In search of artificial accounting intelligence

Machine learning applied to accounting data
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John Stokdyk
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AccountingWEB.co.uk
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This week Xero hosted a seminar at its London headquarters about artificial intelligence and its impact on accountancy. In response John Stokdyk set off to find evidence of this growing trend.

The accounting software industry is buzzing with news and gossip about artificial intelligence and machine learning. Such is the speed of change in this area that the conversations are moving on from last year’s fear, uncertainty and doubt phase of will machines take our jobs?

Instead, software developers and accountants are now talking about how artificial learning systems are actually being applied to accounting tasks, now.

Earlier this month, Karbon’s Ian Vacin blogged on our US sister site about the big cloud accounting platforms are aggregating customer data to build algorithms that auto-categorise and auto-complete many of the tasks within their products. For accountants, he said, these innovations would ease their workflows by eliminating some existing processes through “learned, repeatable behaviour”.

As Vacin noted, Intuit QuickBooks, Xero and Sage all exploring auto-recognition to categorise transactions based on crowdsourced behavioural patterns. 

Machine learning arrived within Xero via the Find & Recode feature introduced in 2015. Since then, the underlying data platform (Amazon Web Services) has been scanning code corrections to find common patterns. From these, Xero built a predictive model that it can apply to any new coding scenarios that show up.

The machine learning system learns what the accountants change and what it relates to, the Xero blog explained. So it will recognise a coding for time billed switched from Sales-Materials to Sales-Labour the next time the business creates a similar invoice.

Xero has been refining its algorithms based on the 3m corrections entered every month by accountants and bookkeepers and claims it can achieve 90% accuracy after 50 invoices. In March, Xero took a step further by running a beta test where the coding dialogue box was removed for some users, with the coding engine doing the work automatically instead.

Xero UK managing director Gary Turner told AccountingWEB the rationale behind this move was, “What if we could prevent the mistakes from happening in the first place?”

To our knowledge, AccountingWEB members Kent Accountant  and Glennzy aren’t part of that experimental Xero user group, but they are moving in a very similar direction. In response to an Any Answers post from BromleyBob, they explained how they use Find & Replace when dealing with adjustments to clients’ year end accounts.

Kent Accountant uses the tool to make any corrections/amendments in the client’s books and posts year-end adjustments as journals in Xero when preparing the annual accounts.

Glennzy took a similar approach and “saves loads of time” using Find & Recode. “I am moving to doing everything in Xero including tax provisions, then just posting the [trial balance] into [accounts production] to file [statutory] accounts,” he said.

“I had a few incomplete records jobs where I scanned the bank stats into OcRex, then into Xero so had full audit trail instead of using spreadsheet.”

On the issue of whether or not to amend the client’s underlying accounts for the previous year, and with an eye on the digital horizon, Glennzy commented, “I cannot see why you wouldn't amend the accounts as it just means you’d be doing it every year. With MTD surely you will need to have the Xero correct or you will end in a right mess.”

Xero, meanwhile, is also talking about applying machine learning and categorisation to bank reconciliations and making the chart of accounts “invisible” to users.

At the Thomson Reuters Synergy event in May, Gary Turner explained that the Xero database holds 10m different chart of accounts codes. “It’s like the wild west - completely unstructured,” he said. “You can see where the controller brought in the system they’ve previously used and all kinds of multi-segment codes, departments and so on.”

When Making Tax Digital finally arrives, it will accelerate the adoption of these machine learning solutions. “[MTD] assumes everything is clean and ready for filing. And we know that’s not the case. Some small businesses have hundreds of chart of accounts codes. How the hell do you go from that to filing?”

Machine learning can play a significant role in tidying up that mess, Turner continued. “You should have a very small set [of codes], and tag them how you want to analyse them.”

Don’t overlook Sage

In contrast to Xero, Sage is more circumspect about going for fully automated categorisations. “I would love it if you could suggest all the reconciliations were done, but we are not focused on automation without having a level of control. Accountants want to be able to press a ‘confirm’ button, so we built that in,” said Sage product marketing director Michael Office.

Whisper it quietly, but AI and machine learning is an area where Sage has stolen a march on its cloud rivals. While the others are talking up their back-end categorisation and analysis applications, Sage was the first to hit the streets with an AI-powered chat bot, Pegg.

There’s still a lot of fluffiness attached to Pegg, which allows the user (or their adviser) to interrogate their live accounting data and to record transactions via SMS chat systems. But when AccountingWEB met Office at the Sage’s London summit in May, talk quickly turned to how Pegg might act as an intermediary or facilitator for the MTD process.

According to Office, Pegg can trigger reminders about submission deadlines and what clients need to do to meet them. For example, if the client hasn’t recorded all their receipts, the bot can remind them and warn that the quarterly records are about to be locked down. “When you plug in the accountant and client, you can start action and interaction,” Office said.

Machine learning on the front line

Earlier this week, James Poyser from Practice Excellence Award entrant inniAccounts told AccountingWEB that his team were already building machine learning into tools to improve the efficiency of routine compliance tasks.

Automated categorisation is a great start, but Poyser thinks there’s a lot more to come from AI for accountants who really get to grips with it. While inniAccounts isn’t the only firm to embrace machine learning, its strategy reflects the advice from The Future of the Professions author Daniel Susskind to sit down with a blank piece of paper and imagine how you could do things differently with available technologies.

Poyser said the philosophy driving his firm was “to help clients to help themselves” so they could make decisions without consulting experts. And the firm is already mobile apps and its web portal to do this. For example, the inniAccounts app (pictured at the top of article) includes “what if?” scenario planning tools to help clients explore the tax implications of their salary choices and other decisions.

“Xero is great, but it doesn’t do tax, so small businesses have to rely on an accountant,” said Poyser. “We’re looking at that data as we process it for new ways we can use it so they don’t have to ask. For example, we’ve done thousands of VAT returns. We can analyse them to understand the risks and steer clients away from them.”

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14th Jun 2017 20:17

"Computer says ... "
Very best of British to all concerned.

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15th Jun 2017 00:20

Thanks John. A thumbs up article.

I do not think we are emotionally or economically prepared as regards to the impact advanced artificial intelligence.

When and NOT IF machines will do the higher level thinking what will people do? Will the State give benefits to all? If not, who will buy goods and services made by intelligent machines?

I hope by the time artificial intelligence gets to such an advanced level, I will be 6 feet under. Let others sort out the mess. If it can be sorted. I hope we get an Arnie, to save the human race.

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By Eric T
15th Jun 2017 09:21

Like all matters where a computer makes the decision (whether it is aircraft control, driverless cars etc), who takes the hit when the software does something wrong?

Can the client sue the software designer the way they can (theoretically) sue their accountant or at least make a formal complaint to a professional body?

With "intelligence" should also come "responsibility". Who takes responsibility when things go wrong?

I hope all these software designers have read "Isaac Asimov's "I Robot".

We are entering interesting times.

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to Eric T
15th Jun 2017 10:42

A number of things:
I'm reading Robert Harris' the Fear Index at the moment - probably not his best book, but an interesting hybrid between The Big Short and I Robot - maybe this summer's reading list.
On a more mundane level, a colleague raised the issue of the PII position when Practitioners are using software to make submissions to HMRC on behalf of clients. or where clients are making submissions themselves using software recommended by their accountants - the position seems far from clear and practitioners may be well advised to check their position with their broker.
More generally, we are clearly seeing changes driven by technology - one person's efficiency gain is another's deskilling - which give opportunities as well as threats.

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15th Jun 2017 10:06

"Your Accounts and Taxes Done" Yer right.

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15th Jun 2017 11:24

My intelligence is completely artificial. Sorry could not resist.

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15th Jun 2017 11:27

Around here is a question of In search of any Accounting intelligence, (apart from me of course).

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By KH
15th Jun 2017 14:31

This is all part and parcel of the brave new world concept, whereby it is becoming quite acceptable to relegate highly skilled people to the refuse tip ... it's already happened in all the automotive factories and their ilk ... one person needed where there used to be hundreds ... and what happens to those hundreds? Nearly all end up on the dole or similar, while the mega-rich get megger-richer. Strange future we are all headed for...........

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15th Jun 2017 17:08

I look forward to seeing the borderline calls....will AI be referring to case law/legislation/Revenue guidance...

Oh and I am guessing the client will be charged....but what...I am betting slightly more than your bog standard accountant...but hey I am sure the AI helpline will also address any concerns. (Some things shown on tomorrows world are now reality....but there is a lot more than isn't!)

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