Norman's vision has always been self-driving finance. What exactly do we mean, and how does it apply to accounting? We wanted to share our framework for how AI will impact accounting.
Similar to autonomous driving, self-driving cars didn't happen overnight. They required intentionally-built, robust systems combined with advancements in artificial intelligence to unleash their potential. In some parts of the world, it is now not surprising to see cars driving passengers with no one in the driver's seat.
We believe accounting autopilots will be similarly ubiquitous and transformative.
Accounting autopilot is a comprehensive system that can generate complete financial statements with accompanying financial metrics, insights, variance analyses, reconciliations in real-time, and accurate tax forms without human involvement.
Why autonomy matters when choosing an accounting solution
Speed and accuracy of information provide a competitive advantage. Accounting can play a more significant role in achieving this advantage. Meanwhile, much of an accountant's month is consumed by manual, repetitive work for future compliance rather than dynamic business building today.
To make things worse, accounting is becoming increasingly unattractive, creating a shortage of specialists. All while, the demand for their services isn't going away.
It is a crucial point. Even though the invention of electronic spreadsheets and the digitization of accounting significantly decreased the time accountants spent on data entry, it didn't eliminate the need for accountants or reduce the demand for their services. Quite the opposite, the demand is only growing.
Accountants hate routine bookkeeping and manual reconciliation. Accounting autopilot has the potential to provide real-time insights into a company's most important financial decisions, maintain accurate and auditable records for compliance and taxes, and make the accounting profession more dynamic and attractive as a career. Accountants and tax advisors will finally focus on non-trivial financial advice and complex cases instead of filling the same form for the same business for the 11th time a year.
Let's continue the driving analogy and go through the standard levels of autonomy.
Level 0: No Automation
With level 0, there is no driving automation. Most vehicles on the road today are level 0 automation. Human drivers manage the route, speed, and direction.
For centuries, accountants prepared financial statements by manually stitching together financial information using paper, hand-written ledgers, and eventually calculators. Spreadsheets provided many benefits, but the entire financial statement creation process remained manual.
Level 1: Task Automation
With level 1 driving automation, specific tasks are automated to augment the driver. Cruise control, automatic parking, and lane assistance each support one element of driving without taking control.
With level 1 accounting automation, some tasks are automated to assist the human bookkeeper. However, a significant amount of manual labeling and calculation is required. Humans review and approve transactions before they become part of the financials, and most tasks are not automated.
Market examples:
QuickBooks and Xero automate many tasks, such as bank feeds and the application of user-created rules. Today, these are table stakes in any core accounting solution.
Level 2: Function Automation
Level 2 driving automation uses advanced driver assistance systems (ADAS) to create partial driving assistance by automating a single driving function, from steering to acceleration to braking. However, a human must remain in the driver's seat and be aware of the surroundings.
Level 2 accounting automation can perform a complete set of tasks, such as creating and reconciling a sub-ledger or executing a data transformation workflow, but human oversight and adjustments are still needed to generate complete and accurate financial statements.
Market examples:
Quickbooks and Xero include some function automation if you use their bundled products, such as payroll and accounts receivables. These modules deliver a complete function and the associated journal entries to the general ledger.
Ramp uses built-in learning to categorize payments and push journal entries to the general ledger. They use AI for document parsing, receipt matching, and reconciliation.
Digits uses vector embeddings in its categorization engine to vastly improve the categorization of all bank feeds and interactive dashboards powered by AI.
HighRadius uses AI-based workflows for financial close, accounts receivable, and treasury management.
Level 3: Problem-Detection Automation
Level 3 driving automation involves advanced "environment detection" capabilities that significantly — even if subtly — expand the comprehensiveness of Level 2 automation. They decrease the risk of applying Level 2 automation because they can identify when to alert the driver.
Level 3 accounting automation can generate financial statements but also perform validation checks and identification of anomalies — this is the "map" to define the path to more accurate outputs and a "vision system" to identify issues and exceptions from perfect conditions. Accountants can make informed decisions in high-risk areas while relying on accounting autopilot to consistently identify and execute standard tasks.
Market example:
Puzzle generates financial statements with minimal human intervention while proactively monitoring the outputs for accuracy.
Level 4: Problem-Solving Automation
Level 4 driving automation involves the vehicle's ability to actively respond to complex and ambiguous situations, known as conditional driving automation. While a human can take control anytime, the autonomous vehicle can operate in full self-driving mode in almost all circumstances.
Level 4 accounting automation generates entire financial statements while proposing solutions (such as adjusting entries) to detected anomalies such as accounting policy violations, missing transactions, or reconciliation differences.
Market example:
We have yet to see any core accounting solutions with level 4 capabilities. However, some elements of proactive response to anomalies have proven possible and will become more prominent.
Level 5: Problem-Resolution Automation
Level 5 driving automation does not require human attention from point A to point B. The "dynamic driving task" is no longer performed by a driver, and the car can adapt to weather and road conditions without intervention.
At level 5, accounting autopilot does not require human attention to generate a complete accounting package. Once configured, it's a self-sustaining system that executes policies and controls, adapts to solve inconsistencies and anomalies, and delivers insights to facilitate management, board, or resource allocation discussions.
Market example:
None. The most significant challenges to reaching this level include technical challenges such as data that is not integrated into the core accounting system, multivariate calculations that require both data transformation and judgment, and judgmental decisions that differ from industry to industry.
What does Level 5 mean for accountants?
Accountants can offer far more value than processing routine transactions, performing reconciliations, and producing financial reports across all industries and company sizes. According to a recent study by FloQast and the University of Georgia, 65% of accountants aspire to take on a more strategic role within their organization. McKinsey research cites that none of the general accounting operations are "difficult to automate."
Accounting autopilot will help accountants become more valuable strategic partners. In-house accounting teams will be more efficient, and professional service firms can take on more high-value business. With less manual preparation, accounting will become a more analytical profession, using financial knowledge to separate signal from noise amidst abundant financial information.
Some things never change
We are in accounting, so we couldn't let you go without a disclaimer. The framework described above is just a framework and not a perfect world model.
Its focus is on the core aspect of accounting: generating financial statements for taxes, compliance, and fundraising. Other accounting automation solutions have been included to highlight the innovative advancements happening in the field. With technology evolving rapidly, we anticipate the emergence of new players and the re-architecting of core infrastructure by legacy players to suit the AI age.
We welcome any feedback, especially from accountants. The framework will evolve with the industry, technological advancements, and your input to help us improve.
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