AI and the importance of firm oversight

Editor: April Walker, CPA, CGMA

Artificial intelligence (AI) has become an increasingly valuable tool for CPA firms, revolutionizing various aspects of their work. However, integrating AI into a firm’s operations requires careful consideration of firm policies and guidelines as well as a strong focus on process and procedure management and client data protection. This column offers a comprehensive overview of considerations for firms wishing to implement AI in their practice, including checklists and a template for documenting a firm’s AI strategy (see the sidebars “AI Integration Checklist for CPA Firms;” “AI Strategy Template for CPA Firms;” and “Third-Party Vendor Evaluation Checklist for AI Integration” at the end of this page).

Considerations for CPA firms implementing AI

A firm will need to assess its existing culture and characteristics to determine how best to use AI in its operations. Then, the firm can begin identifying areas and functions most likely to benefit. As it reviews existing conditions, the firm will need to account for the following values and parameters, undertaking the outlined steps.

Policies and guidelines

A firm can adapt its guiding principles and practices to accommodate and implement AI use within the firm in the following ways:

Strategic alignment: Begin by defining the strategic goals and objectives for integrating AI into the firm’s operations. Then identify which specific practice areas (such as practice management, client accounting services, or tax work) could benefit most from AI technologies. In addition, establish KPIs to measure the success and efficiency of AI implementations. By understanding what it aims to achieve with AI, a firm can align its efforts, measure progress, and ensure that AI initiatives drive genuine value for the organization. As the firm progresses on its AI journey, these goals and objectives may evolve, but they will always serve as the guiding light, ensuring purposeful and impactful AI adoption.

Ethics and compliance: Establish clear guidelines to ensure the use of AI is ethical, legal, and aligned with industry standards. This might involve issues related to data privacy, bias mitigation, and more. Consider forming an AI ethics committee within the firm to monitor and guide responsible AI deployment. Establishing ethical guidelines for AI use is not just about compliance; it is about building trust. As AI becomes more integrated into daily operations, adhering to these guidelines will ensure the technology is used in ways that uphold the firm’s values, protect individual rights, and maintain the trust of all involved.

Transparency: Develop policies that require transparency about how AI systems are used and how decisions are made. This is particularly important in financial and accounting contexts, where transparency and accountability are crucial. Transparency includes providing accessible explanations of AI-driven decisions to both staff and clients.

Transparency in AI use is not just a matter of ethical responsibility; it is critical for building trust, ensuring accountability, and fostering an environment where AI and humans together drive progress. By implementing these policies, organizations can ensure that their AI use is transparent, understandable, and accountable to all parties.

Human oversight: Determine the level of human oversight required for AI processes. Although AI can automate tasks, human experts should still review and validate the results. Develop protocols for when and how human intervention is needed. The level of human oversight for AI processes should be a dynamic consideration, evolving as the AI system matures and as the organization gains more understanding of the system’s capabilities and limitations. Regular assessments and a commitment to ethical AI use will ensure firms achieve the right balance between automation and human oversight.

Training and education: Provide training and educational programs to help employees understand how to work effectively alongside AI systems and make the best use of the AI’s capabilities. This also means staying up to date with new developments and best practices in AI technologies. As AI becomes an integral part of organizational operations, ensuring employees are well-equipped to interact with these systems is imperative. A well-structured training and educational program will not only enhance productivity but also foster a culture of innovation and continuous learning.

Process and procedures

A firm will need to assess its ways of working to effectively deploy AI and then monitor its effects.

Process evaluation: Assess existing workflows and identify areas where AI can enhance efficiency and accuracy. This might include automating routine data entry, reconciliation, risk assessment, and many more activities and tasks. Include staff input to identify pain points and areas where AI can be most beneficial.

Redesigning workflows: Redesign processes to incorporate AI seamlessly. This might involve redefining roles and responsibilities to allow people to focus on higher-value tasks that require human judgment and expertise. Implement change management strategies to smoothly transition to AI-powered processes.

Continuous improvement: Establish a framework for continuous improvement, where AI processes are regularly evaluated and optimized for better performance. This ensures that the technology remains effective as the firm’s needs evolve. Consider periodic reviews with cross-functional teams to keep improving.

Data quality management: Emphasize to members of the firm the importance of data accuracy and consistency. AI relies heavily on data inputs, so maintaining high-quality data is essential for reliable outcomes. Implement regular data audits and data cleansing processes.

By systematically assessing existing workflows, organizations can identify and prioritize areas where AI can make a significant difference. Implementing AI in these areas can lead to enhanced efficiency, reduced errors, and a competitive edge in the market.

Client data protection

The integrity and security of clients’ tax and other personal data is always paramount. AI introduces an additional range of considerations.

Data security: Implement robust data security measures to protect client information. This includes encryption, access controls, secure data storage, and regular security audits. Consider thirdparty assessments to validate security measures. For firms, the promise of AI is immense, offering efficiency, accuracy, and enhanced service delivery. However, the sensitive nature of financial data mandates that data security be at the forefront of AI adoption. By implementing robust security measures, firms can harness the power of AI while ensuring the utmost protection of their clients’ information.

Anonymization and deidentification: Ensure that client data used with AI systems is anonymized and de-identified whenever possible to protect client confidentiality. Apply advanced techniques such as differential privacy to further safeguard data. It is essential to balance innovation with client confidentiality. By implementing data anonymization and de-identification practices, firms can harness the power of AI while upholding their clients’ trust and confidence.

Compliance with regulations: Stay current with relevant regulations such as those of the EU’s General Data Protection Regulation (GDPR), the Health Insurance Portability and Accountability Act (HIPAA), and industry-specific guidelines for data protection. Ensure that AI processes adhere to these regulations. Regularly conduct compliance assessments and regulation-related training sessions.

Vendor selection due diligence: If using third-party AI solutions, conduct thorough due diligence on vendors to ensure they meet data protection standards and align with the firm’s security requirements. Create standardized checklists for evaluating potential vendors, such as the “Third-Party Vendor Evaluation Checklist for AI Integration.” For CPA firms, the integration of AI can be transformative, but it is crucial to partner with third-party vendors that uphold the highest standards of data protection and security. By conducting thorough due diligence, firms can confidently harness the power of AI while ensuring the safety and integrity of their data.

Client communication: Clearly communicate to clients how the firm uses AI, what data the firm’s AI collects, and how the firm protects client information. Obtain informed consent for AI use if necessary. Provide clients with accessible channels for inquiries and concerns regarding AI use.

Incorporating AI into CPA firms can bring significant benefits in terms of efficiency, accuracy, and decision-making. However, it requires a well-defined strategy, comprehensive policies, meticulous process management, and an unwavering commitment to protecting client data and privacy. Embrace the potential while maintaining trust and integrity in every step of the journey.

Benefits of AI in CPA firms

In the rapidly evolving world of finance and accounting, AI stands out as a transformative force. By automating repetitive and time-consuming tasks, AI not only streamlines operations but also reshapes the role of accountants, allowing them to provide more strategic and value-added services. Here is a deeper look into ways AI is revolutionizing CPA firms:

Automation of repetitive tasks

Most CPA firms’ work includes a high volume of actions that can be automated and are suitable for AI involvement, improving efficiency and resource allocation. These tasks include the following:

Data entry: Traditional manual data entry is prone to errors and consumes significant time. AI-powered systems can automatically extract, categorize, and input data from various sources, ensuring accuracy and efficiency.

Invoice processing: AI can automatically scan, read, and process invoices, matching them with purchase orders and flagging discrepancies for human review.

Bank reconciliations: AI can swiftly match transactions from bank statements with ledger entries, identifying mismatches and anomalies for accountants to investigate.

Enhanced accuracy and reduced errors

With AI handling routine tasks, the chances of human error diminish. This ensures that financial statements, reports, and analyses are more accurate, leading to better decision-making.

Real-time financial insights

AI-driven tools can analyze vast amounts of data in real time, providing businesses with instant financial insights, predictive analytics, and trend analysis. This allows for proactive financial management and forecasting.

Fraud detection and risk management

AI can analyze transaction patterns to detect unusual activities, potentially identifying fraud or financial risks. By flagging these anomalies, firms can take timely preventive measures.

Enhanced client services

With routine tasks automated, accountants can focus on providing advisory services, tax planning, financial consulting, and strategic insights to clients, adding more value to client relationships.

Continuous learning and adaptation

AI systems continuously learn from new data, adapting and improving their processes. This ensures that the accounting systems remain updated with the latest financial regulations, standards, and best practices.

Cost savings

Automation leads to faster processing times and reduced manual intervention, translating to significant cost savings for firms in the long run.

Empowering accountants for strategic roles

Freed from mundane tasks, accountants can focus on areas such as business strategy, financial planning, and advisory roles. They can engage in more meaningful interactions with clients, understanding their business needs and offering tailored solutions.

The integration of AI in CPA firms signifies a shift from traditional bookkeeping to a more strategic and advisory role for accountants. By embracing AI, firms can stay competitive, offer enhanced services to clients, and position themselves as forwardthinking industry leaders. The future of accounting lies in the symbiotic relationship between AI and human expertise, where technology complements human judgment, leading to optimized outcomes.

The way forward

As we stand on the cusp of an AI-driven era, it is imperative for CPA firms to approach AI with a balance of enthusiasm and caution. Although the potential benefits are undeniable, they should not overshadow the importance of responsible AI deployment.

The evolution of AI and accounting is still in its early stages. As technology continues to advance, we can expect even more sophisticated AI tools that can handle complex accounting tasks with ease. However, the onus is on us, the accounting professionals, to ensure that this integration is done responsibly and ethically. Although AI offers a promising future for the accounting industry, it is imperative for firms to exercise oversight and provide guidance. By doing so, we can harness AI’s full potential while upholding the integrity and trustworthiness our profession is known for.

AI integration checklist for CPA firms

Company policy and guidelines

• Define strategic goals and objectives for AI integration.
• Identify specific areas for AI application within the firm.
• Establish KPIs to measure success and efficiency.
• Create ethical guidelines for AI use.
• Develop transparency policies around AI decisions.
• Determine the human oversight protocol for AI processes.
• Implement training and education programs on AI technologies.

Process and procedures

• Evaluate existing workflows to identify AI enhancement opportunities.
• Redesign workflows to incorporate AI.
• Implement change management strategies.
• Establish a continuous improvement framework.
• Conduct regular data audits and data cleansing processes.

Client data protection

• Implement robust data security measures.
• Apply anonymization and de-identification techniques.
• Comply with relevant data protection regulations.
• Conduct due diligence on third-party AI vendors.
• Communicate AI use and data protection policies to clients.

Additional considerations

• Form an AI ethics committee if applicable.
• Stay up to date with new developments and best practices in AI technologies.
• Regularly review and validate AI-powered results with human expertise.
• Ensure third-party AI solutions meet the firm’s security requirements.

AI strategy template for CPA firms

Executive summary

• Brief overview of the firm’s current position and the rationale for integrating AI.
• Strategic alignment with the firm’s overall goals and vision.

Objectives and KPIs

• Define specific objectives for AI integration (e.g., improved efficiency, accuracy, client service).
• Identify KPIs to measure success and efficiency in reaching these objectives.

Areas of AI application

• Identify specific areas within accounting and CPA work that can benefit from AI (e.g., data entry, risk assessment, reporting).
• Explain how AI technologies will enhance these areas.

Ethics and compliance guidelines

• Outline ethical considerations for AI use (e.g., data privacy, bias mitigation).
• Identify relevant legal and industry standards.

Transparency and human oversight protocols

• Detail procedures for maintaining transparency in AI processes.
• Define the level of human oversight required and how and when human intervention is needed.

Training and education plan

• Describe the training programs, including content, delivery methods, and target audience.
• Outline schedules for continuous learning and updates on AI technologies.

Process evaluation and redesign

• Explain the process of evaluating existing workflows.
• Detail how workflows will be redesigned to integrate AI seamlessly.

Data quality and security measures

• Detail the quality control measures for data input.
• Outline the security measures to protect client information.

Vendor selection and due diligence

• Describe the criteria for selecting third-party AI vendors.
• Outline the due -diligence process.

Client communication strategy

• Detail the approach for communicating AI use to clients.
• Include examples of messages, channels, and timelines.

Implementation timeline

• Provide a timeline for AI integration, including milestones, deadlines, and responsible parties.

Ongoing monitoring and continuous improvement

• Explain how AI processes will be regularly evaluated and optimized.
• Include review schedules and responsible teams.

Additional resources and references

• List any additional resources, such as expert consultants, online platforms, or tools used in the process.

Approval and signatures

• Include spaces for the approval and signatures of key stakeholders.

Third-party vendor evaluation checklist for AI integration

Company background and reputation

• Verify the vendor’s legal business status and history.
• Assess the vendor’s reputation in the industry (e.g., customer reviews, references).
• Determine the vendor’s experience and expertise with AI technologies.

Product and service evaluation

• Evaluate the vendor’s AI products and services for alignment with the firm’s needs.
• Request product demos or trials to assess the functionality.
• Identify the support and maintenance services the vendor offers.

Security and compliance

• Assess the vendor’s data security protocols (e.g., encryption, firewalls).
• Verify the vendor’s compliance with relevant regulations (e.g., GDPR, HIPAA).
• Request third-party security certifications or audits, if available.

Contractual obligations and licensing

• Review the terms and conditions of the contract, including termination clauses.
• Understand the licensing model and any restrictions on AI technology use.
• Clarify the ownership and use rights of data processed by the AI system.

Integration and compatibility

• Assess the ease of integration with existing systems and workflows.
• Determine the compatibility of the vendor’s AI system with current technologies.
• Identify potential challenges to integration and their solutions.

Cost analysis

• Obtain a detailed cost structure, including initial implementation and ongoing fees.
• Assess the value proposition by comparing costs and anticipated benefits.
• Consider negotiating terms based on the firm’s specific needs and budget.

Support and maintenance

• Evaluate the vendor’s customer support availability and responsiveness.
• Determine the terms of maintenance, updates, and upgrades.
• Identify any additional costs associated with support and maintenance.

Ethical considerations and bias mitigation

• Assess the vendor’s commitment to ethical AI use.
• Determine how the vendor handles potential biases in AI models.

Business continuity and disaster recovery

• Understand the vendor’s business continuity and disaster recovery plans.
• Assess how the vendor handles potential system failures or outages.

References and case studies

• Request and review references or case studies from similar clients.
• Conduct interviews with previous clients if needed to gain deeper insights.

Contributors

Mark Gallegos, CPA, MST, is a tax partner with Porte Brown LLC in Elgin, Ill. Jackie Meyer, CPA, CCA, doctoral candidate (X, formerly known as Twitter, and LinkedIn: @jackiemeyercpa), is the founder and CEO of TaxPlanIQ and Concierge Accountant Coaching in Southlake, Texas. April Walker, CPA, CGMA, is lead manager—Tax Practice & Ethics, Public Accounting, for AICPA & CIMA, together as the Association of International Certified Professional Accountants. Gallegos and Meyer are members of, and Walker is staff liaison to, the AICPA Tax Practice Management Committee. For more information about this column, contact thetaxadviser@aicpa.org.