PYMNTS MonitorEdge May 2024

Accounting Industry Ripe for GenAI Integration, Andreessen Horowitz Says

Artificial intelligence (AI) is poised to change the accounting industry, according to a new report from venture capital firm Andreessen Horowitz. As large language models (LLMs) continue to advance, AI is becoming a crucial component in various sectors, with accounting firms particularly eager to harness its potential to enhance efficiency and manage increasing workloads.

The integration of AI in accounting is not surprising. Bookkeeping, tax preparation, and auditing involve repetitive tasks that can benefit from AI. The accounting profession faces a dual challenge: an aging workforce and a decline in new entrants. The report states, “75% of CPAs could retire in the next 10 years.” Additionally, the decreasing number of students completing accounting degrees in the U.S. exacerbates the problem of maintaining a workforce to meet client demands.

Generative AI (GenAI) offers a solution. While LLMs excel in processing natural language, summarizing research, and answering queries, they lack the ability to perform complex calculations and quantitative analyses, which are essential in accounting. Nonetheless, AI’s potential to improve accounting workflows remains.

“When preparing to use new technology, like AI, start with what you want your outcome to be first,” Josh Schauer, VP of finance at insightsoftware, told PYMNTS. “By understanding what you want the impact to be, then looking for the right tools and data to solve it, you can inform what is required and the steps you need to complete it.

“For instance, one of the biggest challenges accountants face today is a lack of bandwidth and an overload of repetitive, manual tasks — like reconciliations and generating reports. Ultimately, accountants should be trying to do more with less. Understanding this goal, they can then seek tools that effectively decrease this manual work and free up time for more valuable tasks, like financial planning and analysis.”

From corporate finance departments to CPA prep courses, finance functions across America are suffering from an ongoing attrition of seasoned team members. The accounting profession is failing to attract the next generation of workers, leading to over 720 companies citing insufficient staffing and potential errors in reporting in 2023, according to a March report from Bloomberg.

Companies are exploring automation to address America’s growing accountant shortage, according to a report by PYMNTS. Materia has launched a generative AI platform for public accounting firms with over $6.3 million in funding, designed to automate low-value tasks, consolidate internal knowledge into a secure Knowledge Hub, and provide reliable data through its AI Assistant and Document Analysis Workspace.

Disrupting Accounting Workflows

Accounting professionals spend substantial time gathering and reconciling data from various sources. This process, known as reconciliation, involves comparing entries from different data sources, a task that small businesses spend an average of 15 hours per week on. Larger companies often outsource this task to business process outsourcing (BPO) services.

AI-powered data extraction software can streamline this process by pulling data from unstructured formats like contracts, receipts and invoices. This advancement simplifies reconciliation, error checking, and term identification, reducing manual effort.

One example of this technology is Basis, which provides an AI copilot to match payables with cash transactions, generating an audit trail. Klarity, another AI solution, automates document review and extraction workflow, further enhancing efficiency.

Mike Manalac, a CPA with over a decade of experience at small, Top 20, and Big 4 accounting firms, underscores AI’s transformative potential in these processes.

“Accounting firms have to prove they’ve performed their due diligence. This is a time-consuming process that AI will cut in half by drafting accounting memos, researching and citing applicable guidance, and making the overall support file more robust,” Manalac told PYMNTS.

Research is another area where LLMs can make a substantial impact. Accountants must often determine how specific revenue and expense items should be classified, reported and taxed. This involves consulting various tax codes, accounting standards, SEC filings and other resources. Previously, practitioners had to search through these documents manually. With AI, purpose-built copilots trained on these datasets can answer queries, streamlining the research process.

Once data is categorized, accountants need to generate reports. This includes journal entries, audit checklists, and technical memos. AI can automate much of this work, including writing summaries in a firm’s style. This capability saves time and ensures consistency and accuracy in documentation.

Perhaps the greatest potential for AI lies in client service and advisory roles. Accountants aim to transform client relationships from annual, transactional interactions to ongoing engagements focused on business optimization. With AI, firms can regularly produce high-quality insights for clients, adding value and potentially increasing revenue. For instance, Black Ore helps firms automate redundant tax preparation processes, allowing practitioners to focus on higher-value advisory work.

Manalac highlights how AI can shift the role of accountants. “Accountants will spend less time on research and documentation and more time on analytical work and uncovering what’s really driving the financial results. This means more face time with clients and more discussion around business strategy.”

However, to fully realize AI’s potential, accountants need fine-tuned models that combine industry-specific details with quantitative capabilities. While general-purpose LLMs are adept at many tasks, they still require comprehensive development to integrate these capabilities.

Benefits and Risks

Leveraging AI will drastically reduce the time needed to prepare and review client engagement work, such as audit files. “That will result in quicker turnaround times for clients and increased bandwidth for the firm to take on more work with less staff,” Manalac noted. However, risks include misuse and sharing of sensitive client data, errors associated with unchecked AI output, and the onset of a new generation of “lazy” accountants who lack technical expertise.

Despite the promising outlook, AI adoption in accounting faces challenges. Crucially, AI cannot yet replace human judgment and sales skills. Senior professionals play a vital role in winning business and making recommendations. Moreover, the profession’s talent development relies on junior accountants learning through hands-on experience, which AI cannot replicate entirely.

Furthermore, the report notes that the business model for AI in accounting must align with different buyer personas. Tax departments, which often charge hourly rates, may view AI’s efficiency as a threat to billable hours. Conversely, auditors with fixed-fee engagements may find AI-driven efficiencies more appealing.

The AI enhancement of accounting is already underway, with numerous startups emerging. These companies are developing solutions that range from data collection and reconciliation to research, report generation, and client advisory services. As AI technology continues to evolve, its integration into accounting will likely become more seamless, offering benefits in efficiency and accuracy.

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