Understanding AI

Accounting and Finance

Kurt Fanning

Abstract: This article provides a background on ­artificial

intelligence. The article, in addition to ­exploring ­artificial
intelligence in general, will focus on two a­ reas. First, is
the more current aspects such as robotic data a­ utomation
and digital virtual assistants. These ­current aspects are
the ones moving artificial intelligence into the fabric of
society. Second, is how artificial ­intelligence (AI) affects
the accounting and finance professions. Both account-
ing and finance are going through a revolution largely
because of AI affecting many of the facets of their
professions.

Keywords: artificial intelligence, digital virtual

assistants, expert systems, neural networks, robotic
data automation

Introduction
The last year has been a banner year for artificial
­intelligence (AI), continuing this decade’s wave
of ­enthusiasm ­concerning the future of AI. The media
is ablaze with predictions of AI’s massive transformation
of the working place. While many of these media reports
try to s­ ensationalize AI with dire predictions of mass
­joblessness or AI replacing the human race, the ­reality is
quite different. In fact, surveys of business leaders r­ eport
Kurt Fanning, PhD, CPA, CMA, CIA,
CISA, is a professor at Grand Valley
that AI may lead to more jobs in their companies, not
State University. Kurt has written less. Furthermore, AI is achieving a record integration
articles for publication in scholarly into software and other AI-driven technologies. People
journals such as International Journal have begun to see the impact of AI-powered ­applications
of Intelligent Systems in Accounting,
on their everyday digital lives. Through combining the
Finance and Management, CPA Journal,
AIS Educators Journal, Journal of best of human and AI abilities, we can look forward to
Corporate Accounting & Finance, New a more advanced future.
Review of Applied Expert Systems and Predictions of future economic value of AI exceed
Emerging Technologies, and Financial a trillion dollars. Among the many areas where AI is
Studies Journal. His primary teaching
and research interests are in artificial
proliferating are digital virtual assistants, driverless
­
intelligence, management fraud, and cars, medical diagnoses, and robotic data automation of
accounting information systems. ­financial transactions. Alexa, Siri, and other digital virtual

© Business Expert Press 978-1-94858-020-5 (2018) Expert Insights

1
www.businessexpertpress.com
 Understanding AI
assistants are aiding increasingly more
homes and businesses. Driverless vehicles
are already working the streets in Arizona.
Several medical sites are u ­ sing AI to help
physicians make diagnoses. ­ Automation
using AI in many portions of the auditing
process is occurring now (Britz 2017). It
seems this might be the golden age of AI.
Among the many beneficiaries of this
golden age are the accounting and finance
professions. The accounting and finance
professions have always been involved
with AI. The use of expert systems for
­decision-making in these professions was
one of the driving forces for development
of ­ expert systems. Currently, accounting
and finance firms still drive much of the
growth of expert systems. Another main
form of AI that has a long history with
­accounting and finance is neural networks.
Neural networks have been successful
in deciding which financial characteris-
tics are best for deciding the possibility of
­bankruptcy, fraud, and the possible restate-
ment of annual report numbers. Other AI
such as genetic algorithms and robotic pro-
cess automation exist due to contributions
by accounting and finance.
The main advantages of the use of AI in
accounting and finance are that AI helps
businesses save time, cut mistakes, and
allow the firm’s management to concen-
­ significant ­
trate on the decision-making. AI will not
replace all humans, but rather enhance the
work of many users. The integration of AI
in the accounting and finance processes
will lead to more efficient processes and
workers that are more productive.
Neural Networks
Artificial neural networks (ANNs) are com-
puting systems inspired by the biological
neural networks in animal and especially
human brains. In fact, the original goal of
ANNs was for them to solve problems in a
manner similar to how the human brain
solves problems (  Tanz 2017). ANNs have
had a long and varied history but due to
deep learning are back at the forefront of AI.
2 © Business Expert Press 978-1-94858-020-5 (2018)
www.businessexpertpress.com
History
The development of ANNs begins in
the 1950s not long after the dawn of AI
­research. Much of the early work followed
the ­theoretical work of the 1940s describing
how the human neuron might work. The
­developments in computer hardware during
the 1950s led researchers to a­ ttempt to build
viable ANNs during this period. H ­ owever,
these early ANNs operated with a very lim-
ited number of neurons and only passed the
data in a single direction. Given these limita-
tions, these early ANNs could not recognize
any patterns of great complexity or achieve
any result of note. Thus, ANNs l­anguished
through the 1960s and 1970s.
Starting in the early 1980s, researchers
were able to achieve the task of ­ moving
the information flow in both directions. In
­addition, they were also able to move the
data across multiple layers, each layer ­using
a different problem-solving strategy. These
achievements greatly increased the abilities
of ANNs to the point where r­ esearchers b
­ egan
using ANNs again. Many of these ANNs came
to be under the umbrella of ­back-propagation
networks. Back-propagation ­ indicates an
ANN that distributes the p ­attern recog-
nition e ­rrors throughout the network.
While b ­ ack-propagation networks are slow
learners, they have been able to achieve
­
pattern r­ecognition success
in ­ several areas. Their success led to the
­revival of interest in ANNs during the 1980s
and early 1990s.
However, back-propagation had its prob-
lems such as being slow to train and requiring
the user to label the data before using in the
ANN. In addition, the raw computing power
needed by ANNs to both train themselves
and solve highly complex problems was not
available yet. However, the major factor that
slowed research in ANNs during this period
was simply the fact that other types of soft-
ware developed in other a­ rchitectures took
over the computing scene. If users were
getting better results from the other soft-
­
ware, why would they use ANNs? Thus, once
again, ANN research slowed down.
Expert Insights
 Understanding AI
The next change occurred in the late
2000s, which was the beginning of the cur-
rent revival of interest in ANNs. The first
reason for this revival was that comput-
ing power and storage capacity ­increased
greatly over what was available in the
past. With this increase in computing
power, ANNs could now run effectively
and p ­ roduce results in a timely manner.
The second reason for the current revival
was the improvements in ANN’s software
by ­researchers. These improvements help
make ANNs more effective. For example,
programmers created an ANN where the
first layer learns primitive features, and
then the next layer trains itself to recog-
nize features that are more complex. Then
the process repeats in successive layers
until the system can reliably perform the
task that it is working on. This was a ­major
improvement over the beginning ANNs.
­ Neural Networks in Accounting
Several similar techniques also help to
make ANNs more effective. The third rea-
son for this revival is the fact that ANNs
could now train themselves. The extra
computing power available now has made
deep learning an important reason for the
growing influence of ANN. Deep learning
is the main reason for the current explo-
sion in ANN research.
How Neural Networks Work
In the most popular ANN, back-propagation,
the program works by mapping out a set of
virtual neurons and then assigning random
numerical weights to connections between
them. These weights determine how each
simulated neuron responds with an ­output
between 0 and 1. To each connection, a node
will assign a weight. When the network is
active, the node receives a different num-
­ the internal revenue service (IRS) dis-
ber for each of its connections and multiplies
it by the associated weight. It then adds the
­resulting products together, yielding a single
­number. If that number is below a threshold
value, the node passes no data to the next
layer. If the number exceeds the threshold
value, the node sends the sum of the weighted
inputs along all its outgoing connections.
© Business Expert Press 978-1-94858-020-5 (2018)
www.businessexpertpress.com
When training a neural net, all of its
weights and thresholds are initially set to
random values. The data starts with b­ ottom
layer and passes through the succeeding
layers, until it ends at the output layer.
While in ANN, the software manipulates
the data with weights and thresholds by
continually adjusting them until the train-
ing data consistently yield similar outputs.
There are many types of ANN other than
back-propagation. Among these are simple
competitive networks, adaptive resonance
theory networks, Kohonen s­ elf-organizing
maps, adaptive logic networks, and ­Hopfield
networks (Hardesty 2017). Each has some
benefits especially in certain ­conditions.
However, the biggest change from standard
back-propagation was the development of
self-training ANNs.
and Finance
With the probable increase in the a­ doption
of ANNs in the accounting profession,
there will be a greater need for accoun-
tants with the ability to understand how
ANNs work. For auditors, ANNs will have
an impact on their looking for relationships
among variables for detecting items such
as bankruptcy and fraud. Thanks to the
­increase in computer power and the i­ mpact
of deep learning, ANNs can now analyze
entire ­
­ account populations for a­uditing
purposes, such as looking for control risks.
The ability to work with large populations
improves audit quality and reduces audit
engagement risk. Tax individuals can use
ANNs for fraud detection, worker classifi-
cation, and other areas. Tax professionals
are ­attempting to use ANNs to ­reengineer
criminate analysis used to select returns
for audits. With deep learning, new uses
for ANNs will be increasing in the coming
few years. Therefore, it is highly likely that
ANNs will be at the center of AI integration
in the ­accounting and finance profession.
Finally, the impact of ANNs on the
workforce will be one where NNs will
Expert Insights
3