Jun 2023

AI and ChatGPT in Accounting Practice: The Capabilities and Ethical Implications

By: Odyssey Automation
Tags: AI, ChatGPT, Technology

Imagining a future where an AI agent is capable of engaging in conversations with directors to discuss and evaluate company performance. With the evolvement of AI technologies at a fast pace across industries, the way we process and consume information will change.

Generative AI like ChatGPT has made significant movements in the accounting industry. The Big Four such as KPMG, PwC are exploring ways to utilize ChatGPT in accounting practice. Smaller firms are investigating further the output quality of AI technology and expressing concerns about potential breaches in data security and privacy.

Although the capabilities of AI agents are evident in several fields, including accounting, firms need to be cautious about relying on the tools and sharing confidential information.

Let’s explore what has been around AI-ChatGPT and what concerns arise regarding its adoption.

How AI-ChatGPT Works in accounting practice

ChatGPT refers to a conversational AI system that uses the GPT (Generative Pre-trained Transformer) language model, a type of deep learning algorithm developed by OpenAI.

AI technology quickly consumes and processes large amounts of data to generate human-like responses to text-based prompts. It can be used to automate and enhance mundane tasks and some other work functions.

In the context where the labour shortage remains, accounting firms are likely to be more open to the potential of AI technologies.

A recent study by the University of Pennsylvania and OpenAI stated that AI software can reduce the time required to complete certain tasks by at least 50%.

When it comes to accounting practice, ChatGPT can be employed in various ways, such as:

  • Automating routine tasks: ChatGPT can handle repetitive tasks like data entry, invoice processing, and report generation.
  • Providing quick and accurate answers: The language-based software can be integrated into Customer Relationship Management (CRM) systems to respond effectively to client or prospect queries. Additionally, with its ability to swiftly search the Internet, it helps streamline research by providing fast and precise information.
  • Assisting in decision-making: ChatGPT can analyze large volumes of financial data, extract relevant insights, and provide valuable recommendations.
  • Identifying accounting errors: ChatGPT can identify errors or inconsistencies in accounting records, detect errors in numerical data and reconcile accounts.

Adopting technology has been one of the key drivers of the accounting industry. Yet, the capabilities of AI-ChatGPT are still being explored and experimented with across work functions.

Ethical Implications of ChatGPT in the accounting industry

The benefits of the AI technology are numerous but utilizing the tool also involves critical risks that firms are hesitant to adopt it. Accounting firms are significantly concerned about the quality of output generated by the technology and the risk of data breaches.

1. Accuracy and accountability of the output

While AI systems can provide efficient solutions, they may not always guarantee accurate results. There is a risk of errors or misinterpretation of complex accounting rules and regulations.

Regarding the fact that ChatGPT only process data up to September 2021, current tax preparers cannot use the outcome generated by the tool as the current legislation. AI engines may generate incorrect responses, particularly with tax, due to outdated rules and incorrect accounting information.

Besides, to use generative AI in internal practice or client-facing functions, it’s crucial to train and ensure that the technology has accurate and relevant company information.

Outside of accounting, ChatGPT has been used by other industries in practice. It turned out with plenty of benefits such as saving significant time on information retrieval, but it also presents problems.

There was a court case where the lawyer had relied on Chatgpt providing the case law, but Chatgpt made up cases that didn’t exist. The point for Australian accountants is that there is a real possibility Chatgpt may prepare information that relies on tax laws that don’t exist.

2. Data security and privacy

Sharing sensitive financial information with an AI system raises concerns about data privacy and security. There is a risk that unauthorized individuals could gain access to the data, leading to potential financial fraud or identity theft.

Accounting tasks usually involve handling sensitive and confidential information, so using AI systems may put client data and internal business data at risk. The text-based prompts and the generated text need to be securely contained, stored, and controlled internally to maintain confidentiality and compliance.

Advice to efficiently utilize AI systems

The CPA Australia addressed “incorrect AI-based output without reperforming the work independently could put audit professionals at a significant risk”.

Ensuring the output quality will enhance work performance and minimize risks in accounting practice. Below is some advice you can apply if you have already employed or intend to adopt AI-ChatGPT systems in your accounting business:

  • Don’t upload client-specific data to the AI systems. This includes not only tax file information, but anything which might identify the asset/owner e.g., rental property statements, bank statements, share statements, SMSF investment statements etc.
  • Update and keep in mind current accounting standards and regulations, limit the reliance on AI
  • Review carefully all outputs generated by AI to make sure the outputs stay accurate and align with the current legislation.

Should accounting firms use ChatGPT?

The decision of integrating ChatGPT into your accounting system depends on your willingness to accept the associated risks, considering that accounting firms are still primarily experimenting with ChatGPT.

For generative AI like ChatGPT, there is still a lot to handle before becoming an essential tool in accounting practice. In the current situation, critical issues such as threats of cyber-attacks and data breaches make firms afraid of adopting the generative AI – ChatGPT.

If you are seeking accounting outsourcing advice, then drop Odyssey a line to chat. And don’t hesitate to consult us for any of your concerns.

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