Is there a threat from AI for Accountants?

Summary: Artificial intelligence is revolutionizing the way we work, and many accounting firms are using it to streamline processes and increase efficiency. But is there a threat from AI for accountants? While AI is excellent at intelligence-driven tasks such as processing data, it lacks the ability to apply wisdom to complex situations that require critical thinking and judgment.

Accounting firms must shift their focus from intelligence-driven tasks to applying wisdom. Rather than relying solely on AI to handle data processing tasks, they should use it to enhance their decision-making abilities. By combining the power of AI with human judgment, accountants can make informed decisions that reflect their "wisdom".

While AI can provide valuable insights into financial data, it will always be limited in applying wisdom. In the accounting field wisdom is the ability to use experience, critical thinking, and judgment to make informed decisions that reflect understanding the broader context and implications of financial data and applying that knowledge to create optimal outcomes for all stakeholders. Human accountants bring a unique perspective and experience to their work, allowing them to apply wisdom to complex financial situations that AI cannot.

The Risk of AI Automation for Accountants

In a Goldman Sachs paper released this past week, the authors Joseph Briggs & Devesh Kodnani estimate the impact of rapid task automation on labour market disruption. The Goldman Sachs paper forecasts that the share of work exposed to automation could range from 15-35% and estimate that one-quarter of all current work tasks could be automated by AI in the US, with a larger exposure in administrative duties and a lower in physical labour. But what are these tasks that will likely be automated in the accounting field? You guessed it - the "intelligent" work.

With all of the hype around artificial intelligence and the threat to automating work, it is worth noting what AI will not likely be able to automate. To paraphrase and grossly oversimplify it comes down to a straightforward principle - Artificial Intelligence can supplement but will not likely replace Wisdom. 

The Differences between Intelligence and Wisdom 

While intelligence is characterized by mental capacity, problem-solving, learning, and adaptability, wisdom encompasses life experience, deep understanding, moral judgment, and the ability to apply knowledge effectively.

Intelligence

Intelligence is the innate ability to learn, understand, and apply knowledge, primarily focusing on mental capacity, and problem-solving skills. Generative Artificial Intelligence is a type of artificial intelligence that is designed to generate original content, such as text, images, or videos, that is similar to what a human might create. It uses deep learning techniques to learn patterns and styles from existing data and then generates new content that follows those patterns.

Wisdom

In contrast, wisdom is the result of accumulated life experiences, judgment, intuition, and the ability to make sound decisions. Wisdom transcends mere knowledge, allowing individuals to leverage their understanding to navigate complex situations effectively.

In the accounting field, wisdom is: the ability to use experience, critical thinking, and judgment to make informed decisions that reflect understanding the broader context and implications of financial data and applying that knowledge to create optimal outcomes for all stakeholders. Wisdom is especially important in situations that require complex analysis, such as risk management, strategic planning, and financial forecasting. By combining technical expertise with wise judgment, accountants can provide valuable insights and guidance to their clients or organizations.

The Threat of AI for Accountants on Intelligence-Driven Tasks

AI is bringing significant advancements in various industries, including accounting. AI's capacity for processing vast amounts of data, automating repetitive tasks, and predicting outcomes will transform how businesses operate. 

Accounting Tasks at Risk from Intelligence-driven Automation

These tasks are ranked in order of automation potential based on their level of repetitiveness, the volume of data involved, and the ease of automating the process. Tasks that involve large amounts of data and are highly repetitive, such as data entry and validation, are the best candidates for automation.

AI's Limitations in Applying Accounting Wisdom

While AI has made significant strides in intelligence-related tasks, it remains limited in its ability to apply wisdom. Some of these limitations include the following:

Dependence on data: AI's understanding of data is limited by available data and algorithms. The quality of the underlying data and the insight and knowledge of the engineers programming the algorithms are limitations to the quality of the AI output. This comes down to knowing which data to rely on and how best to apply it.

Lack of empathy: AI systems do not possess empathy or the ability to relate to human experiences. Raw computational strength aside, being able to interpret and apply the human element is critical for any trusted advisor.

Ethical challenges: Although AI can be programmed with moral and ethical theories, its ability to navigate the nuanced ethical dilemmas that accountants often face will be limited. In complex business and tax environments how will AI fare in "grey zones? How will it determine when not to cross ethical lines?

Inability to replicate human intuition: AI cannot fully replicate the gut feelings and instincts seasoned professionals develop through years of experience. 

For more information on the power of intuition we recommend reading Malcolm Gladwell's book "Blink" which delves into the power of intuitive decision-making, exploring how individuals can make accurate judgments within split seconds. The book investigates the science behind intuition and emphasizes the importance of trusting one's subconscious to process information rapidly and effectively.

The Importance of Wisdom in Accounting Roles

Wisdom enables accountants to evaluate complex scenarios, exercise ethical decision-making, and apply their expertise to address clients' unique needs and concerns. In an industry where trust and professional judgment are paramount, the ability to exercise wisdom becomes a vital differentiator for the advice-based accountant.

By cultivating wisdom, accounting professionals can provide strategic guidance, enhance client relationships, and adapt to the ever-changing business environment.

Focusing on Cultivating Wisdom in the Accounting Industry

To thrive in the age of AI, accounting firms should concentrate on cultivating wisdom within their organizations.

Emphasize continuous learning: Encourage employees to engage in lifelong learning by providing resources and opportunities for professional development. This should be a combination of knowledge and application.

Foster a culture of mentorship: Facilitate the exchange of knowledge and experiences between seasoned professionals and less experienced staff.

Don't lose sight of the importance of critical thinking: Critical thinking is a crucial skill that empowers individuals to analyze, evaluate, and synthesize information objectively, fostering well-informed decision-making. In an era where AI is automating many tasks, the ability to think critically becomes even more essential, as it is a skill that is difficult for AI systems to replicate.

Encourage collaboration between individuals and leverage technology: I am not suggesting in any way that firms stay away from applying AI within their firms. Far from it. The best results will likely come from facilitating collaboration between individuals and AI systems, allowing professionals to leverage the strengths of both human wisdom and AI capabilities.

Will you be “Intelligent” and be replaceable, or will you cultivate “Wisdom” and be irreplaceable?

As artificial intelligence begins to impact the accounting industry, practitioners must recognize the distinction between wisdom and intelligence. By focusing on wisdom and leveraging the unique strengths of human professionals, the industry can successfully navigate the challenges posed by AI for accountants and ensure its long-term success in an increasingly competitive market. In addition, embracing wisdom as a core value will enable firms to provide the strategic guidance and ethical decision-making their clients expect, ultimately setting them apart in the age of AI for accountants.