Accounting firms need to increase their focus on technology; that’s not new. But how technology and software companies are using artificial intelligence and machine learning within the accounting industry is new — and it’s impacting accounting, tax and audit!
The audit space is a bit outside of my comfort zone, but I know that AI and ML are having a huge impact on the audit world. AI-powered technology can do a lot of the grunt work accountants do today to improve workflows at a much faster pace.
AI and auditing
Isaac Heller, co-founder and CEO of financial workflow automation platform Trullion, has connected the dots between a contract and a financial statement. Historically, it can take up to three hours to manually review one lease contract for accurate compliance data.
“The more we want to go into financial and source data, the deeper we have to dive into contracts as it relates to accounting and audit,” Heller said. “We’re looking for what's called transactions or entities [that are] really critical for financial data and risk.”
He compares the process of reviewing contracts to finding a needle in a haystack, just to make sure everything is good under the new ASC 842, IFRS 16 and GASB 87 lease accounting standards.
This is where AI and ML come in. Just like with bookkeeping, they can be taught to replicate repetitive, administrative tasks.
Machine learning “is simulating things with a machine or computer that we could potentially do,” said Heller. “It’s historically meant to do a lot of small, highly repetitive things.”
At a step above basic data extraction, there are lease contracts. And the data contains information about transactions — whether it’s a one-time transaction or recurring — and dates (start dates, purchase options), and thus help you identify some potentially more unique areas of a contract.
Using AI to improve the value of compliance
Auditors out there, hands up! Heller said that only about 10 percent or so of auditable transactions actually appear on a general ledger or an ERP system. That means around 90 percent of the transactions you want to see for the audit process are located in unstructured data, like PDF contracts.
This is just one part of a growing trend and increasing regulatory compliance surrounding unstructured data and transparency in the audit process. As auditing evolves, be conscious of the role that AI and ML can play in the day-to-day work.
Awareness of AI and ML in the audit space is still building. Just like bookkeeping, if there are aspects of the job that are repetitive and maybe a little less strategic, AI can help with those. The next step is to start thinking of all the ways auditors can be more strategic and advisory with their clients if they don’t have to review contracts for compliance anymore.
For example, helping clients with the way they write contracts, or helping them reduce risk and identify opportunities for cost savings. Whatever the next wave of value looks like, whether it’s from the perspective of an internal auditor or external CPA servicing clients.
AI is not here to take anyone’s job away. What it can do is provide capacity at a time when compliance-related activities are heating up. And really, leveraging technology is just another way to maintain a certain standard of quality.
The future of accounting and auditing
Leases are getting more complicated. There are more data points around options and one-time costs that require auditors to apply more judgment than before. Generally, there’s just more work. More work may be good, but the client might not see the value of compliance. Even if you see it and know it’s there, that doesn’t mean the client wants to pay for it. What then?
Introduce a new workflow that moves faster and shows the full audit trail, something that adds more value without adding too much more cost. Software can guide controllers or auditors through the contract, suggesting data points all the way through to the journal entry.
By taking unstructured data from PDF contracts, Excel and other sources and translating them into a single system for accounting teams, you have real-time visibility into company financials. Using AI to review items such as leases and revenue agreements and translating them into a live data image provides 360-degree transparency into the source data. The result is real-time collaboration between internal auditors, CPAs and the company on the financial statements.
It’s like a collaborative audit, and this kind of ongoing partnership is really what a lot of companies are pushing for anyway, whether they realize it’s what they’re asking for or not. The benefits to everyone involved are that this software saves a ton of time and really increases accuracy. In terms of the future of compliance work, if on one hand there’s this technology that enables us to provide more accurate data and, on the other hand, there’s the option to continue going through these contracts manually, why would you choose manual? There could be a big risk down the road of either falling behind or costing clients money or opportunities.
Currently, the profession is in the third wave of tech innovation, as Heller sees it.
“The first [wave] is just getting to databases … like IBM and Oracle. The second big wave is the Cloud. It gave us the ability to implement more quickly, basically get software into more people’s hands. … The third wave is AI-driven and AI-enabled,” he said.
Better accounting technology is needed to reduce risk, cut down on human error and improve the way contracts are written and implemented, all with better transparency and value.
“It’s more than machine learning,” said Heller. “It’s just unlocking the trove of data.”
The real question is how the profession will evolve and keep up with the marketplace. There are a lot of opportunities for AI and ML to retool how practitioners see accounting and auditing practices, bringing more transparency to the work and helping clients value more than fixed assets.
