Accounting for AI
IBM’s Watson tackles audit and tax as artificial intelligence takes on the accounting world.
By Ryan Watson, CPA | Summer 2017
Ken Jennings was untouchable. Beating back competitor after
competitor, he strung together a winning streak for the ages, which,
to this day, remains the longest winning streak in Jeopardy history.
Then, in February 2011, Jennings squared off against his most
formidable opponent in his historic 74th game. Watson.
Weighing in at just under 1,500 pounds and having 200 million
pages of information committed to memory, Watson didn’t
look like the 144 people Ken had defeated. In fact, Watson wasn’t
a person at all. Watson was IBM’s AI (artificial intelligence)
supercomputer, and unseating the greatest trivia expert of all time
was just the coming out party for what appears to be a long and
disruptive livelihood.
Its latest endeavor? Accounting.
Who’s Watson?
A pioneer of cognitive computing, Watson is quickly becoming
whoever you need it to be. Unlike basic computing, which only
works with structured data in databases, Watson relies on natural
language processing to understand and process unstructured data.
Meaning, rather than solely looking for keyword matches, it
evaluates words and phrases to interpret the context and draw
inferences about the meaning and intent—just like you and me.
When Watson begins in a new domain—like tax, for instance—it
begins with a basic collection of information as the foundation of
its knowledge. Then, with the help of human experts, it refines its
knowledge through a process known as machine learning, where
it evaluates pairs of questions and answers to understand linguistic
patterns in the data. Like humans, Watson uses information to form
and analyze options, develop hypotheses, make decisions, and
ingest results, getting “smarter” with each feedback loop.
Watson Rising
In Watson’s first commercial application, it outpaced real doctors
in successfully diagnosing lung cancer. IBM has since partnered
with many industry leaders in education, financial services,
healthcare, and more, and is by all accounts looking to be the
central AI engine powering all business and consumer applications
through its developer ecosystem and open application program
interface.
It was just a matter of time before Watson would take on the
accounting world, and that time is now.
After all, Watson excels at analyzing terabytes of disparate,
unstructured data to apply order and context. Watson processes
this data and makes determinations on it in mere milliseconds. In
many ways, evaluating data and applying “rules” is the bedrock of
traditional accounting work, leaving Watson poised to disrupt a
significant amount of the work being done.
Automated Assurance
Not buying it? Several of the largest firms in the industry have
already begun deploying Watson in exactly this way. While they’ve
not disclosed all of the specifics around its application, KPMG is
leveraging Watson in its audit practice to analyze large volumes
of structured and unstructured data related to a company’s
financial information. Watson is being trained by KPMG’s auditors
to fine-tune assessments, giving them faster access to precise
measurements used to analyze anomalies.
An increasingly important component of assurance work is
performing analytic procedures on individual transaction data.
Historically, these procedures have been limited and basic,
restricted by the computing power of humans and their laptop
computers. But with Watson, all bets are off. And as the technology behind the AI supercomputer improves, it will continue to make
more sense for firms, like KPMG, to use Watson to develop a much
richer understanding of the enormous amounts of data that we’re
increasingly producing.
Tackling Tax
H&R Block is another noteworthy player leveraging Watson to
disrupt traditional business practices, but this time it’s for tax
preparation.
“By using Watson, H&R Block’s tax professionals highlight
additional areas of possible tax implications based on a
personalized cognitive interview,” explains George Guastello, H&R
Block vice president of client experience. “The client can follow
along with the tax professional on a monitor that brings to life key
focus areas for deductions, making tax preparation more engaging
and transparent.”
What’s interesting about the H&R Block/Watson partnership is that
it offers us a glimpse into the future of human and machine
interaction. According to Guastello, Watson isn’t replacing tax
preparers, but rather helping them do their jobs better.
“Tax professionals are the heart and brain of the client experience,
that role will not change,” says Guastello. “Watson augments and
expands human intelligence, it does not replace it. This is man and
machine working together; the best tax professionals working with
the best technology to deliver the best outcome for clients.”
In this, we begin to see a future for how AI and humans will exist
symbiotically. In professional service industries where trust is
foundational to the relationship, automation alone is unable to
service the need. However, when automation and client service
combine, the promise is a higher quality product at a lower cost,
benefiting both the accountant and the client in the long run.
AI Ahead
It’s unclear what IBM’s true intent is for Watson in the accounting
space, but clearly opportunities for AI in the industry exist broadly.
Machine learning systems are increasingly being implemented into
accounting platforms, automating manually repetitive tasks. For
instance, cloud-based accounting software provider Xero recently
applied machine learning capabilities to its “Find and Recode”
function, a function designed to help accountants and bookkeepers
tidy up their clients’ incorrectly coded entries.
The model learns from invoice coding behaviors, noting any
mistakes recognized and corrected by the advisor, and then offers
suggestions and predictions. Next time the user tries to affix an
incorrect code to an invoice, the machine learning system suggests
a label that should be used instead.
What’s next? Imagine a big data engine that can monitor credit
worthiness against thousands of indicators and approve financing in
seconds. Consider the possibility of an audit quality system that can
perform real-time benchmarking against a perfectly comparable peer
group. Perhaps we’ll one day see a program that can do smart
forecasting based on company-specific and macro-economic trends.
They’re all likely scenarios that will bring change to accountancy.
There will never be a future without human accountants and
bookkeepers, but those who will succeed in the age of automation
and machine learning will welcome the disruption. In this future,
the accounting professional will be focused on offering intuitive
insights and more value to their clients. And the mundane, dirty
work? Well, we’ll leave that for the machines.
Ryan Watson, CPA is a founder and principal of tech-savvy accounting firm
Upsourced Accounting and Xero’s Midwest ambassador. He can be reached
at [email protected].