Last time we enumerated the standards and regulatory bodies that can have a say on the use of generative AI in accountancy, in the United States. Now, we look at the various policies and statements of these USA-based bodies with regard the use of generative AI. Some have not made any rule on generative AI use, limited by law and by want of a full understanding of ramifications, others are observing and studying the subject, some have even employed the technology in their operations, whilst others have noted challenges and opportunities about generative AI use:
The Securities and Exchange Commission (SEC)
The Securities and Exchange Commission has not issued a final rule on the use of AI in financial reporting standards, but it has proposed some guidelines to address the potential conflicts of interest that may arise from these technologies:
The Securities and Exchange Commission today proposed new rules that would require broker-dealers and investment advisers (collectively, “firms”) to take certain steps to address conflicts of interest associated with their use of predictive data analytics and similar technologies to interact with investors to prevent firms from placing their interests ahead of investors’ interests.
“We live in an historic, transformational age with regard to predictive data analytics, and the use of artificial intelligence,” said SEC Chair Gary Gensler. “Today’s predictive data analytics models provide an increasing ability to make predictions about each of us as individuals. This raises possibilitie that conflicts may arise to the extent that advisers or brokers are optimizing to place their interests ahead of their investors’ interests. When offering advice or recommendations, firms are obligated to eliminate or otherwise address any conflicts of interest and not put their own interests ahead of their investors’ interests…”
–Source: “SEC Proposes New Requirements to Address Risks to Investors From Conflicts of Interest Associated With the Use of Predictive Data Analytics by Broker-Dealers and Investment Advisers.” US Securities And Exchange Commission, July 26, 2023, https://www.sec.gov/news/press-release/2023-140
Financial Accounting Standards Board (FASB)
Financial Accounting Standards Board recognizes that generative AI can have significant implications for financial reporting standards and practices. For example, generative AI can automate the production of financial statements, notes, and disclosures, as well as provide insights and analysis for decision-making. However, generative AI also poses challenges and risks, such as data quality, reliability, accuracy, bias, and ethics. Therefore, the FASB is monitoring the developments and trends of generative AI, especially the use of chatbots such as ChatGpt, and its impact on financial reporting, as well as engaging with stakeholders to understand their needs and expectations:
The FASB and the GASB are actively monitoring the evolution of electronic financial reporting, including how investors use Artificial Intelligence (AI) to consume data, Chairs of the accounting rulemaking boards said on Feb. 28, 2023.
The FASB is keeping tabs on the use of AI, including chatbots such as ChatGpt, studying how users of financial statements consume financial reporting information these days, FASB Chair Richard Jones told trustees of the Financial Accounting Foundation (FAF) on Tuesday.
–Source: Lugo, Denise “U.S. Accounting Rulemakers Studying How Investors Use Artificial Intelligence to Consume Financial Data” Thomson Reuters, March 2, 2023, https://tax.thomsonreuters.com/news/u-s-accounting-rulemakers-studying-how-investors-use-artificial-intelligence-to-consume-financial-data/
The Public Company Accounting Oversight Board (PCAOB)
The Public Company Accounting Oversight Board has not issued any specific policies or guidelines for generative AI use by accountants, but it has been engaging with stakeholders to understand the current and emerging practices and issues of generative AI in auditing. The PCAOB has also established a Standards and Emerging Issues Advisory Group (SEIAG) to provide input and feedback on the potential implications of generative AI and other emerging issues for auditing standards and oversight:
Further, just like the President is directing key federal agencies to set standards on AI safety and security, while promoting and leveraging AI for public good, PCAOB auditing standards should also evolve to promote the responsible use of AI to improve audit quality and provide guardrails to ensure objectivity and transparency, in the interest of investor protection. For examples, if auditors are relying on AI tools to perform tasks or make predictions, what controls should be in place to ensure that they are free of bias, are auditable, and meet quality standards? What considerations are needed for tools that are developed by third parties? How will the audit evidence be documented if all or part of the audit processes become digitally native? How would data validation be performed, especially when the raw data input may be in an unstructured format, or information may be in the form of images and videos? How can regulators confirm that the AI tools can be trusted and free of bias?
–Source: Ho, Christina. “Can Artificial Intelligence Transform Auditing and Our Fear of That Transformation?” Public Company Accounting Oversight Board, Nov. 3, 2023, https://pcaobus.org/news-events/speeches/speech-detail/can-artificial-intelligence-transform-auditing-and-our-fear-of-that-transformation
The American Institute of Certified Public Accountants (AICPA)
The American Institute of Certified Public Accountants has published a report on the implications of AI for the accounting profession, which provides an overview of the current state and future trends of AI, as well as recommendations for accountants to leverage AI and mitigate its risks. The report covers topics such as the definition and types of AI, the benefits and challenges of AI adoption, the impact of AI on accounting roles and skills, and the ethical and regulatory issues of AI use.
The AICPA encourages accountants to embrace AI as a strategic opportunity, but also to be aware of its limitations and responsibilities. The AICPA advises accountants to develop their digital and analytical skills, collaborate with AI experts and vendors, adopt a continuous learning mindset, and adhere to the professional standards and codes of conduct when using AI.
Internal Revenue Service (IRS)
Internal Revenue Service official policies or guidelines for generative AI use by accountants are still not forthcoming, but it has been exploring the potential of AI and machine learning to improve tax administration and compliance e.g., to detect fraud, identity theft, and noncompliance, as well as to streamline processes, reduce costs, and increase efficiency.
It would be safe to say that the IRS recognizes that generative AI can have benefits and challenges for both taxpayers and tax professionals. For example, generative AI can help accountants to access and analyze large amounts of data, generate tax reports and filings, and communicate complex tax concepts and strategies to clients. However, generative AI can also pose risks, such as data privacy, security, accuracy, bias, and ethics.
The New York Times reports on the IRS’s use of generative AI:
The Internal Revenue Service has started using artificial intelligence to investigate tax evasion at multibillion-dollar partnerships as it looks for ways to better police hedge funds, private equity groups, real estate investors and large law firms.
The announcement on Friday was intended to show how a more muscular I.R.S. is using some of the $80 billion allocated through last year’s Inflation Reduction Act to target the wealthiest Americans and tackle the kinds of cases that had become too complex and cumbersome for the beleaguered agency to handle.
–Source: Rappeport, Alan. “I.R.S. Deploys Artificial Intelligence to Catch Tax Evasion.” New York Times, New York Times Company, Sept. 8, 2023, https://www.nytimes.com/2023/09/08/us/politics/irs-deploys-artificial-intelligence-to-target-rich-partnerships.html
And another report on the IRS, this time from the law firm Gordon, Arata, Montgomery, Barnett:
As artificial intelligence grows, the Internal Revenue Service plans to use the technology to limit the abuse of tax laws. On October 8, 2023, the IRS announced it will use artificial intelligence to audit an increased number of high-income earners, partnerships, large corporations, and promoters. The announcement aspires for fairness in tax compliance – over the past decade, the audit rate for high earners has decreased significantly.
Among other advanced technologies, the IRS will utilize AI to better identify tax cheating and imminent compliance threats by increasing its audit rates.
–Source: Perkins, Clarke “The IRS Set to Use Artificial Intelligence to Sniff Out Out-of-Compliance High Earners.”
–Source: Gordon, Arata, Montgomery, Barnett, Gordon, Arata, Montgomery, Barnett, McCollam, Duplantis & Eagan, LLC, December 12, 2023, https://www.gamb.com/the-irs-set-to-use-artificial-intelligence-to-sniff-out-out-of-compliance-high-earners/
The policies of these regulatory and standards bodies regarding the use of generative AI can best be described as “wait and see.” This is despite its use by some of the bodies in their operations. Needless to say, the delays are due to the limits imposed by the law and want of a full understanding of the technology and its ramifications. Next time we look at implementing generative AI in an accounting practice.
–Richard Thomas
Previous, Part III
Next, Part V
