuals, not large accounting departments.
Additionally, quality accounting requires an extremely high degree of data accuracy. If the tool cannot be trusted completely, human workers are required to go back and verify information, which often creates as much work as doing it manually to begin with. Lastly, accounting is a service business that requires knowing and understanding the clients we serve. This is critical not just for a strong client experience, but also for accuracy of work as it provides critical information that would otherwise not be available through just an AI interaction.
Creating a golden age of accounting
Because of these challenges, the tools that will most immediately impact the accounting space are those that aim to augment human capabilities, rather than replace them. VC funding is currently flooding the market to back founders of AI accounting solutions. Many of these will be overconfident in technology and lacking in understanding of how the work is truly done, resulting in solutions designed to replace rather than assist the human worker. The more effective tools will be those that acknowledge the need for human collaboration. This will require a practitioner-level understanding of the problems, along with elegant design of the user interface. Over time this collaboration will provide further training to the technology and allow for further trust in the technology, but it must begin with a human-aided approach.
Far from worrying about the replacement of accountants by AI, I believe it can help save the industry (and the broader economy) from the growing shortage of professionals we are currently facing. According to The Wall Street Journal, 17% of accountants and auditors quit the profession in 2020 and 2021. That's 300,000 accountants and advisors exiting the profession, with not nearly enough entrants to replace them. Over time, AI can increase the efficiency and effectiveness of accountants and help fill this gap. This will drive favorable economics to the industry and alleviate the negative experiences that have caused many to leave the profession.
