( © Sage)
Hallucination-prone AI and finance don’t seem to belong in the same sentence. However, Aaron Harris, CTO at Sage, argues that they can work together to improve insight and respond to opportunities with appropriate governance. These predictions are based on a recent Forrester Consulting study of 2,339 SMB finance leaders looking at how AI will change accounting by 2030.
For starters, it will enhance finance pros rather than replace them and help to bridge the accounting talent gap. About 20% of US firms are hiring more accountants, which Sage views as an opportunity to elevate the profession. AI is also making accounting more attractive by empowering them to become strategic advisors rather than just number crunchers.
Ethical AI leadership
About 80% of SMBs have adopted a robust AI ethics policy. By 2030 it will be nonnegotiable. As part of this process, accountants could become a leading force in ethical AI assurance. Harris sees two aspects to this.
First, the accounting industry will be leaders in using and managing ethical AI. Also, when AI is used in business, we will increasingly rely on accountants to ensure the trusted use of AI. The essential thing is that accountants could expand their purview beyond just getting the numbers right to thinking about how to get trust right.
Risk management overhaul
Risk management started in finance and evolved into governance, risk management, and compliance (GRC) tools and frameworks. Now, it’s expanding into enterprise risk management, which must consider security, ESG, supply chains, and climate-related risks. These come with potential costs or opportunities if managed and mitigated more efficiently than competitors. Forrester estimates that more than 90% of SMBs are using AI for continuous monitoring and anomaly detection and to reduce financial errors and fraud by over 95%.
Cloud infrastructure and AI innovations could help bring visibility and comparisons of these various types of risks into a common framework. For example, cybersecurity and supply chain risks have vastly different characteristics that need to be treated with different processes. At the same time, accountants can play an essential role in efforts to fund estimated mitigation costs based on the likelihood of critical events.
For example, regulators are increasingly pressuring companies to reduce greenhouse gases, avoid biodiversity losses, and improve circularity of materials. Assigning costs to these things can be hard, but that is what accountants are good at. Harris explains:
It’s not just that they’re good at it. They provide the assurance that those numbers are reliable and that we can make decisions based on those numbers.
For a while, the finance industry started to consider how to provide better information to guide investment decisions beyond just financial performance and ESG through integrated reporting. The term has fallen out of vogue. However, Harris believes the concept is starting to make a comeback as people begin to consider the value of investing in our local ecosystems and communities in addition to just making a return:
I’ve always believed in the idea that the companies that we invest in are parts of ecosystems and the whole ecosystem matters. So, you know, if the community in which I have my headquarters isn’t well supported by the company that I’m going to invest in, that might impact the long, long-term success of that company. And so, my view, and supported by the Forrester Research, is that just as we’ve been relying for centuries, literally, on the accounting industry to create trust in our markets. The information required to create that trust expands beyond financial results like carbon accounting and ESG commitments, and we’re going to expect the accounting industry to support that.
Continual close
A default legacy in many businesses is the stressful monthly close, where finance teams might spend long hours organizing and double-checking all the numbers to ensure accuracy. Harris estimates that finance teams spend about 25% of their time closing the books. What if AI could continuously automate this process to ensure the books are always current so businesses could make better decisions?
Forrester found that about 75% of SMBs were transitioning to continuous accounting practices. However, this requires the success of continuous assurance to ensure the numbers are right. Also, AI is starting to revolutionize risk management, which could enable real-time reconciliation and other assurance capabilities. By 2030 there will be an expectation that all financial data will be current. Harris explains:
What’s required to get there is to ensure that all the transactions that happened in the period are accounted for. There’s a fair amount of work in that because a lot of it is that accounting is timed differently than business activity and to ensure that report data is reliable. So, things like reconciliations and assuring that you’re doing spot checks on vendor statements match my vendor ledger. But there’s a whole suite of assurance that has to happen as well. And so it’s a combination of capturing and accounting for all the business activity in the period with enough assurance activities.
Real-time finance decisions
The corollary to continual close is that businesses will be able to make decisions using real-time data. Forrester predicts that over 70% of SMBs will integrate real-time data into financial decisions, empowering them to drive growth and innovation by 2030.
Harris acknowledges that today, not all business is captured in real-time. Existing tools and infrastructure are insufficient to capture everything with the assurance that it is reliable. So, accounting data can get out of step by a few days to weeks. The vision is that with the right technology, particularly AI, they can take that delay down to zero to keep accounting data in lockstep with the business.
New opportunities
The last prediction is that AI will automate many routine tasks and free accountants to focus on strategic thinking and provide business insights. This will create opportunities for accountants to expand into new roles that improve business strategy and facilitate innovation. Harris sees this as a fundamental movement up the value chain.
At this point, I had to ask Harris what an accountant was. We all know they are the folks that do the books, pay taxes, and settle with the vendors. But I feel like he is talking about something a little different here. He jokes:
I’ve never been asked what an accountant is. One way to answer this is that accountants sit between a business and business stakeholders, whether that’s decision-makers in the business, investors, creditors, or governments. However, we rely on accountants to provide reliable information and provide expertise on what the information actually means. What’s fundamentally changing in that role is the digital transformation of business. As the business becomes more digital, capturing and accounting for that business is changing. You’ve probably heard the saying that the software is the business. You know more and more as businesses digitize. That accounting is happening in real-time along with business activity, and that is moving accountants up the value chain to focus more on the explainer, advisor and interpreter and less on the gatherer, counter, and the reporter.
The broader story is that there is a huge shortage of trained accountants, and it’s getting worse. Fewer students are choosing accounting as a career. And there’s a bit of an age problem in the industry, where we’ve got more retirement events happening than we have new accountants coming into the industry. And the way we do that is to allow accounts to have more time to do what probably attracted them to the career in the first place, not data entry, sampling contracts and calling ten of your hundred vendors to see if there’s some fraud going on. It’s actually being someone who knows more than anybody else in the business what the numbers mean.
My take
Before my recent chat with Harris, I never really thought about accountants as more than just number crunchers. But he makes a convincing argument that there is an opportunity for them to evolve beyond just building trust in financial data to also trusting AI and taking realistic steps to create more sustainable and just communities, nations, and a better world.
Harris explains how this might come about:
You spend the rest of your time on that more strategic stuff understanding the implications to the business, really understanding, from a management accounting perspective, what are the best measurement systems to deploy in this business to get meaningful information that I can make good decisions. Accountants are going to have to become technologists. They’re going to have to become data technicians, but fundamentally, they’re going to get to spend more time doing what probably attracted them to the career in the first place.
I would certainly trust most accountants with regard to the future of AI and the world rather than the move fast and break things characters currently driving the AI show. They have earned this trust.
