ICAEW wrestles with artificial intelligence

Machine learning and accountancy
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The ICAEW IT faculty recently published a report exploring how artificial intelligence (AI) will shape the profession’s future. This is what they discovered.

According to technical manager Kirstin Gillon, the IT Faculty’s stance on AI and the future of accountancy is “optimistic, but not complacent”.

AI presents an opportunity to reimagine and radically improve the quality of business and investment decisions, the report notes. But isn’t that what accountants are supposed to do already?

“Certainly in the short to medium term, [AI] is a great opportunity for accountants to develop powerful decision aids and spend more time on analysis, strategy and so on,” Gillon said. “The longer term still represents many opportunities but this may require more radical change in the role, nature of work and skills of accountants, so inevitably carries more risks.”

To explore the pros and cons of AI, the ICAEW enlisted the help of Professor Moshe Vardi, a computer science expert from Rice University in Texas.

“Right now we are in a period of adaptation. Some parts of society haven’t adapted well,” Professor Vardi said in a webinar with the IT Faculty.

“In the longer term the professions are defending themselves. They have created a wave of practices, rules and regulations… That gives stability. It may change radically in the long run, but it’s very hard to change accounting very fast because of the whole set of rules around it.”

The pattern recognition and rule development capabilities of machine learning are so fast and accurate that they can potentially replace and, in some cases, supersede human efforts.

Human judgement is often just a “substitute for lack of data”

In the example cited by Professor Vardi, driving will become increasingly automated – and these kinds of technologies can move very quickly. Closer to home, accounting software providers like Xero are now talking about automating the categorisation and posting of expenses.

Though the ICAEW report sets out to reassure accountants, they start to get nervous when the machines take on the work they are used to doing. But “human judgement” is often just a substitute for lack of data, the study warns.

“Powerful computers with access to new sources of data may well supersede the need for human judgement in the vast majority of cases. Attempts to deny the potential of computers to surpass many human capabilities, and simply to protect current models and ways of doing things, are likely to end in failure.”

However, if accountants take the time to understand the capabilities of AI systems and use them to supplement rather than replace human intelligence, the profession could enhance its underlying purpose to solve problems and support better business decisions.

“We need to recognise the strengths and limits of this different form of intelligence, and build understanding of the best ways for humans and computers to work together,” the study concludes.

About John Stokdyk

John Stokdyk, AccountingWEB head of insight

AccountingWEB’s Head of Insight has been with the site since 1999 and likes to spend his time studying accountants’ technology habits. When not nerding out, you can find him exploring obscure indie music and searching for the perfect organic sourdough loaf from his base in Brighton, UK.

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By Tornado
03rd Aug 2017 13:15

Artificial Intelligence will be looking for what is right and then be completely satisfied when it finds that. I think this might be its biggest weakness.

A typical example would be those who might submit Tax Returns based on what the system wants to see rather than what the facts are. The anticipated 'nudges and hints' widely promoted as a feature of Making Tax Digital are simply making it easy for those unscrupulous people to provide just what is expected. Any artificial intelligence must really be able to think like we do, illogically, and as we are all different, I think that might be difficult to achieve.

Why not ditch the AI and just rely on humans?

"However, if accountants take the time to understand the capabilities of AI systems and use them to supplement rather than replace human intelligence, the profession could enhance its underlying purpose to solve problems and support better business decisions."

Brexit is a classic example of where many very successful business people had completely opposite views on leaving the European Union. This surely proves that there is no 'right' way to make business decisions and those that use AI to make decisions may well be outwitted by those that don't.

An interesting subject, nonetheless and I am confident that AI will not take over the World but I can see that humans with the power that AI could give them, just might.

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04th Aug 2017 10:24

the idea of that lot 'wrestling' with AI fills me with glee

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04th Aug 2017 10:33

AI Explainability From the Analytics Perspective

I recently asked a start up software company to explain to me how AI works in the context of their CXM model they were offering, indeed how did the machine learning and NSP programming come up with the predictions they were so excitedly telling me about. In this particular case, it turns out that very little AI is actually performed. I wonder in general if there is more hype than substance.

In reading an article in www.datafloq.com it would seem it’s OK not to be able to explain how answers are derived. The writer goes on to say “From a purely analytical perspective, not being able to explain an AI model doesn’t matter in all cases. The issue of explainability is very similar to the classic problem of multicollinearity within a regression model. I recall having drilled into my head in graduate school the distinction between (1) Prediction and (2) Point Estimation.”

If the main goal of a model is to understand which factors influence an outcome and to what extent, then multicollinearity is devastating. The variables that are inter-correlated will have very unstable individual parameter estimates even when the model’s predictions are consistent and accurate. Conceptually, the correlated variables are almost randomly assigned importance. Running the model on one subset of data can lead to very different parameter estimates from another subset. Obviously, this is not good and we spent a lot of time learning how to handle such data to get an accurate answer and also be able to explain it. The point is that multicollinearity made it very hard to pinpoint the drivers of the models, even if the models were extremely accurate.

The writer goes on to say “You may have an AI process that is performing amazingly well. However, accurately teasing out what factors are driving that performance is difficult. As I’ll discuss later, there is work being done to help address this. But, AI models leave one in a similar spot as multicollinearity did. Namely, a great set of predictions whose root drivers can’t be well explained and specified.

Well, it strikes me that the old phrase “just trust me I’m a doctor” springs to mind. I wonder if anyone has taken a hard look at what some accounting software is doing in this area as it seems that if financial manipulation can’t be explained then for sure one day it might come to pass that the AI may not be quite as smart as we think. An accountant who ran a big financial brokerage out of New York, 9/11 caused him to return to the UK, told me that any trader wishing to introduce a new derivative or option deal has to pass the “bowl of fruit” test, if you can’t explain the deal and the rationale for doing it using apples and oranges then we don’t do it. Seems like AI may have to go through a similar process.

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to Gerard P Wilkinson
04th Aug 2017 11:06

"Namely, a great set of predictions whose root drivers can’t be well explained and specified."

You mean, like, they have hunches . . . ?

I have no issues with the concept of AI, or even the inability to fully rationalise the decsison tree that led to the outcome stated.
What I do have an issue with is that there is never an indication of the "probability of correctness" - to wit, is it a finger-in-the-air wild hunch or a calculated (sic)hunch.

When humans have hunches they also take into account a myriad of other factors before annunciating them.
For a start, except for HMRC, here is a feedback-loop that may ameliorate a decision, based on the actual practical effects of the original or the realities of the value proposition.

So, unless we have a 'complete' understanding of at least the inputs to the AI process, plus an indication of the degree to which they were factored in, then we dare not have confidence in the outputs.

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04th Aug 2017 10:34

Good morning Dave.

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04th Aug 2017 11:24

Most of us are not "big business" accountants and hence how AI is going to affect us is totally different to how it will affect the larger firms where there is far better control of what does and does not go through a company's records (on a basic level)

Yesterday as an example a client who has adopted cloud accounting with us (and wanted to get involved himself) sent up his records for us to quickly review and finalise the quarter.

End result - two screens on the go - screen one to find the clients attempted input, screen two to repost correctly and then delete the original client attempt. A much longer exercise.

Bank feed gave a reconciled account balance on the current account but the client had assumed the system knew what it was doing so the analysis was a nonsense.

Moving forward therefore we are now doing everything on the quarterly basis - the client wants to be able to see and use accurate data and guess what, that's where we come in more now than we ever were before.

An accounting system, be it desktop, cloud, a spreadsheet or a simplex book do not suddenly turn someone into an accountant but the new technology do allow us to do complicated things quicker and that is simply because WE know what we are doing with these powerful tools.

Just don't give me a power drill and a box of screws......

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05th Aug 2017 00:19

One of the biggest problems with getting computers to do a humans job is the interpretation of the rules used to do said job.

I'm going to show my geekiness here as an example...

Dungeons and Dragons has, since the 1970s, been a pen and paper affair. As computers entered our life, people have developed programs to try and simulate the role of the players to provide tools to play online. Every new book release introduced new challenges for the software and ultimately they failed to fulfil the roll they where designed for.

In order to create a computer version of the game that kept the freedom of its intent they had to redesign the rules from the ground up, sacrificing some of its flexibility to achieve a fully automated version of the game.

The Accounting Ruleset has much the same issues. With every new business, new venture and new technology, the rules must be adjudicated by humans to ascertain an acceptable result. Computers must be continuously updated to cope with this ever changing medium.

Now to make it easier we could redesign the accounting system from scratch with AI/Machine Learning in mind. But that would be a task so huge that by the time it was finished it would be out of date.

Youngloch's example is a good one. It highlights the one thing that has attracted me to the cloud and MTD more than anything. The ability to connect with my clients on a much more personal level!

I too have been working with clients to convert them to cloud software and I can say, with hand on heart, that it has been the most rewarding experience of my career.

To have clients openly thank and praise me for everything I have done to make their life easier and make their business more successful, is something I intend to pursue.

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to chariot4info
05th Aug 2017 08:36

I am pleased that your clients are happy , it is so much easier , provided they take an interest in the software, to do it online. much less of this tooing and froing that we used to do.

I am not so sure about dungeons and dragons re AI , gaming is a completely different issue than accounting. AI i would suggest is a different thing to automation , do we want our software suddenly saying ' you cant post it there'....

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to carnmores
05th Aug 2017 09:18

carnmores wrote:

I am not so sure about dungeons and dragons re AI , gaming is a completely different issue than accounting. AI i would suggest is a different thing to automation , do we want our software suddenly saying ' you cant post it there'....

See that's the thing about Dungeons and Dragons, its not like monopoly or Cluedo. The game presents a dungeon master with the tools to tell his own story to the players, letting the players have the freedom to decide how their heroes face off against the challenges laid out.

With each encounter the Dungeon master must decide if a players action is possible and to what rules it applies.

In Business, its the Accountants who decide if a business owners transactions are allowable and to what rules they apply to.

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to chariot4info
05th Aug 2017 10:59

as you can see I know [***] all about D&D !

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