How your accounting practice can leverage AI

What is AI in accounting?

Artificial intelligence refers to a set of technologies that simulate human thought when performing tasks. The field broadly ecompasses:

• machine learning – where software recognizes patterns in data
• predictive AI – where software uses those learned patterns to suggest actions to human users
• generative AI – where software uses learned patterns to create new content (this includes AI that writes text and creates images)

AI in accounting stems largely from the predictive branch. It helps to sort and organize data, which can automate labor-intensive data-entry, data clean up, and coding tasks.

Because it can identify patterns so quickly, it’s got a huge role to play in forecasting, reporting, and recognizing fraud.

Examples of AI in accounting

AI research has been going on for decades and it’s delivered lots of products that are already in the modern accounting toolkit.

Receipt and invoice scanners

AI-enabled software will read electronic or hard-copy bills and receipts to capture the key data and enter it into the accounting ledger.

Categorizing and reconciling transactions

Software suggests matches between transactions on the bank statement and in the ledger based on transaction amounts and vendor names. It can also suggest how to categorize those transactions. Again, the user can confirm or override the suggestion.

Invoice reconciliation

Online accounting software can search business bank accounts for deposits that match outstanding invoices. Unpaid invoices remain on the receivables list.

Accounts receivable

Software can send automatic reminders to customers whose invoices are coming due (or have gone past due). It can also flag them on an aged receivables report.

Forecasting

AI extrapolates patterns in AR & AP to project future cash balances.

Advantages of AI in accounting

Artificial intelligence in accounting can help you increase practice efficiency and give data-driven advice. Here’s a quick look at some of the benefits:

• Automation: Labor-intensive data entry, coding, reconciliation and invoicing tasks is automated by AI in accounting software – saving you time. Instead of tackling piles of admin, you can focus on business strategy, client support, upskilling, and anything else that adds value to your practice.
• Accuracy: AI analyzes data quickly without sacrificing accuracy. Repetitive tasks are completed with precision. It’s great for identifying patterns and anomalies in data that could otherwise go undetected by humans, resulting in a lower risk of error or fraud.
• Cost savings: It’s easy to lose track of the hours spent on repetitive tasks every week. And these jobs don’t always provide the most reward for you, or value for your client. AI can help you claim these hours back, reduce labor costs, and improve overall practice efficiency. You might even find you can take on more clients with the extra time on your hands.
• Real-time insights: Using AI means you won’t need to give advice based on outdated figures or patchy data. AI gives you access to real-time insights on clients’ financial performance. As a result, your clients can make smarter, data-driven decisions, bolstered by your advisory expertise.
• Enhanced security: Fraud detection is often a time consuming process. AI tools can expedite this by identifying patterns and anomalies in data, and notifying the right person. These tools can also help with fraud prevention

Disadvantages of AI in accounting

While AI offers plenty of upside, there are inevitably catches when it comes to change, such as in the following areas:

• Learning: If you’re not already using AI-powered software then you’ll need to transition to unlock the benefits. That may mean leaving behind a familiar accounting platform and learning something new. That step can seem daunting at first.
• Training: It takes time to learn and time is money. The investment may be greater if you opt to have a specialist upskill you. And of course the investment grows again if you’re transitioning a whole practice.
• Switching costs: Productivity often follows a hockey-stick shape when adopting new technology. There may be an initial dip as people adjust to new ways of doing things and occasionally forget new processes. But while the payback isn’t always instantaneous, it should follow quickly.
• Quality control: Automation is a powerful tool but clicking "confirm" can become a habit. Users need to focus on properly interrogating auto-suggestions. Fortunately software also comes with things like find-and-recode to help fix mistakes.

Can AI replace accountants?

While artificial intelligence could take on various aspects of accountancy roles, it’s unlikely to replace accountants and bookkeepers altogether.

From the outside, accountancy looks like a numbers-orientated role. But of course it’s how you interpret those numbers and convey those messages to clients that matters most.

Building solid, trusting client relationships where you provide strategic business advice is something artificial intelligence can’t replace. What it can do is support you in this role by delivering reliable data, analysis, and reports to substantiate your advice.

How can accounting practices use AI?

Use AI in accounting software

One of the easiest ways to use artificial intelligence is through AI accounting software. For example, Xero already uses the AI features listed above in receipt and invoice scanning, coding, bank reconciliation, invoice reconciliation, accounts payable and forecasting analytics.

Watch for AI in other accounting tasks

Machine learning, with its capacity to speed through data and spot patterns, will have many more applications in accounting. Keep an eye on developments. It seems specifically well suited to areas like:

• AI for auditing – where it will be able to pick up anomalies that would be tricky for humans to spot. Once AI technologies have located specific items, auditors can devote their attention to the areas most likely to have material misstatements.
• AI in fraud detection – where it will be able detect telltale signs of fraud. Traditional fraud detection methods generate lots of false positives, which are costly and time consuming to investigate. Using analytics and machine learning, AI can help reduce false positives and identify fraudulent activity with precision.

How to stay relevant with AI

Understandably, some accountants and bookkeepers might worry that their skills are being outdated by AI. But that couldn’t be further from the truth.

While AI can provide invaluable insights through data, those insights need translating and contextualizing for clients. Automation and analysis is only useful if there’s a trusted advisor who can convey these messages, explain what they mean, and advise on strategy.

Accountants and bookkeepers can use AI tools to do the heavy lifting while delivering invaluable advice, especially during tricky economic times.

Upskill and focus on soft skills

AI can replicate some human intelligence skills, but not all of them. By embracing AI, you’ll have more time to spend upskilling. Focus on soft skills that enhance your advisory services – like critical thinking, problem solving, and communication. AI can provide you with the data and insights to use these skills more effectively.

Provide value added services

Once AI has boosted your practice efficiency, you can provide additional value-added services like strategic advice, financial planning, and risk management. These services are most effective when you have reliable data backed by learned experience and human empathy - something that AI can’t replicate.

Collaborate with AI for efficiency

By combining AI with human intelligence, you and your clients get the best of both worlds – accuracy and data-driven decision making, paired with learned human experience and judgment. For example, an AI-powered analytics tool can give clients a clear picture of their projected cash flow, while advisors can develop a strategy for mitigating and managing any gaps.

The first step is experimentation. Research the latest AI tools and technologies, subscribe to newsletters and YouTube channels, and follow the experts on social media. Once you understand how these tools can be leveraged for practice efficiency, you can enhance your existing services and introduce new ones too.

Embracing AI opportunities

Embracing AI tools can help you improve accuracy, make cost savings, and equip you with real-time data insights that clients want. Your opportunity is to take those insights, interpret them for your clients, and help build strategies off the back of them. AI powered accounting software like Xero makes it easy to tap into AI features like Xero Analytics, bank reconciliation, accounts payable and more to begin delivering on the promise of AI for your clients.