Why A.I. scares auditors

When the book [The End of Accounting] came out I met with teams from all the Big Four. They are all concerned about the future and being pre-empted by artificial intelligence. And I’m sure they will be. 

You think they will be?

Yes. I just heard from a friend of mine. He used to be employed by banks to interpret new accounting standards. It was a very good business for him. And he said that one of the Big Four accounting firms developed a machine learning artificial intelligence that does it much better than he. 

They take a very complex accounting rule, like the 700 pages of the revenue recognition standard, and they set it to the issues of a specific company. 

I don’t think it will pre-empt all auditors but there’s no doubt about [its disruption] — they [the audit firms] are really thinking about it. 

Interesting. Because it’s always been the interpretation of the rules that’s been promoted as a strength of the profession.

Yes. If you think about when a new rule comes out, there’s the first-year application, when a thousand companies must apply it. [A.I.] machines learn from these applications. And with this learning, they improve and improve their interpretation and, after a few quarters, they are very good at it. 

What's the impact of that kind of Machine Learning application?

If you have a specific question [about a new accounting rule], you don’t have to call an auditor. You just have to consult the software. And it [the software] tells you “78 companies like you did this with this specific issue.”

It’s like IBM’s computer beating Kasparov. If the machine is really learning — not just remembering but learning — it’s very difficult to compete with it.

And much of what auditors do is subject to that — not all, because there will always be room for judgment and innovation — but some [practices, previously done by professionals] will be automated.

Read part one of "Catching up with Professor Baruch Lev," in which the author of "The End of Accounting" says his book has resonated because accounting and financial reporting no longer meets the needs of investors or CFOs. Read Professor Lev's blog at Lev End of Accounting.

Colin Ellis is the editor-in-chief of Canadian Accountant.