Let’s chat about AI, Part II: Risks and considerations for CPAs using AI

By Mitchal Derksen
Mar 13, 2024
Photo credit: ojogabonitoo/iStock/Getty Images

Part II: Risks and Considerations for CPAs using AI

Be sure to check out Mitchal’s interview in the Coffee Chats with CPABC podcast series. “Let’s Chat about AI: A Practical Discussion for CPAs” was released on December 12, 2023.

Welcome to the second instalment of our three-part “Let’s Chat About AI” series authored by Mitchal Derksen, CPA, CA, founder and CEO of Numu Technologies in Vernon. Mitchal is a software developer who works with AI every day. In Part I (see the January/February 2024 issue), he kicked off the series by offering practical advice on getting started with AI. In this second instalment, he explores the risks and ethical considerations CPAs need to address when using this transformative technology.

We hope you enjoy Part II. In Part III, which will appear in our May/June issue, Mitchal will answer some of the most frequently asked questions about AI.

In the dynamic intersection of accounting and technology, AI has emerged as both a catalyst for innovation and a focus of intense scrutiny. As CPAs, we stand at the forefront of this technological frontier, tasked with harnessing the power of AI while navigating the ethical, practical, and compliance-related challenges it presents.

Accordingly, this article delves into the pivotal considerations for CPAs employing AI, from the reshaping of our roles and responsibilities to the need for adherence to established standards. Join me in unpacking the complexities of AI in accounting and charting a course through its many layers.

The broad impact of AI on the accounting industry

Balancing human capital with technological progress

With the adoption of new technology often comes fear of obsolescence and job loss—it’s a well-worn narrative, yet it is always relevant when discussing innovation. There’s no question that many positions involving data entry and other entry-level roles will be replaced by AI. And while it is important to acknowledge this reality and act in ways that respect the people on our teams and the relationships we’ve built, we also need to recognize that the world is constantly moving forward. Accordingly, we need to focus on up-skilling ourselves and our teams and use our human capital to complete more interesting work that, in turn, contributes to our ability to add value to our firms, companies, and communities.

Ultimately, AI offers the opportunity to liberate professionals from the tedium of repetitive tasks. This, in turn, enables us to cultivate teams that are not only tech-savvy but also more strategic and innovative. Deployment of AI, therefore, isn’t just about the technology—it’s about fostering an environment that values human intellect and emotional intelligence.

Implementing AI as an extension, not a replacement

At the heart of my team’s philosophy is the belief that AI is a tool, not an autonomous solution. AI can process data at an amazing scale and speed, yet it lacks the nuanced understanding that comes from years of experience and ethical training.

As we embrace AI, it’s paramount to remember that our value proposition can be augmented by AI—not diminished. We can use AI to elevate our analytical capabilities, to enhance decision-making, and to do so faster than ever before, backed by the professional judgment and insight that only seasoned CPAs can provide.

Key risks for CPAs in the age of AI

Navigating the pitfalls of AI “hallucinations”

AI, particularly in the form of large language models or “LLMs,” has quickly become a cornerstone of modern business practices. However, LLMs are not infallible. These types of AI models sometimes generate convincing but entirely false information, known colloquially as “AI hallucinations,” which are a byproduct of the LLMs’ design as language pattern recognizers rather than fact verifiers.

As CPAs, it’s crucial that we scrutinize AI outputs and establish robust review processes to catch these errors. Understanding the technology’s limitations will enable us to mitigate the risk of acting on false or misleading results.

Ensuring quality in the AI era

As AI tools become more prevalent, there’s a risk that less experienced staff may venture beyond their expertise, empowered by the assumed competence of AI-generated content. It’s a double-edged sword: AI can elevate junior staff capabilities, yet it may inadvertently deprive them of the valuable learning experiences inherent in their roles.

As seasoned professionals, we must recalibrate our review procedures to safeguard against this, ensuring that our teams grow in knowledge and experience—not just technological proficiency.

Staying ahead in a competitive landscape

Inertia, in the face of rapid technological advancement, is perhaps the greatest risk to most industries. Companies that hesitate to adopt AI risk losing market share to those that are more technologically agile. Furthermore, AI tools may soon be considered standard, making their integration essential when it comes to attracting top talent, including the next generation of CPAs.

With AI proliferating at such a rapid pace, inaction could create an insurmountable gap between those who adapt and those who remain static.

Compliance considerations when using AI in accounting

As CPAs, we navigate a complex landscape of regulations and standards, and the integration of AI into our practices introduces a new layer for consideration. As AI reshapes business, we will need to understand the software and AI tools that affect the financial cycle as deeply as we understand financial regulations.

Accuracy and accountability in tax compliance

Our use of AI in tax-related roles must ensure precision, and we must maintain records that stand up to scrutiny. AI can assist us in identifying deductions and credits or flag potential anomalies, but it’s our responsibility as CPAs to verify the validity of such findings. Moreover, we must review AI-generated tax advice and calculations with the same rigour as if they were manually derived to ensure that they meet the standards of the Canada Revenue Agency.

Enhancing due diligence in assurance

In the assurance arena, AI offers transformative potential: automating data analysis, enhancing sample selection, and identifying trends or anomalies with greater efficiency. However, it’s essential to remember that AI does not replace the need for professional skepticism or judgment. When using AI in these capacities, we must maintain a thorough understanding of the assurance process and ensure that all AI-assisted procedures align with assurance standards. Furthermore, documentation of AI methodologies and their validity must be thorough to ensure the integrity of the assurance engagement.

Conforming to accounting standards

The incorporation of AI into financial reporting must be approached with a clear understanding of applicable accounting standards. While they are proficient in data handling and processing, AI tools must be programmed and monitored carefully to ensure that all outputs comply with the standards—no easy feat.

Additionally, we must evaluate the AI system’s ability to adapt to the nuances of accounting standards, and we must implement controls that prevent the generation of non-compliant financial statements. We must also ensure that any AI systems used in accounting are configured to flag the attention of a CPA in situations that require judgment, as AI itself cannot apply this judgment.

Being candid and practical, these compliance considerations remind us that while AI is a powerful ally, the onus of responsibility ultimately lies with us. We must not only understand the capabilities and limitations of AI but also rigorously apply our knowledge and judgment to ensure compliance with our accounting framework. As CPAs, our commitment to these principles is what will define our success in the era of AI. We must ensure that as we embrace this technology, we do so with foresight and integrity.

Key resources for CPAs

We know that there are a lot of questions about AI, including how to even get started with learning to code or work with AI tools. So, in Part III of this series, which will appear in the May/June issue of CPABC in Focus, I’ll be answering your most asked questions about AI and its impact on our profession. To that end, please send us your questions and thoughts on AI with the subject line “AI in Accounting.” Your participation is not just welcomed—it’s essential! Together, we can ensure that CPAs navigate the AI landscape successfully.

In the meantime, you’re welcome to visit our curated learning library for CPAs interested in learning more about AI and software development. There you’ll find a variety of resources designed to help you build your software and AI skill set.

Stay tuned for Part III, and let’s continue this important conversation together.

Mitchal Derksen, CPA, CA, is the founder and CEO of Numu Technologies in Vernon. He and his team of CPAs focus on researching and developing accounting AI responsibly.

This article was originally published in the March/April 2024 issue of CPABC in Focus.

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