“The role of AI and ML is not to replace the profession, but to transform their work” – Zac Meyer, Vice President – US Tax, Accounting and Advisory, Thomson Reuters.
The number of individuals and businesses seeking help from accounting firms for accounting and tax-related work is huge. However, this boom has also increased the advancement and acceptance of Artificial Intelligence. Accounting is usually perceived as a traditional field. As the new generation of accountants and tax preparers rise to the occasion, they also see the value addition that AI has to contribute to the field.
The new-age technology offers many advantages that can be leveraged to provide better client services. Automation of routine, monotonous, time-consuming tasks helps provide real-time insights, and personalized advice are some of the benefits that accounting firms can reap. AI is becoming a powerful tool that facilitates efficiency and helps streamline workflows.
Critical areas where AI can play an important role in Taxation
Accounting is a vast area, and hence, it is important to analyze its use cases carefully. While there are many benefits, there are also key concerns, especially around its ethical use. Understanding the areas where AI can be used in taxation, helps organizations make an informed decision:
- Data processing and analysis:
Tax professionals deal with a huge amount of data on a day-to-day basis. For them, it is not enough to contain the data, they also need to make a mindful decision on which of them to use the right way. AI-powered systems can often process and analyze this data with speed and accuracy. Machine learning algorithms can help identify patterns, detect anomalies, and predict trends, that enable tax professionals to make informed decisions. This is especially helpful during the tax season when a huge amount of data can make things difficult.
- Tax compliance:
Tax laws vary greatly depending on the region. They are ever-evolving and it can get difficult for accounting firms to keep track of these changes. Small firms do not have the time, resources, and means to keep up. AI can help automate the monitoring process of the updates and integrate them seamlessly into the tax software. This also helps reduce the risk of errors, non-compliance, time-saving, and resources. Automating tax compliance also helps ensure clients do not fall prey to legal issues.
- Tax planning and optimization:
Although we refer to tax as a season, the preparation is a year-long process. While your clients will rush to you to look over their documents at the absolute last moment, better planning and preparation will prevent your teams from getting unnecessarily burnt out. AI can help in tax planning by analyzing financial data and suggesting optimal strategies. This can help stimulate different types of scenarios, taking into account the current tax laws, financial goals, and risk tolerance. This also helps tax professionals to provide personalized and strategic advice to clients.
- Fraud detection and prevention:
Frauds have become exceedingly common. AI excels at identifying suspicious activities and potential frauds. Activities like phishing can be identified when AI uses its patterns. By analyzing transaction patterns and comparing them with historical data, AI can help flag anything unusual. Using AI, firms can also help flag the issues with the authorities, while mitigating the risks and maintaining integrity in financial reporting.
Challenges and Solutions of incorporating AI in taxation:
While AI is a great way to make your taxation easier, it also has its downsides. When adapting AI to your regular taxation processes, it is also important to know the challenges and ways to combat them. This includes:
Data security and privacy:
Challenges:
Tax professionals handle a plethora of sensitive financial data. One wrong move and the individual and the firm are set to lose money, clients, and reputation. Protecting this critical data needs holistic, robust security measures. Ensuring data privacy and protection against cyber threats are paramount when implementing AI and automation solutions.
Solution:
To protect this sensitive financial information, adopting AI needs the implementation of advanced encryption methods, regular security audits, and adherence to data protection regulations to mitigate the risks. Firms need to invest in cybersecurity training for staff members to ensure they are aware of the best practices in handling sensitive information.
Integration with existing systems:
Challenges:
While AI is a great way to enhance the current systems and processes, it is also important to integrate AI and automation tools with legacy tax systems which can be challenging and may require a significant amount of time and resources. Sometimes, in cases of small firms, they do not foresee the need to integrate the new-age tools into existing systems, resulting in a low-quality, faulty system.
Solution:
Employing middleware solutions that facilitate integration, conducting thorough system compatibility checks, and gradually phasing in new technologies can help ease the transition. The firms might need to work with experienced IT professionals to ensure smooth integration of systems.
Skill Development:
Challenges:
AI is aimed at helping humans get their work done easily, instead of replacing them at work, instead of what the popular belief suggests. The adoption of AI and automation, especially in a critical field like tax, requires new skills and knowledge. This can be a hurdle. Small accounting firms often lack the means and bandwidth to train a team when they are struggling to complete the tasks within the stipulated time frame.
Solution:
Outsourcing some of the routine tasks can free up a lot of time for the in-house teams to focus on the core jobs. This also allows time for accounting firms to invest in continuous training programs, workshops, and certifications in the AI and automation side. This can also help professionals stay updated with what’s latest in the industry, allowing time for growth and success. It is also the leader’s responsibility to build a culture of training and development, where every team is motivated to grow out of their comfort zone and leverage new technologies in their daily life.
Ethical considerations:
Challenges:
One of the major challenges that artificial intelligence poses is that of ethics. Designing and deploying AI ethically, instead of using it to manipulate data. The lack of transparency and potential biases in algorithms can affect the overall performance of the business.
Solution:
Establishing clear, ethical guidelines for AI development and deployment, conducting regular audits for bias, and maintaining transparency in the AI decision-making process can help address ethical concerns. Engaging in diverse teams in the development process can help address ethical concerns. Engaging in diverse teams in the development process can also help mitigate biases.
AI is transforming the accounting industry and is positively impacting taxation. It offers efficiency, accuracy, and strategic insights. Although the challenges continue to be a part, the benefits outweigh the drawbacks. However, it is important to focus on the ethics and integrity issues that AI causes to businesses. With the right technique and strategy, businesses can gain maximum benefit from AI.
Want to know how outsourcing can help leverage AI? Write to us at connect@finsmartaccounting.com.
Director Growth Strategy & Alliance
Maanoj Shah is a finance and outsourcing expert with strong Business Strategy and Scaling-up experience. Over the last 20 years, he has incubated multiple businesses and helped build global enterprises in verticals as diversified as hospitality, technology, and healthcare.
