Financial Accounting Theories and Practices: Use of AI and Blockchain

Running Head: FINANCIAL ACCOUNTING THEORIES AND PRACTICES
July 20
2018
Use of AI and
Blockchain

FINANCIAL ACCOUNTING THEORIES AND PRACTICES
1
Conceptual framework in terms of financial reporting is defined as a theory of accounting
that is prepared by a body of personal setting financial reporting standards against which all
the practical problems related to finance can be tested objectively (Coyne, & McMickle,
2017). Conceptual framework of financial reporting deals with fundamental issues related to
the financial reporting like users and objectives of financial reporting, characteristics which
make accounting useful, other basic elements of financial reporting (e.g. equity, income,
liabilities, assets, and expenses), and a concept to recognise and measure such elements. The
very first conceptual framework was developed by Financial Accounting Standards Board
(FASB) in US in 1970s. Since then, in developed countries most standards setting bodies
have developed their own framework to help and guide the process of setting standards for
financial reporting (Dai, & Vasarhelyi, 2017).
Today it is not a secret that financial reporting or accounting is midst of technical
transformation and evaluation. And the growing technical integration into business operations
is continuing reformation to the industry and accountants introducing different technical
accounting process like Artificial intelligence and Blockchain. Both the approaches for
financial reporting have the potential to be used as the future constructing tool. Accounting
world is just the latest of series of industries that are affected significantly by the increasing
use of AI. This rapid increase in the use of artificial Intelligence is the indication of future
optimization of the system for financial reporting in the industry as the industry has already
started relying on the system to deal with many financial reporting elements (Lu, Li, Chen,
Kim, & Serikawa, 2018).
Artificial Intelligence: Artificial intelligence systems are much powerful and improving
significantly and quickly. This system provides the outputs that are more accurate and
replacing or suspending in some cases to the human efforts from accounting process (Heath,

FINANCIAL ACCOUNTING THEORIES AND PRACTICES
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2018). However the technology cannot replicate the efforts made by humans. This fact
suggests us to recognise the limitations of such systems and is building a understanding to
utilise these system in a way that computers and humans can work together to make the best
use of these systems (Pannu, 2015).
In this order a number of theories for decision making and application of artificial
intelligence have been applied to assurance and auditing problems while reporting financial
data. Most of these theories have been sparse and mostly applied only at theoretical level.
Although most of the AI applications and decision making theories were successful, some of
these theories have not been proven successful in long run for financial reporting (Maury,
2017).
Today financial institutes are using artificial intelligence and machine learning in financial
reporting to price, assess credit quality, market insurance and also to automate the interaction
with clients. This system is more effective and efficient to deal with different element of
financial reporting to make is easier for both the client as well as accountants. Use of such
system will definitely be beneficial for industry as well. In this order the system is used by
institutions as well as the industry foe different purposes. Institutes are using AI and other
technique of machine learning along with some back testing models to analyse the market
impact of trading in at large positions whereas broker-dealers, hedge funds, and other firms
operating in finance industry are using this system to find opportunities for higher
uncorrelated returns and also to optimize the new trade execution in the field.
Banking and investment industry of Australia is all set to be transformed by use of rising AI.
This much use of AI will soon turn Australian to a robot while preparing the tax return for
Australians. It can be seen in the planning of banking industry of Australia that in 2016 and
beyond, this was expected by the Australians that their banks will be digitally accessible