Overview of AI from FRC

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Robo-accounting technical advisors might be showing up by 2034, a new report from the Financial Reporting Council’s Financial Reporting Lab projects. The January 2019 report entitled “Artificial Intelligence and Corporate Reporting: How Does it Measure Up?” explains, ”If [accounting] standards themselves were made machine readable, ML [machine learning] and NLP [natural language processing] could be used to understand, then generate, interpretations of unique situations based on historic practice and underlying frameworks, and provide the preparers of the future with a robo-accounting technical advisor.” However, the report also notes there are already applications of AI (artificial intelligence) that structure data, but not applications of AI that make judgements. The LAB team says: “Many of the areas where there might be value in AI making judgement are areas where society values oversight and ownership by a human who can be called into account. Therefore, there is a need for AI to build trust before it can be applied to true judgement. It is perhaps only when this trust in AI exists that the transformative power of AI will be felt.”

Trust is frequently mentioned in the report as a key determinant of how AI will be applied by an organization, determining the level of overall judgement devolved to AI: “Many of those who are implementing AI in search of efficiency are focusing on specific elements or processes that are easy to automate and are compatible with the current control framework. However, given the overall capacity of AI, wholesale redesign of the entire end-to-end finance process may ultimately lead to the most effective outcomes,” the report states. They predict over the next 5-10 years the use of AI is likely to increase further as off-the-shelf AI building blocks become available to smaller companies. However, using AI to create annual reports would only happen “once management are comfortable and trust the technology.”

The need for bringing those with AI skills into corporate governance and regulation is underscored in the paper.