Accounting Theory & Contemporary Issues: AI Benefits & Threats

This business report delves into the intersection of accounting theory and contemporary issues, specifically focusing on the integration of Artificial Intelligence (AI) within accounting practices. It examines AI's definition, its transformative impact on accountants' work, and the opportunities it p...Read More

Running head: ACCOUNTING THEORY & CONTEMPORARY ISSUES
Accounting Theory & Contemporary Issues
Name of the student
Name of the University
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Executive summary:
This business report is meant to research on the accounting theory and contemporary issues of
accounting from the accountants’ perspective and how beneficial will it be to introduce AI into
the accounting system. AI let the machines perform like humans and allow reducing the
magnitude of human effort for any work. The report has found that AI is uncongenial to the
psychology; however, it is most beneficial in the case of the accountants. The report has traced
the definition of AI at the beginning and then it has portrayed what advancement it has caused to
the accountants. Moving further, the report has highlighted the scope and threats of AI in the
accounting field and tried to find how these can be mitigated. This business report has given
some valid and justified recommendations in the field of accounting to make more suitable for
the requirement of the firm. The report has given a summarized overview, where it discussed the
finding of the analysis this report. To conclude the report has argued that, though there is huge
importance of AI in accounting field, however time has not yet came where automation
overtakes all the duties of an accountant. Employment of CAs and CPAs will continue until the
AI system gains prominence.

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Table of Contents
Introduction:....................................................................................................................................3
What is AI:.......................................................................................................................................4
How technology has changed the work of accountants in recent decades:.....................................6
Opportunities from the use of AI:....................................................................................................7
Threats from the use of AI Note:.....................................................................................................9
Recommendation:..........................................................................................................................11
Conclusion:....................................................................................................................................12
Reference:......................................................................................................................................14
Feedback to response:....................................................................................................................17

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Introduction:
Since the introduction of computers, developments have been going to enhance the
performance of the machines. Recent researches have successfully achieved their target with the
help of Artificial Intelligence (AI) (Gasser 2014). It is acknowledged as one of the greatest boons
of modern engineering that has revolutionized the world market with its vast and diverse
capabilities as well as functionality. AI is uncongenial to the psychology; however, it is most
beneficial in the case of the accountants ( Watts 2017). Initially the technology was developed
for the military usage; however, dried up flow of investment in the technology development,
bring it to the world market back in 1970s (Zhang 2016). Since then there has been various
development in this perspective and lead AI to become where it is now. Whether it is medical
science or the ecommerce, AI is present everywhere, which aids smooth performance of the
business. It acts as the bridge between the human thinking capability and machine capabilities
that allows machines to replicate the human thinking capabilities (Nilsson 2014). Moreover, AI
let the machines perform like humans and allow reducing the magnitude of human effort for any
work.
This business report is meant to research on the accounting theory and contemporary
issues of accounting from the accountants’ perspective. This section of the assignment focuses
on the AI and its importance on the work of accountants. First segment of the report portrayed
that there are various views regarding the introduction of AI in the accounting and the scale of
benefit varies widely depending upon the scope of its usage. Moreover, the report has
highlighted the risk analysis of AI, in order to assess the scope of being benefited from this
technology from the accountant’s perspective. To conclude, the report has mentioned various

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recommendations for the AI to make it more beneficial for the accountants and has given a
reflection on the feedback provided by the manager.
What is AI:
The US Department of Defence has introduced AI back in 1956; however, during that
time it was not available in public domain (Cohen and Feigenbaum 2014). Usage of AI was
limited to the defence usage and it has constrained the popularity of this technological
advancement. Back in 1970, Defence Advanced Research Projects Agency (DARPA) for the
very first time used it for street mapping, and with this AI came into the public domain (Flasinski
2016). Year 2003 was the time, when DARPA introduced intelligent personal assistants, which
brought the AI to the world market, and make it popular. Owing to its diversity and application,
it become famous in world market and by the end of 2011, it become a global standard to use it
in the fields like medical, banking, household and automotives and mobiles (Wenger 2014).
However, one of the best usages of the AI was in the field of accounting. It has revolutionized
the accounting industry from various perspective and the report will provide highlights on these
issues on the subsequent part of this report (Glymour, Scheines and Spirtes 2014).
Until now, various advantages regarding the AI have been discussed, but what about the
definition of the AI. Considering the various journals and argument of John McCarthy, who is
the father of AI, there are four different definition of AI as portrayed below:
A system, which can think like humans A systems that thinks rationally
A system, which performs like humans A system that acts rationally
Table 1: Definition of AI
Source: (Created by Author)

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From table 1, various definition of AI has been observed and it can be perceived that AI
is the achievement of science and engineering that makes computer; computer controlled robots
and let them act like humans and take decisions rationally. According to the John McCarthy
computer was developed long ago, however is it possible for a machine to act like humans and
think rationally? The basic question initiated the researches on the AI (Brown 2014). Previously
researchers were considering the each definition separately for developing AI as showcased in
table 1. However, as the research continued, researchers found that all the four definitions are
necessary to construct AI.

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Figure 1: Essential component of AI
Source: ( Copeland 2015)
Figure 1, portrays that AI not only includes engineering, moreover there is philosophy,
maths, psychology, biology, sociology and neuron science. These essential components of AI not
only make it technologically updated but also promote it as the replication of human being.
How technology has changed the work of accountants in recent decades:
Accounts is one of the most vast and important section of any business that controls the
profitability of the firm. With the help of accounting theory, firms judges their aggregate
demand, production capacity and set their market strategies. Ever growing effect of technology
in the field of accounting has made it efficient, productive, user friendly and reliable from the
ethical perspective. Moreover, technology has made the accounting potent enough to assess what
is wrong for the firm and what is good. Most of these developments came into existence once AI
has been introduced in the accounting, back in 1980 (Pannu 2015). Since then, there have been
various instances, where AI has been used in the accounting and it has revolutionized the
financial analysis, reporting to the core. One of the most prominent developments that AI has
brought in accounting is the expert system, which was meant to make the accounting calculations
interactively and make it simple for the accountants. However, it need to be considered that AI is
at their nascent stage, which not yet potent enough to replicate the human psychology, thinking
capability and rationality. Researches regarding AI for accounting began back in 1980s and since
then it has been evolving each day to become potent enough to compete with humans.
The accountants have embraced automation since long time and it has enhanced the
effectiveness and efficiency of their task. AI was the brainchild of the computer engineering,
however with expansion of market and trading, aggregate supply also got enhanced that had

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provided a scope in front of the AI to be introduced in the world market. Introducing such a great
technology in the field of accounting has far-reaching effect. It has effectively brings in
opportunities in front of the accountants to let them perform better and enhance their
performance by providing required data at required time.
Researchers argue that AI possesses scope of radical changes to the accountants as the
system of accounting simultaneously over takes the human efforts with the help of automation.
This not only enhanced the performance, moreover it has simplified the duties of the
accountants. For instance, specialized accounts software can do the work of accountants with the
help of inserted data and reduce the scope of errors. With reduced effort and lower error,
companies face almost no additional tax and it aids to have a sustainable company framework.
Opportunities from the use of AI:
AI is growing at a rapid scale in all the industries and the reason behind this growth is its
advantages. Observing the growth of automation one can perceive that it will assume more
decision making task reducing the work of humans. Accounting has been using technologies
science decades in order to improve what they work upon and deliver. Aim of using AI in
accounting purpose is meant to develop the business and enhance the scope of quality of the
deliverables leading to a better sustainability of the business (Kumar et al. 2016). AI has great
scope in various fields; and when it comes to accounting, then it has wide amount of possibility
to make the business more sophisticated. Opportunities from the use of AI in various fields have
been mentioned below:
Bank reconciliation – It is simple book keeping in accounting terms and it maintains all
the cash flows and cash that bail out from the account. Machine has learned how to count
and how to keep records of entries. Firms equipped with AI can automatically generate

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the accounting information (Tapiero 2017). It will enhance the scope of data adequacy
and reduce the time of operation. Bank reconciliation with AI can easily trace out any
discrepancy in data, which will not only aid the firm to trace the source but also highlight
who is responsible for this action.
Risk assessment – Risk assessment is one of the important tasks of accounting. With the
help of AI, firms can now successfully assess the risks for the firm by comparing data
from its competitive agencies (Crawford 2016).
Analytical calculation – Calculation needs sophisticated knowledge and accuracy. AI
has both the accuracy and sophistication. With these advantages, AI can easily calculate
the outcome if proper data are inserted and rules to perform the task has been mentioned
in the system (Bench-Capon 2014).
Auditing – Auditing is one of the main task of accounting. To be true AI is not even
potent enough to do the entire auditing task alone; however, it has become eligible
enough to aid the accountants to do auditing (Issa et al 2016). AI for accounting firm can
be programmed to have required knowledge about the accounting system and the firm’s
expense policy. Using those data, it can help accountants to do their duties. One of the
best things in this regard need to be mentioned is that, AI can perform simultaneously
with data from various firms (Kokina and Davenport 2017). This will give the
accountants an upper hand to perform their duties faster and smoothly as compared to
before.
Considering this wide array of benefits of AI, one can easily say that it is one of the best
options to make the business scenario better (Rich and Waters 2014). With reduced scope of
error and higher efficiency in the work, AI can revolutionize the accounting too. However,

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various researchers argue against the AI in accounting. Moving forward, les look into the facts
that can act against the AI.
Threats from the use of AI Note:
With rapid growth of business, technology is growing at a rapid speed too. From medical
science to business, everything has some prominent amount of automation in it leading to an age,
where human effort will be minimal and machine effort will be maximum. Some people observe
it as a good opportunity to reduce the trace of work for the humans, however there are
researchers too, who argue that it will bring in such a period, where sustainability of the
humankind will be at stake (Kanal and Lemmer 2014). From the accounting perspective, various
benefits have been discussed in previous section of the report, however in this regard it would be
beneficial to mention the drawbacks of AI in accounting too. It will aid the company to decide,
whether they should bring in AI in their accounting or it would be better to let be done by the
humans. Threats from the AI in accounting are as follows (Howrvitz 2014):
Reduced jobs - Due to enhanced scope of automation in accounting, one of the main
concerns is that the humans will lose jobs and it will lead to lower disposable income
(Javanmardi et al. 2014). With lower disposable income, aggregate demand will fall and
it will lead to reduction in production. Less production means, less job opportunity and
less jobs means lowered amount of tax for the government. In this way, economy will
move towards the vicious circle of poverty and life of human kind will be at stake.
Lack of judgemental ability - AI has capabilities to replicate human thinking and
human actions; however, they are at the primitive stage. It can handle stock market with
automation to some extent; however, when it comes to maintain Enterprise Resource
Planning, then AI is not potent enough (Megill 2014). It cannot determine what goes into

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credit and what goes into debit. A lot of judgement is required in the case of accounting
and besides this, data entry requires knowledge from other fields too in order to make a
auditing complete, which is beyond the scope of AI until now.
Lack of adequacy - Big accounting firms are nowadays using AI in order to make their
task error free and ideal for the smooth transition of business towards a phase where
automation will do most of the work. According to expectation of the researchers, it is
desired that there will be growth in employment of the CAs and CPAs in coming decades
due to the lack of adequacy of skills in the AI technology. For AI utilizing statistics, data
analytics, risk management and other technical knowledge in one field is beyond their
capabilities due to their primitive growth in the field of accounting (Olczak et al. 2017).
Not a cost effective solution - AI is not a cost effective option that can make the
accounting world upside down. It has great potential; however, there are drawbacks too,
apart from the fact that for small and medium size firms, it is beyond their scope to have
it due to their high cost of acquire and even more cost of maintenance. In order to match
with the ever-changing requirement of the accounting, the firm has to upgrade the
programming of AI and let it become smarter. In case of any breakdown or mal
performance, cost of repair is high because it requires huge amount of technical
knowledge regarding AI and need to handle big amount of data.
Cannot work without machine language - Accountants do their work with huge
amount of data that always cannot be transformed in machine language. Due to lack of
scope of transforming all the data in machine language, it would not be possible for AI to
work smoothly.

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Cannot overcome human storage - Machine have huge storage, however, it has not yet
achieved that greatness, where it can store as much data as a human brain. When it comes
to accountants, then they have to use various rules, clauses and analytical tool for each
different task. Till now it is beyond the scope of machines to understand what is required
for what that makes it constrained usage in the field of accounting (Copeland 2015).
Lack of ethical consideration - One of the major issues of AI not being favoured in
accounting is that it lacks ethical consideration (Russell 2015). Accountants do work with
highly confidential data that includes strategy measurement of the firm, growth model,
Figures regarding sales and profit. AI cannot work without internet, and through this,
hackers can eavesdrop the sensitive data of the firms.
Well, though there is various drawbacks in AI, however it is perceived that AI can benefit
the human race in long run by reducing the scope of error in working field. When it comes to
accountancy, then one can easily say that AI is not yet potent enough to overtook the duties of
accountants, however there is ample scope of development.
Recommendation:
Above analysis showcase that there is various importance of introducing AI in
accounting, however, there are risks related with it too. Following recommendations can be used
in order to reduce the threats for the AI and enhance the efficiency in this technology for
enhancing the performance of both the AI and internal control on accounting on behalf of the
firm:
AI possesses the power to become devastating in case if it goes to wrong hands. Thus,
researches of the firm need to provide more effort to their R&D and make the system safe
from the evil hands.

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Cost of maintenance of AI is comparatively higher than the regular methods. Thus, it
would be better for the company to make it cost effective by introducing more researches
in this tech.
From accountants’ perspective, AI has high potential to theft of data. Thus, company
need to focus on its security measurement.
AI has capability to reduce human efforts; however, it can effectively reduce disposable
incomes of the employees. Thus, company need to ensure a balance between machine
and human effort, so that balance environment can remain present in the company.
Machine does not have the ability to withstand against every externality and technology
has not yet suppressed the human capability. Therefore, it would be better for the
company to introduce AI in a sustainable manner.
These are the recommendations that a company need to follow regarding AI. It will not
only provide better sustainability to the company, moreover, aid the brand to check their internal
control with better accountability.
Conclusion:
AI is one of the essential and technologically upgraded wings of computer science. With
development of computer technology and demand of technologies that can reduce the human
effort, researches regarding AI had stimuli back in 1970s. The report has analyzed the
development of AI and then it has traced out how it has influenced the work of accountants.
Main purpose of this business report was to highlight the importance of AI in the accounting
profession. The report has found that AI can greatly influence accounting, by bringing in latest
automation technology in the task. For instance, with cloud-based technologies like XERO
accounting software; loyalty of the accounting firms has improved greatly. Moreover, margin of

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errors has now decreased very much, leading to better performance of the accountants. It was
seen from the analysis that there are various opportunities in front of the AI for the accounting
domain that is yet to be explored, however there are risks too. AI is highly improved and
technologically upgraded; however, there is scope of data loss and hacking due to excessive
usage of internet that can hamper the ethical issue of the accountants. Moreover, AI has scope to
reduce the employment, leading to high inflation. Moving forward to the next section, the report
has highlighted various recommendations from the accountants’ perspective for the firm. These
are aimed to enhance the efficiency and accountability of the AI for the accountant. From the
above analysis about AI, it can be portrayed that it has great amount of possibility to make this
field highly technical and efficient that has good amount of accountability. To conclude, it can be
said that with immediate implementation of the above-mentioned recommendations, AI will be
beneficial for the firm.

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Reference:
Bench-Capon, T.J., 2014. Knowledge representation: an approach to artificial intelligence (Vol.
32). Elsevier.
Brown, F.M. ed., 2014. The Frame Problem in Artificial Intelligence: Proceedings of the 1987
Workshop. Morgan Kaufmann.
Cohen, P.R. and Feigenbaum, E.A. eds., 2014. The handbook of artificial intelligence (Vol. 3).
Butterworth-Heinemann.
Copeland, J., 2015. Artificial intelligence: A philosophical introduction. John Wiley & Sons.
Copeland, J., 2015. Artificial intelligence: A philosophical introduction. John Wiley & Sons.
Crawford, K., 2016. Artificial intelligence’s white guy problem. The New York Times.
Flasiński, M., 2016. History of Artificial Intelligence. In Introduction to Artificial
Intelligence (pp. 3-13). Springer International Publishing.
Gasser, R. and Huhns, M.N., 2014. Distributed artificial intelligence (Vol. 2). Morgan
Kaufmann.
Glymour, C., Scheines, R. and Spirtes, P., 2014. Discovering causal structure: Artificial
intelligence, philosophy of science, and statistical modeling. Academic Press.
Horvitz, E., 2014. One Hundred Year Study on Artificial Intelligence: Reflections and Framing.
Issa, H., Sun, T. and Vasarhelyi, M.A., 2016. Research Ideas for Artificial Intelligence in
Auditing: The Formalization of Audit and Workforce Supplementation. Journal of Emerging
Technologies in Accounting, 13(2), pp.1-20.
Javanmardi, S., Shojafar, M., Amendola, D., Cordeschi, N., Liu, H. and Abraham, A., 2014.
Hybrid job scheduling algorithm for cloud computing environment. In Proceedings of the Fifth

15ACCOUNTING THEORY & CONTEMPORARY ISSUES
International Conference on Innovations in Bio-Inspired Computing and Applications IBICA
2014 (pp. 43-52). Springer, Cham.
Kanal, L.N. and Lemmer, J.F. eds., 2014. Uncertainty in artificial intelligence (Vol. 4). Elsevier.
Kokina, J. and Davenport, T.H., 2017. The Emergence of Artificial Intelligence: How
Automation is Changing Auditing. Journal of Emerging Technologies in Accounting.
Kumar, K.P.V., Reddy, K.A., Krishna, J.H. and Srinivas, B., 2016. Artificial Intelligence in
Various Sectors. IJSEAT, 4(5), pp.271-279.
Megill, J., 2014. Emotion, cognition and artificial intelligence. Minds and Machines, 24(2),
pp.189-199.
Nilsson, N.J., 2014. Principles of artificial intelligence. Morgan Kaufmann.
Olczak, J., Fahlberg, N., Maki, A., Razavian, A.S., Jilert, A., Stark, A., Sköldenberg, O. and
Gordon, M., 2017. Artificial intelligence for analyzing orthopedic trauma radiographs: Deep
learning algorithms—are they on par with humans for diagnosing fractures?. Acta
orthopaedica, 88(6), pp.581-586.
Pannu, A., 2015. Artificial intelligence and its application in different areas. Artificial
Intelligence, 4(10).
Rich, C. and Waters, R.C. eds., 2014. Readings in artificial intelligence and software
engineering. Morgan Kaufmann.
Russell, S., 2015. Ethics of artificial intelligence. Nature, 521(7553), pp.415-416.
Tapiero, C.S., 2017. Big Data and Intelligence.
Watts, F., 2017. Theology and psychology. Routledge.
Wenger, E., 2014. Artificial intelligence and tutoring systems: computational and cognitive
approaches to the communication of knowledge. Morgan Kaufmann.

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Zhang, B.T., 2016. Humans and Machines in the Evolution of AI in Korea. AI Magazine, 37(2),
pp.108-113.

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Feedback to response:
The final business report has been made flowing the feedback of the report plan. This final report
has been made after adequate research and reviewing peer reviewed journals. Following the
feedback, the report has tried to illustrate various factors related to AI with equal strength. Depth
of technical knowledge has been improvised in this final report to make it comprehensive and
effective. The feedback has enabled the researcher to introduce detailed analysis and reflect
technical knowledge in the writing and helped the researcher to understand what need to be
included and what need to be excluded from a business report. Moreover, feedback has helped
the researcher to improve their report presentation and selection of journals for proper study.