Artificial Intelligence in Finance and

Accounting
To which extend should AI replace human expertise within the field of finance and
accounting?
Table of Contents
1. INTRODUCTION ............................................................................................................................3
2. METHODOLOGY ............................................................................................................................4

3. AN INTRODUCTION INTO AI ............................................................................................................5

3.1. TERM ................................................................................................................................................................................ 5
3.2. HISTORICAL OVERVIEW: ..................................................................................................................................................... 5
3.3. FUNCTIONALITY AND STRUCTURE OF AI SYSTEMS ................................................................................................................ 7
3.3.1. Rule-Based Systems: .......................................................................................................................................... 7
3.3.2. Machine Learning Systems: .............................................................................................................................. 8
3.3.3. Deep Learning: .................................................................................................................................................... 8

4. ARTIFICIAL INTELLIGENCE IN INTERNATIONAL ACCOUNTING ................................................................9

4.1. CURRENT USE OF AI IN ACCOUNTING .................................................................................................................................. 9
4.2. A PPLICATIONS OF AI IN ACCOUNTING ................................................................................................................................. 9
4.2.1. Excel and Artificial Intelligence ........................................................................................................................ 9
4.2.2. Robotic Pro cess Automation ...........................................................................................................................10
4.3. ISSUES IN AI – RELIABILITY, JOB LOSS, DISRUPTION IN BUSINESS & DANGERS OF AI..............................................................13
5. AI LINKED TO IFRS/ THE BOOK THEORY ........................................................................................... 15

6. AI IN INVESTMENT....................................................................................................................... 17
6.1.1. EXISTING APPLICATIONS...............................................................................................................................................17
6.1.2. Kavout.................................................................................................................................................................17
6.1.3. Greenky Technology .........................................................................................................................................17
6.1.4. EquBot ................................................................................................................................................................18
6.2. EVALUATION OF TRADING RESULTS FROM ARTIFICIAL INTELLIGENCE ....................................................................................18
6.3. POTENTIAL AND RISKS FOR THE INVESTMENT INDUSTRY......................................................................................................20
6.3.1. Potential: ............................................................................................................................................................20
Rational decision making:...................................................................................................................................................21
6.3.2. Risks ....................................................................................................................................................................21
7. ELABORATION ON THE RESEARCH QUESTION: ................................................................................. 22

8. CONCLUSION .............................................................................................................................. 24

9. APPENDIX .................................................................................................................................. 26
9.1. REFERENCE LIST ...............................................................................................................................................................26
9.2. INTERVIEW WITH MOHAMMAD KUSKUSI (21. DEC. 2020)...............................................................................................29

2
 1. Introduction
"I don't want to really scare you, but it was alarming how many people I talked to who are
highly placed people in AI who have retreats that are sort of 'bug out' houses, to which they
could flee if it all hits the fan."—James Barrat, (Forbes, 2020).

Artificial Intelligence had always been a controversial topic since its beginning in 1956. Its
potential seems almost limitless. With exponential learning capacity and a comprehension
ability that's the only limit is the connected computer power, many things perceived as
impossible suddenly seem achievable nowadays.

Traffic without any holdups, where every vehicle's movement is entirely controlled by a
computer, making road signs and traffic lights obsolete. Medical robots with such fine
calibration could perform heart and brain surgery more precisely than any human ever could.
Personal watches that will tell one not just the time but also a health and fitness program
perfectly individualized to its user or software'ssoftware that will run entire companies or trade
the market more successfully than any human ever could.

This is just a fraction of possible usages for artificial intelligence. Nevertheless, such potential
bears many dangers, of which job loss or the creation of an unpredictable device are just a few.
Specifically, in business, which is known for its competitiveness, AI will find appliances
extremely fast. For that reason, it is not a question anymore if artificial intelligence will reshape
the future but to which extend we should allow it to happen. The following report will
elaborate on the question to which extend AI can and should replace human expertise within
Finance and Accounting.

3
 2. Methodology

In the Methodology, we will explain how the results shown in the report have been found, as
well as any choices made on researching the way it is done. Lastly, the limitations to our
research will be discussed.

The topic of AI is vast and unknown, and it is not particularly related to our field of study. AI is
the ‘old’ new phenomena, we have been hearing about it for quite some time now. Starting this
research, we needed more theoretical knowledge on the concept of AI, before we were able to
link it to accounting. Therefore, we conducted online web research, including software and IT
firms (primary research). Also academic papers and books were used (secondary research) to
establish a starting pool of research for our own understanding, also to introduce the concept
in this research. While collecting the data and familiarizing ourselves with the theory, we
decided on our research questions, which created more research.

This led to our main research question: To what extent can AI replace human expertise within
Finance and Accounting?

Since AI is a growing concept, enhancing every day, we had a need for up-to-date information.
Therefore, we conducted more research, building on the starting pool. Both primary and
secondary research was conducted here. Furthermore, expert interviews have been conducted
with AI-experts / AI-students. This all to enhance, and more importantly, verify, our
expectations and predictions. To find a suitable relation between AI and Finance/Accounting,
we mainly focused on sources related to those fields (SAP, KPMG, Bloomberg etc.).

Since AI is still in development, the future is uncertain in a way. This is also the biggest
limitation of our research; only time will tell how fast and developed an AI can become.

4
 3. An introduction into AI
What is Artificial Intelligence?

3.1. Term
The Collins dictionary defines Artificial Intelligence as following „Artificial intelligence is a type
of computer technology which is concerned with making machines work in an intelligent way,
similar to the way that the human mind works. The abbreviation AI is also used.“ (COBUILD
Advanced, 2020)

3.2. Historical overview:

The initial idea of artificial intelligence can be traced back to philosophers of the classic Epoque.
A first attempt was made to describe the capability of human thinking transcribed to a technical
machine. The field and term AI found their first formal recognition in 1956 at a college
conference in Hanover, New Hampshire at Dartmouth College. The proposition for the meeting
stated: "The study is to proceed based on the conjecture that every aspect of learning or any
other feature of intelligence can in principle be so precisely described that a machine can be
made to simulate it." (Marr, 2018)

One of the first actual results of the studies was called the Mark 1 perceptron, which was
introduced in 1957 by Frank Rosenblatt. The concept was a supervised learning algorithm with
to purpose of picture recognition based on binary classifiers.

After an initial research approach on that topic, the interest in the field disappeared when
government funding's were cut in 1974 due to a privation of satisfying results. This period
lasted until 1980 and is commonly known as the "AI winter."

Within the 1980s, the field again received a major governmental investment of 350 mln—
pounds from the British to compete with Japan's recently rising interest topic.

Within the 1980s the financial world's first

significant attempt was executed to create and
use so-called "expert systems" based on AI for
investment and auditing activities. These expert
systems were mostly oriented on Louis Bachelier's
thesis Théorie de la Spéculation (Theory of
Speculation) and the connected research of
Robert Schlaifer, "probability and statistics for
business." These contained the approach to make

Figure 1 Architechture Expert System (Swaine-Simon, 2018)

5
decisions for stock market investments based on probabilities and past experiences.

The company DuPont alone managed to build about 100 expert systems that contributed to
saving up to 10 million $ a year.

Another topic that received increasing attention in the 1990s was developing a system based
on artificial intelligence to detect financial fraud in auditing. One system that was put into
service in 1993 was the FinCEN Artificial Intelligence system (FAIS). It was developed to
scrutinize through large amounts of data to discover discrepancies that indicated potential
money laundering.

Figure 2 FinCEN Artificial Intelligence system structure (Swaine-Simon, 2018)

The system based on rule-based and blackboard AI technology was very efficient due to its
ability to analyze large amounts of handwritten accounting data. This practice was essential as
most transaction entries were recorded manually during that period. Through its power of
pattern recognition, the FAIS managed to identify sums of about one bln. $ in cases of
laundering in only two years.
In 1997, after corporate companies successfully picked up the field's exploration, public interest
was drawn when the IBM computer "Deep Blue" became the first artificial device to beat the
human chess champion, Garry Kasparov in a game of chess.
Another milestone was when the electronic answering machine Watson won a quiz show called
"jeopardy" against the two previous human champions. Further in 2014, the chatbot Eugene

6
Goostman accomplished to fool the Turing test judges into believing it was an actual human.
This test was developed by Alan Turing in 1950 weather to assess if a machine is intelligent.
Currently, the research of AI has developed into almost every existent industry. Several devices
like Alexa, Google Assistant, and Siri that maintain AI characteristics are now under daily
appliance by private customers worldwide.
Many advertisement software uses AI to analyze individual purchase preferences,
smartwatches have integrated algorithms to learn about their owner's health conditions, and
entire investment funds are managed by computer software.
Specifically, the financial industry becomes increasingly involved with artificial intelligence,
which is not always perceived without skepticism. This shall be discussed in the following
report.

3.3. Functionality and structure of AI Systems

Mainly one can distinguish between two major types of artificial intelligence.

Figure 3 Functionality AI (Thakar, 2020)

3.3.1. Rule-Based Systems:

Rule-Based Systems mostly consist of IF THIS then THAT tails relying on a given predetermined
set of fixed rules that are set up in the program code. For instance, IF the stock price 100$,
THEN execute buy.
Based on the given rules and scenarios, the software can make individual decisions or
recommendations without human interference. These sorts of systems are considered as
“simple AI ́s” for which it is important to be fed with decision trails based on expert
experiences. Currently, rule-based systems find appliances in customer support chatbots or for
instance, automated inventory purchasing software.

7
 3.3.2. Machine Learning Systems:
This AI structure drives on being fed with outcomes of each data point rather than simple rules.
Through the excess of increasing data amounts and certain coherence factors, this type of
software can learn about correlations and make decisions based on past "experiences". For
instance, assume an AI system that analyses university applications. The System will be
provided with 1000 applications, the number of rejections, and the reasons for refusal. Based
on this information, the software might be able to analyze future applications on their
likelihood they get rejected by the university. Within several years of gathering increasing data
amounts about the application process each year, the software will become progressively
precise.
Nevertheless, the significance of singular influential factors on the outcome without substantial
correlation traits or extreme values cannot be determined by the software at this point. This
might negatively impact the "learning" process and decision value of the AI. Our interview
partner Mr. Kuskusi stated in terms of the biggest complications for machine learning AI
software, "Machine learning AI is based on forecasting and probability. Since we do not know
all the factors and are limited in giving information to the AI, we can only predict in theory with
an accuracy of 70% yet. And that is on paper, not in practice. The second biggest problem is
that we still don't have enough computer power to analyze every single data point perfectly."
(Kuskusi, 2020)

3.3.3. Deep Learning:

Deep learning is a more advanced version of AI, which develops out of machine learning, trying
to copy the structure of the human neuronal system. Within a human brain, neurons can
connect from every point to each other, making it possible to conclude something new out of
two or more information that might seem unrelated. While machine learning AI is only fed with
category-related data, deep learning AI is based on various sublayers connecting different data
pools and sorting out their relevance to the topic. Based on that technology, the software is
supposed to be able to "think". Nevertheless, yet the advancement within that technology is
still quite beginning as research on it only began a few years past.

8
 4. Artificial intelligence in international accounting
How is AI currently employed in the industry?

4.1. Current use of AI in accounting

Artificial Intelligence provides some beneficial tools for accounting in today’s business. Well -
known publisher of accounting software is Intuit, Sage or Xero. Unfortunately, we do not have
access to their programs and their use of AI, but we can derive data from secondary sources on
how AI is currently used.

First, creating forecasts. Either for monthly, quarterly, or yearly reporting, AI can forecast
expenses and income derived from past data and trends (Rana, 2018). Highly developed
programs even take into consideration overall economic data. Here an important fact is that
past data does not guarantee future events. Therefore, a machine cannot be getting
unconditional trust.

Additionally, it helps manage accounts payables and receivables by forecasting a payment

timeline that can be expected automatically. Thirdly, it helps the company’s procurement.
Different programs from department in different data formats can be transformed into a
unified system for easier internal and external use.

Fourthly, it is a helpful tool to enforce the companies’ policies. By scanning every transaction
for travel expenses, business meetings etc., expenses not aligned with the compliance polies
can be detected (Vordenbaeumen, 2019).

4.2. Applications of AI in accounting

4.2.1. Excel and Artificial Intelligence
While we talk about AI, big data, and technological developments, we consider big international
corporations, but AI also affects the individual. We all must do accounting and create
documents for our own finance if we do not have assistants like a tax office etc.
The best-integrated accounting system for individuals and family-run business is Microsoft
Excel. It might not look like a technologically advanced system, but it has several functions using
AI. Of course, the program offers endless common tools for finance ranging from its basic table
design to extraordinarily complex programming in its build-in programming tool Visual Basic.
Still, here we would like to focus only on its tools linked to Artificial Intelligence and Machine
Learning.
The first and most used one for finance is “Excel Insights”, a data analysis program based on
machine learning. When you set up a table containing your expenses or investments etc., you
can quickly transform your data into a suitable chart. Since Excel 2018, the program

9
recommends the best fitting option(s) (Jelen, 2018). This useful tool is continuously improving,
as Excel recognizes the pattern you use for selecting charts related to your data.
Secondly, we have a build-in data recognition function called “Optical Character Recognition,”
or OCR. This tool is fascinating for the connection between offline and online accounting. If you
have a document containing data, printed or written in clear handwriting, OCR enables you to
photograph the document and import the data into an excel file, where you can continue to
edit your work.
Thirdly, we can teach Excel some intelligence. When we work with huge datasets containing
thousands or millions of entries from different departments and accounts, excel can detect
errors and anomalies in our spreadsheets based on our rules. Imagine you have a output range,
that by nature can only contain positive numbers in a certain range. You can program a function
that detects outputs are not complying with your rules. That way, you can create your double-
checking system to detect errors in your calculations or your inputs.

4.2.2. Robotic Process Automation

Robotic Process Automation (RPA) refers to using software and tools to configure virtual robots
(Robotic Process Automation in accounting, 2019). A system is programmed to operate
according to specified rules according to specified commands or inputs in its basic form. These
systems are used by big or medium-sized corporations or small companies that rely on
digitalization or that have access to program developers.

One of the most important concepts for accounting, finance and controlling, is the connecti on
between different units, internal or external. These three activities heavily rely on the
accurateness and up to datedness of data.

To ensure this, RPAs can be programmed to automate transactional services, create a double-
checking system, and to compare data from various sources to find errors, anomalies, or just
proof for the right transaction (AI Multiple, 2020). One significant difference to standard
business software is that RPA is a system or Automation on top of the existing program, rather
than a primary function. There are two forms RPAs can operate. Either they are offered directly
for the main software sold by Salesforce, SAP, Oracle, PWC, etc., or a third party like UiPath RPA
creates them, Automation Anywhere - RPA (Best Robotic Process Automation (RPA) Software,
N.D.). Professional RPA software has the permission of, for example, SAP to enter the software,
whereas other solutions to not use the

To explain this abstract topic, we will give several examples of what is possible, how RPA is
currently deployed, and why they can increase effectiveness and efficiency (Robotic Process
Automation in accounting, 2019).

10
Enhance customer experience

A particularly important effect RPA has, is the indirect influence on the

customer experience. Whenever processes, systems and human
interactions become smoother and have fewer manual errors, the
customer experience is enhanced, which leads to better reputation and
potentially more sales.

Enhance quality and compliance

RPA can be used to support the compliance department. In accordance

with the Anti-Financial-Crime Act, transactions can be scanned and
recorded, to prevent from money laundering, support of terrorism or
fraud. Additionally, by having a digitalized system, fewer people have
access to sensitive data (Deloitte, 2020).

Robots do not sleep

One of the most common advantages of robots is, that they operate non-
stop. Tasks can be performed whenever needed if human work can be
digitalized. One simple example would be an automated email system,
that handles client’s requests. Certain filters can be applied on incoming
mails, that would direct requests to the right department or employee.

Scalability

RPAs, once they are programed and set up, can be used for many
activities. The first step is to create an RPA, internal or external via a
professional. Once the first automation exists, similar steps can be added
to the system at a low cost and work.

Cost saving

The most significant reason to implement RPAs and enhance digitalization

is the cost saving effect. We have talked to a befriended student, who has
a startup focusing on automation processes for private companies, for
manual data entries in accounting. According to him, the first automation
processes can reduce the time to enter data by up to 80% (Leonard
Nowack, 2020).

11
Figure 4 presents the RPA market from 2016 to 2021. While we had a staggering growth of 30 to 60%
YoY growth, we expect slower growth in the coming years. However, it shows the growing demand for
RPA software and even more significant for RPA services.

Contrary to the positive effects on a firm’s budget and efficiency, we could expect to lose many jobs to
RPA and digitalization overall (CiGen, 2020).

“According to a report by the McKinsey Global Institute two thirds of all jobs could have a major chunk
(at least 30%) of their activities automated by 2030. It is expected to replace up to 140 million full-time
employees worldwide by 2025, however many high-quality jobs will be created for those who maintain
and improve RPA software. “ (Marathe, 2019)

While this is a threat to many employees and job seekers, digitalization can also create new jobs and
high skilled jobs in the IT. Another interesting fact is that RPAs are expected to generate a return on
investment of 30 to 200% in the first year, followed by an average cost saving of around 20-25% (RPA,
2018). Taking this fact, and the previous one about potential job losses, we end up with the question

Suppose an innovative technology is threatening jobs, but saving capital that could be used to expand
and develop the business, which is creating new jobs. Is it then a promising investment?

We do not try to answer this question but believe it is a central argument in our current environment.

Figure 4 Global RPA Market (Robotic Process Automation in accounting, 2019)

12
4.3. Issues in AI – reliability, job loss, disruption in business & dangers of AI
What Issues could AI mean for the accounting industry?
Most research regarding AI agrees that the added value to accounting is indisputable. However,
AI also brings some issues and downsides to the world of accounting. This chapter will dig in on
the issues in AI regarding accounting.
The most impactful issue that AI creates in the field of accounting is the loss of jobs. Many
accounting firms are looking for technicians instead of accountants these days to automate as
many aspects as possible in accounting (Lin & Hazelbaker, 2019).
AI is taking over some of the more standard jobs of accountants, like bookkeeping. The most
time consuming and standard routine jobs can easily be taken over by AI accounting systems,
which work faster, more accurately, and cheaper than humans (Stancheva, Eleonora, 2018).
This will benefit the organization, but the job of “bookkeeper” will most likely disappear. Even
though AI creates new job opportunities, the accountant whose job is now replaced by AI, is
unemployed and has no expertise that contributes to the organization anymore.
Accountants need to learn new skills to keep adding value to the business. Technical expertise
and understanding the importance of internal control procedures are the main points of
attention for the new generation of accountants. AI can analyze data and predict economic
aspects, but the data that AI receives should be very accurate and thoroughly checked. Since AI
learns from itself and past data trends, the impact of inaccurate data carries on for a longer
period, and AI will draw false conclusions from this data (Shimamoto, 2018).
Another issue that arises from the integration of AI in accounting is algorithms to make
decisions. Decision-makers experience problems when it comes to comprehending the
information that AI passes on to them. Understanding accountants and their way of reasoning
is easier than understanding the AI process. When AI receives data and comes with predictions
or suggestions, managers find it hard to fully trust this information because they cannot follow
the thought process. Complex models could result in more accurate predictions but are harder
to grasp.
Since accountants might see AI as a thread and will be working the most with AI, it is hard to
say whether AI works as expected and can be trusted. (Jensen et al., 2010). The reliability of AI
predictions can, therefore, be difficult to establish.
Quite some people say they fear the results of fully developed Artificial Intelligence. Stephen
Hawking stated that “The development of full AI could spell the end of the human race”,
because humans are biological and grow slowly, and would not compete with technological
intelligence. Elon Musk, the founder of Tesla and Space X, has said that AI is a threat to
humankind’s existence, and humans have already lost a lot of jobs to machines. (Stancheva,
Eleonora, 2018).
13
According to Rob Enderle, a Silicon Valley analyst, AI will replace all humans’ jobs, “resulting in
global economic catastrophe, revolutionary war, famine and the like” (Kontzer 2015).
Next to these negative outlooks on AI and its impact on the world economy, many people see
mostly benefits from AI taking over so many aspects of, among others, the accounting
profession. Overall quality goes up, and fewer people are needed. On the one hand, this could
result in people enjoying more leisure time, but on the other hand, it could increase the world’s
inequality and decrease human motivation to work.
Accountability is another issue that occurs when AI is being used in accounting. When AI makes
a mistake or gives a very positive forecast, reality shows that the forecast was wrong; there is
no one to blame. The accountant only entered the data; the AI came with estimations and
predictions, so who should be addressed for this mistake? As mentioned earlier in this report,
AI learns from past data sets and patterns but has no real way of predicting the future, such as
when a global pandemic interrupts every single economic aspect worldwide. There is no way
that humans or AI could have predicted this, and if AI solely focusses on past data, the
predictions would have been completely off with such an event occurring. Next to that, after
such an event, when AI picks up data during that situation, they will use this data to predict
further economic statistics. This would also be wrong since the way the world behaves during a
pandemic is different than without a pandemic. If AI would use data gathered during such an
event for estimations in times where this event is no longer playing a role, this could result in
false predictions. The human aspect still is very relevant when it comes to considering the
whole picture.
The other perspective mentioned by many people is that AI is an improvement to the
accounting industry. The accurate and unbiased work of AI helps to prevent and to detect fraud
within companies. Where humans can be tempted with money or power, machines will
perform the task without any other goal in mind than to do exactly what is asked of them
(Stancheve, Eleonora, 2018).
Revenue forecasting is another aspect where AI can be helpful, as the accuracy of revenue
forecasting is critical for budgeting within companies. The use of machines and algorithms is
proven to increase the quality of the forecast data. The data that would be provided to these AI
systems should be very carefully checked by accountants because a little error in this data
would result in inherent biases and poor forecasts by the AI systems (Shimamoto, 2018)

14
 5. AI linked to IFRS/ the book theory
We have learned about the world's different accounting systems during this course. We
compared IFRS and GAAP, learned about financial reporting in emerging capital markets, and
reporting in the Public Republic of China. In order to integrate the different systems, the
universal accounting system: IFRS, was developed to converge and harmonize the different
financial statements.
IFRS is a principal-based standard (used in over 120 countries) that allows financial managers
higher flexibility with conducting their financial statements than, for example, the GAAP. The
most influential factors are the open structure, the re-evaluation opportunities (booking of
impairments) for assets and the decisions between notes and certain individual statements.
Overall, IFRS creates consistency for companies; since we handled this subject during our
previous presentation, we wanted to see if or to what extent AI can benefit the goal of
converging and harmonizing the different financial statements.
Three months ago, October 2020. The UK-based accounting consultancy 3Blocks has launched
the first IFRS 17 software that uses machine learning to enhance financial reporting data
validations. The software is designed for small and medium-sized non-life insurance companies,
which do not have the resources to implement competitors' expensive alternatives. Over the
past few years, the company has been working on IFRS 17 projects for insurance companies and
other IT firms. It developed an algorithm that can learn what patterns are exhibited by claims,
expenses, premiums, and other reporting data. Then, users can check if the actual amounts fit
the way. Significant variances may indicate data issues that require fixing. (3Blocks, 2020)
“Furthermore, this software supports three different accounting rules sets, so whatever accounting rules
are used by a company, on these sets should fit in.“

This last sentence is important since this proves that AI can be used to insert data from
different accounting types, while it can check/validate the different data, and results in one
form of output. Currently, this technique is used to validate the completeness of data or to
check for errors. We believe that parts of this software can be used to assemble in
collaboration with Machine learning. This software can help companies worldwide, using
different accounting systems, to apply IFRS to their business model.
Moreover, KPMG announced a new AI-based contract abstraction tool in 2018; Compatible
with the IFRS 16 since it meets the IFRS 16 lease accounting standard (effective 1 January 2019).
For companies with a wide range of leasing agreements, this can be a hefty task. (KPMG, 2018)
"We've effectively trained the solution to read and understand contracts just like an attorney
would," explained Markus Kreher, Global Head of Accounting Advisory Services and Head of
Finance Advisory, KPMG in Germany. "It can work its way through any unstructured documents
15
- and identify trends, patterns, anomalies, and relationships. A job that would normally take
several hours per contract can now be completed in as little as 10 minutes or even less, with far
greater accuracy." (KPMG, 2018).
Machine learning can be trained to handle an amazing variety of tasks if you give it a wide
enough variety of examples to draw from. Data scientists are not exactly sure how this
happens. The math is so complicated, it's challenging to re-engineer it to see how the system
learns, making diagnosing problems difficult. AI can do amazing things, but it's not so good at
the many things humans do naturally. We make a lot of decisions based on context.
Professional controller services understand the rules and regulations their clients must adhere
to, and they're able to present options and recommendations in a manner the client can
understand. (Icconference, 2020)
Taking everything into consideration, can AI benefit the goal of converging and harmonizing the
different financial statements? The future looks bright regarding AI, also, regarding IFRS, some
minor tools already exist today. Adding artificial intelligence to accounting operations can
improve output quality and decision making (eg. Save time reading documents). It can also
allow accountants to focus on performing high-value, high-impact tasks. However, businesses
need to effectively manage the risks of implementation and drive behavioral changes that build
a digital workforce to benefit from such technologies truly.
With all that said, accountants more than likely do not have to worry about artificial intelligence
replacing their jobs for a long time. Professional accountants do much more than keeping track
of receipts and provide basic reports. They act as consultants who advise tax planning, discuss
operations, review client goals, and more. The rapid pace of change in client industries and the
expansion of complicated regulations means that human controller services will be necessary to
ensure that compliance requirements are met and financial controls are sound. (EY, 2020)
Present-day machine learning can support and sometimes even replacing tasks of accountants.
As mentioned on the previous page, the KPMG abstraction tool can save us hours each day.
This provides us with the opportunity to spend more time on more complex tasks. As for AI's
potential to benefit the implementation of IFRS, currently, the software can support
Accountants with minor tasks; document reading, bookkeeping, etc. In the future, this software
will grow and advance more and more, but to find out exactly how much AI can benefit the goal
of converging and harmonizing the world's accounting systems, we are going to have to wait
and see.

16
 6. AI in Investment
Artificial intelligence based on machine learning systems can solve large-scale problems in stock
market trading. These problems are mostly located in performance analysis, optimization, or
forecasting. The concept is typically based on AI using different learning methods and neural
networks to analyze specific factors that lead to a stock's pricing. Through its nearly unlimited
working and learning capability and the resulting tremendous potential of such software, most
of the major investment banks already run high investments into developing an in-house AI to
support the back office trading division.
Furthermore, the market research firm Prequin stated in 2019 that „an estimated 1,360 hedge
funds are using computer models to make most of their trades. “ (Wu, 2019). During our
interview, Mr. Kuskusi also mentioned that he thinks “[...] in 20-50 years all traders will be
replaced by algorithms.” (Kuskusi, 2020) Within the past few years, artificial intelligence
seemed to accelerate in taking over the investment landscape. For these reasons, it seems
essential to also investigate AI and its efficiency within trading. The following shall elaborate on
the question if an AI can outperform human expertise within the financial markets.

6.1.1. Existing applications

Through its wide application potential, Artificial Intelligence has already diversified into every
part of the investment field. For that reason, several companies focused on providing differing
AI software tools that are specified in every direction.

6.1.2. Kavout
Kavout is a company based in Seattle, United States, that focuses on using AI, based on
machine learning, for data analysis to provide stock investment recommendations. The product
called "K-score" consists of an AI that runs through a massive amount of various data given on
the companies Kai intelligence platform to produce predictive models for stock rankings. The
learning and progress concept of AI is predominantly based on pattern recognition and a
forecasting engine.
Built on this tool, investors can make more valuable decisions for stock purchases.

6.1.3. Greenky Technology

Another device mostly constructed on a rule-based AI system was developed by the company
Greenky Technologies. This software is supposed to help traders to find and excess information
more swiftly. The concept is quite like AI ́s like Google home assistant or Alexa. The program
mostly comprehends with natural language processing technology and voice recognition to look
up information in conversations, notes, and financial data. The trader only must request a piece

17
of certain information via voice recognition while the AI searches through data pools to provide
it.
6.1.4. EquBot
Another very advanced example is EquBot, which was initially developed at Haas School of
Business at UC Berkely. This software conducts quantitative investment market analysis based
on machine learning. Through that concept, the AI can learn about correlating factors and
dynamics within the stock market and by that, figure out potential high return and low-risk
investments. Based on that data, EquBot acts as an ETF with trackable market performance
accessible to regular investors.

6.2. Evaluation of trading results from artificial intelligence

Can an AI outperform the market and experienced hedge fund managers?
In the following, two of the most modern and best-known AI ETFs are put into comparison with
two other highly representative ETFs.
One of them is the S&P 500 SPY ETF, which is a passively managed index fund and functions as a
general market performance benchmark. The other index for comparison is the Avantis U.S.
Equity ETF (AVUS), which is actively managed by real hedge fund managers of Avantis and is
considered representative due to its popularity, high investment diversification, and good and
consistent financial performance over the past. The AI managed ETFs for comparison are the
previously bespoken EquBot and the MIND ETF, one of the first entirely AI managed ETFs
conducted by Stephen Hawking's company, Horizon.

Figure 5 AI Fund Comparison (Yahoo Finance, 2020)

Setting the AI-managed ETFs into direct comparison with JPST, it becomes clear that although
they are two of the most significant funds of their kind, their entire trading volume in terms of
net assets and av. Day trading volume is no match to a regular "premium" ETF yet. In Regards of
YTD, there are significant differences among all the ETFs in comparison. The EquBots YTD is
significantly higher, with about 19.25% more return than Horizons MIND ETF. This staggering
difference in performance indicates that the advanced level within AI might still be highly
diversified or unequal in between competing corporations.
Nevertheless, it was possible for the artificial intelligence behind AIEQ ETF to outperform the
human expertise behind JPST significantly. Already in 2019, a newspaper article from CNBC
18
published that "[...]the product from EquBot: The AI-Powered Equity ETF, ticker AIEQ, up 19%
year to date versus the S&P 500′s 17% gain" (Gurdus, 2019) could even "outguess "the market.
This year, EquBot managed to outperform the S&P SPY ETF in terms of YTD, with its 19.54% YTD
(Yahoo finance, 2020) against SPY YTD 17,77% (YTD Return, 2020) even while facing the issues
of a crisis dynamic entirely unknown for the artificial intelligence. Another interesting aspect
seems to be the above management expenses for the AI-controlled funds. As both funds have
higher fees than the human-managed JPSY, this might indicate that the entire process of
mirroring and running the AI software is still more expansive than employing a group of human
fund managers. It is assumable that an AI's ability to outperform human labor regarding
investment return is mostly based on the technological level of individual software.
Nevertheless, considering the average, following Figure X p. ... the overall return performance
of artificial intelligence-based trading became superior to the "real hedge fund" average since
2018.

Figure 6 AI Hedge Fund Comparison (Friedman, 2019)

Another AI-based application to examine is the previously discussed K score by the company
Kavout. The score is an AI-generated investment recommendation reaching on a scale from 1-9.
In the following Figure X so-called “Top Pick Portfolios“is the sum of all portfolios conducted by
only investing into K score top investment recommendations. Comparing these portfolios to the
market average of the S&P 500 it becomes clear that K Score-based portfolios are notably
“outguessing“ the market.

19
Figure 7 Portfolio Picking based on K-Score (Kavout, 2019)

In regards of our interview with Mr. Kuskusi we also wanted to know if he would rather
consider investing in an AI managed fund or a fund managed by a team of experienced
investment managers. He stated "Investing is a risk game anyways. Since I am fascinated by the
subject and I trust the current technology level I would rather invest into the AI fund." (Kuskusi,
2020)

6.3. Potential and risks for the investment industry

6.3.1. Potential:
High evaluation capacity:
The biggest potential of AI software analyzing the stock market is its capability to gather and
analyze massive amounts of data about a company in just split seconds with an extremely high
level of accuracy. While general hedge fund managers usually just overlook a certain set of
ratios and try to get some inside information about the industry, an AI will be able to overlook
significantly more information about a single company. This analyzing capability is not only
limited to scanning financial statements of companies and all their competitors at once, but it
also literally has infinite potential depending on the amount of data the AI will be granted
access to. This could mean that an AI will monitor the cameras in front of all Walmart retail
stores, making it possible to estimate the corporation's daily profit based on the number of cars
in the parking lots. The AI trading stocks would know an estimate of Walmart's annual revenue,
maybe even before the actual corporation. Simultaneously the software could do the same for
all competitors while scanning the news for industry-related announcements and performing
various calculations about potential market performance. Not even an entire team of
experienced human fund managers could gather and understand that amount of data in such a
short time, which makes AI convenient as time plays an important role within stock trading.

20
Rational decision making:
Already since the beginning of the 20th-century economists like Irving Fisher or John Kenneth
Galbraith in his book „the great crash" suggested that emotions and character traits have a
notable influence on investment decisions and can even lead to entire market crashes. Most
important seemed to be character traits like risk aversion and aggressiveness or emotions like
fear, regret, or greed. Another clinical study from the MIT suggested “[...] that typical emotional
responses may be too crude an evolutionary adaptation for purposes of “financial fitness,” and
as a result, one component of successful trading may be a reduced level of emotional
reactivity.“ (ANDREW W. LO, 2015) Since a computer software concludes its decisions entirely
based on rational reasoning, the application of an AI software would exclude the risk of
emotion influenced trading.
Potentially lower cost:
Although, as shown in our evaluation of AI-controlled funds, the cost ratio for artificial
intelligence is still higher than a fund managed by human labor. It is assumable that the cost will
fall in the future. In our interview with Mohammed Kuskusi, he stated that "The higher cost
ratio is most likely from trying to regain the development costs. Once that is achieved the
software could be run by just a small team of software engineers. That would allow companies
or banks to save great amounts of wage expenses in the long run."
Judging from his opinion, an artificial intelligence would save a lot of expenses for investment
banks while also potentially making brokerage fees and ETF management fees cheaper for
investors. Leading to higher returns.
6.3.2. Risks
Lack of accountability:
Currently, the algorithm "Black Box" of artificial intelligence is not very transparent due to its
high number of processed variables. If a mistake occurs, it often can't be tracked as to why it
happened. This becomes very problematic once an AI is trading with large sums over billions of
dollars as there is no clear accountability for who to blame if the software loses the money or
behaves unethically. Since a robot or software can't be sentenced to jail, is it the bank, the
developer, the software inspector, or the company selling the program which is responsible for
the AI ́s decisions? The laws and regulations on that topic a currently not certain.

Market Concentration:
AI-based programs heavily rely on third parties providing data accessibility. This could lead to
pocket market concentration with high specialization and low competition. If one of these
specialized data providers might experience vulnerability or complications in data gathering,
this could lead to an escalating effect that might cause interference within the market. Also, the

21
potential danger of creating a "whoever owns or controls the data will be the market winner"
mentality.

Historical Risk:
Historically the data we could retrieve about catastrophic situations impacting the financial
market is limited. It is currently impossible to feed the AI with sufficient data to be able to fully
understand the dynamics of an individual and potentially new crisis. From this position, it is not
possible to judge how an artificial intelligence would react to sudden highly increased volatility
within the markets. Also, the external cause for this volatility might be of different nature like a
bubble burst, a global health crisis, war, famine, etc., which means that they could end in
various for the AI unpredictable outcomes of the individual share prices. Nevertheless, our
evaluation of AI managed ETFs performance indicated that EuqBots AI managed to outperform
the market even during the COVID-19 health pandemic. With the increasing level of technology,
AI ́s might actually become more efficient in handling a crisis situation than human-based
reasoning.

7. Elaboration on the research question:

To which extend should AI replace human expertise within the field of finance and
accounting?

The rise of artificial intelligence seems almost inevitable. It will certainly have a massive
influence on daily life as we know for all humankind. No matter if it is the management of the
entire traffic with self-driving cars, the trading on the stock markets, or brain surgery. As it
works more efficient, rational, and will become quite cheaper than employing human labor,
large parts of the job market are going to reshape or shift. Specifically, in business where
competitiveness plays a major role to survive for a company or bank. Paul Daugherty Chief
Technology and Innovation Officer at Accenture stated "The playing field is poised to become a
lot more competitive, and businesses that don’t deploy AI and data to help them innovate in
everything they do will be at a disadvantage.” (Daugherty, 2019). It seems frightening and
dangerous to create something so superior to the human mind that it has the power to replace
or outperform us in so many manners. As mentioned earlier in this report, a lot of people like
Stephen Hawking or Elon Musk question if we should give Artificial Intelligence the chance to
replace human expertise.

22
Regarding accounting, we conclude that AI is a valuable asset when it comes to taking over
repetitive tasks. To which extent AI should take over human expertise is hard to say and differs
on every person’s individual perspective. After conducting our research, we can state that AI
should take over the jobs in which it performs better than humans, and where the added
benefit of using AI outweighs the negative impacts like job loss and lack of accountability. In
general, also just with humans, whoever does the job best should be the one to do it, so at the
point that AI does it better than humans, they should be the one to perform the job. A nuance
here would be that “better” should be both in numbers and communication. As discussed in the
issues with AI regarding accounting, the decision takers don’t fully comprehend AI, so even
though AI creates more accurate predictions, humans are still better at the job because they
know how to transfer and communicate knowledge better in an understandable manner.

With regard to trading, it seems like the benefits might overcome the contraries. Cultivating
trading entirely on AI software might have interesting impacts on the market. For once if the
market would be entirely traded by AI ́s it is highly likely that it might be close to full equilibrium
all the time. The efficient market hypothesis would apply, as all information would truly be
reflected within the value movements while emotions could be left out of the decision process.
Furthermore, the return for investors would increase as cost expenses and management fees
could be reduced to a minimum. Additionally, if a stage would be approached were all artificial
intelligences trading the market had access to the same information, insider trading and illegal
activity could be reduced as it is traceable which data the decisions of the AI were based on.
Nevertheless, if AI would replace human expertise in trading, clear laws should be enforced to
clarify accountability and transparency for the trading decisions. One way to assure
transparency is to implement external parties, like the functionality of the IFRS for taxation, to
mirror the decision black box of all the AI software. This would also assure higher fairness
within the market and potentially less insider trading than today. Another important reason for
external committees to overview the trading AI ́s is the power of these software's on the
market. An objective surveillance system could enforce transparency otherwise, a situation
could occur in which whoever controls the AI, also controls the market. Furthermore, the
distribution of data and access capability of the AI should be limited and potentially equal to all
market participating AI software. Overall, since 2018, AI began to outguess the market and
experienced hedge fund managers and as one knows from the learning process of artificial
intelligence it is likely that this trend will continue and even increase in the future.
Nevertheless, it is expectable that an AI trading the entire market will be treated with
skepticism. Mr. Kuskusi for instance stated "[...] AI ́s will become superior to human traders. But
I also assume that there are going to be a lot of rules in the future against it. If an artificial
intelligence controls the entire economy, that can be very disturbing to humans as they depend
on something they can't relate to."(Kuskusi, 2020)

23
Therefore, it might be convenient to employ an AI as a trader, but it will most likely find its
limitations in the future legislation.

8. Conclusion

Artificial Intelligence's importance and usage in accounting is constantly increasing, while we

might not notice its exitance. Our research showed that it has enormous potential to increase
effectiveness, reduce costs, and human error in different departments. This technology finds
users from multinational corporations to private individuals. A fantastic opportunity is AI's
forecast ability, that helps to structure a company's financials over time. However, we must
keep in mind a forecast is never a guarantee, not for accounting nor in trading.
Furthermore, AI can help to harmonize global accounting. We have researched that programs
have been developed that can combine different accounting systems into a unified document,
making it accessible for users worldwide.
While its positive effects can be beneficial, we still must consider its downturns. As advanced as
the AI might be, it cannot compensate for its programmers' mistakes or the use of wrong data
inputs. Additionally, its job market disruption must be considered. Many of accounting's
repetitive tasks can be automated today, leaving employees with new challenges in competing
on the job market. Accountants ready to learn new skills and integrate AI into their business can
unlock great synergies. Employees reluctant to change might be outpaced by others in terms of
efficiency and accuracy. Further, the question of accountability needs to be addressed. Who is
responsible for an error occurring in such a system? Who has access to its data? How can it be
used illegally?
Within the field of investment, the potential of artificial intelligence seems shier limitless. Some
of the software'ssoftware like EquBot even already manage to achieve better results than
experienced fund managers. Due to high competitiveness within the industry, it is likely that
deep learning software will take over large parts of trading activities at some point in the
future. As an actual long-term outcome of trading AIs might be a market close to equilibrium, it
seems valuable to support this development. Also, considering the reduction of emotional
trading and the ability to reflect and analyze all the necessary and correlating data AI appears to
be a devise worth of funding and encouragement.
By employing several specified regulations on AI it might even be possible to increase
transparency within the market and assure accountability. This step is considered as necessary
if development moves further.

24
 Creating a series of intelligence still might seem like the devil in disguise for many, and the
conversation will likely remain controversial. Anyhow, "...Humans also created cars that can go
faster than any other being but we use them for our purpose. The AI will be another tool to get
faster from point A to B but for reasoning. "(Kuskusi, 2020)
It is always exciting and unsure what the future will bring us, but one thing is for sure. Artificial
intelligence will have a massive influence not only on the financial and accounting industry but
on almost everybody in the world.

25
 9. Appendix
9.1. Reference list
AI Multiple. (2020). Retrieved 2020 December , from 15 RPA Benefits Compiled from Top
Sources: https://research.aimultiple.com/top-robotic-process-automation-rpa-benefits/
ANDREW W. LO, D. V. (2015). Fear and Greed in Financial Markets:. Retrieved from Google
Scholar: https://web.mit.edu/~alo/www/Papers/AERPub.pdf
Best Robotic Process Automation (RPA) Software. (N.D.). Retrieved December 2020, from G2:
https://www.g2.com/categories/robotic-process-automation-rpa
Bussler, F. (2014, June 29). A History Of Artificial Intelligence — From the Beginning. Retrieved
from towards data science: https://towardsdatascience.com/a-history-of-artificial-
intelligence-from-the-beginning-10be5b99c5f4

CiGen. (2020). Retrieved December 2020, from 8 Real World Use Cases for Robotic Process
Automation in Finance: https://www.cigen.com.au/cigenblog/8-real-world-use-cases-
robotic-process-automation-finance
COBUILD Advanced. (2020). Definition von artificial intelligence. Retrieved from Collins
Dictionary: https://www.collinsdictionary.com/de/worterbuch/englisch/artificial -
intelligence
Deloitte. (2020). Retrieved December 2020, from Robotic Process Automation (RPA) im
Compliance-Bereich:
https://www2.deloitte.com/content/dam/Deloitte/de/Documents/financial-
services/Robotic_Process.pdf

Desk, A. (2020, October 08). Introducing IFRS 17 Software With Machine Learning. Retrieved
December 18, 2020, from https://aithority.com/it-and-devops/introducing-ifrs-17-
software-with-machine-learning/

Friedman, B. (2019, August 30). The Rise of the Machines: AI Funds Are Outperforming the
Hedge Fund Benchmark. Retrieved from Preqin:
https://www.preqin.com/insights/research/blogs/the-rise-of-the-machines-ai-funds-are-
outperforming-the-hedge-fund-benchmark
Gurdus, L. (2019, August 08). This ETF run by a robot is beating the market -here´s how it works.
Retrieved from CNBC: https://www.cnbc.com/2019/08/02/this-etf-run-by-a-robot-is-
beating-the-marketheres-how-it-works.html
Jelen, B. (2018). SFMagazin. Retrieved December 2020, from EXCEL: ARTIFICIAL INTELLIGENCE
COMES TO EXCEL: https://sfmagazine.com/post-entry/march-2018-excel-artificial-
intelligence-comes-to-excel/

26
Kavout. (2019). Kavout to be Featured by Eagle Alpha in New York City. Retrieved from Kavout:
https://www.kavout.com/eagle_alpha_nyc/

Kuskusi, M. (21. December 2020). (S. Gorlach, Interviewer)

Marr, B. (2018, February 14). The Key Definitions Of Artificial Intelligence (AI) That Explain Its
Importance. Retrieved from Forbes:
https://www.forbes.com/sites/bernardmarr/2018/02/14/the-key-definitions-of-
artificial-intelligence-ai-that-explain-its-importance/?sh=2fd538524f5d

Lin, P., & Hazelbaker, T. (2019). Meeting the Challenge of Artificial Intelligence - The CPA
Journal. Retrieved 7 January 2021, from https://www.cpajournal.com/2019/07/03/meeting-
the-challenge-of-artificial-intelligence/
Marathe, A. (2019). The Myths and Myths about RPA-related job losses. Retrieved December
2020, from Linkedin: https://www.linkedin.com/pulse/myths-rpa-related-job-losses-
ameya-marathe/
M.L. Jensen, P.B. Lowry, J.K. Burgoon, J.F. Nunamaker (2010). Technology dominance in complex
decision making: The case of aided credibility assessment, Journal of Management Information
Systems, 27 (2010), pp. 175-202
Robotic Process Automation in accounting. (2019). Retrieved December 2020, from PWC:
https://www.pwc.de/en/rechnungslegung/robotic-process-automation-in-
accounting.html
RPA, C. (2018). CiGen RPA. Retrieved December 2020, from 8 Real World Use Cases for Robotic
Process Automation in Finance: https://cigen-rpa.medium.com/8-real-world-use-cases-
for-robotic-process-automation-in-finance-a80e4dc36701
Rana, R. (2018). Ace Cloud Hosting. Retrieved December 2020, from How Artificial Intelligence
Will Impact the Accounting Industry?: https://www.acecloudhosting.com/blog/artificial-
intelligence-impact-accounting/

Samuel, J. (2018, March 21). KPMG applying IBM AI to help businesses meet IFRS 16. Retrieved
December 14, 2020, from https://home.kpmg/xx/en/home/media/press-
releases/2018/03/kpmg-applying-ibm-ai-to-help-businesses-meet-ifrs-16.html

Shimamoto, DC 2018, ‘Why Accountants Must Embrace Machine Learning’, viewed 25 April
2018, https://www.ifac.org/global-knowledge-gateway/technology/discussion/why-
accountants-must-embrace-machine-learning
Swaine-Simon, S. (2018, March 08). The History of AI in Finance. Retrieved from District:
https://medium.com/district3/the-history-of-ai-in-finance-7a03fcb4a498

27
Stancheva, Eleonora. (2018). HOW ARTIFICIAL INTELLIGENCE IS CHALLENGING ACCOUNTING
PROFESSION. 12. 126-141.
Vordenbaeumen, H. (2019). Accounting Today. Retrieved December 2020, from 3 ways
accountants can implement AI today: https://www.accountingtoday.com/opinion/3-
ways-accountants-can-implement-ai-today

Wong, R. (2020, May 08). How to harness artificial intelligence in accounting. Retrieved January
3, 2021, from https://www.ey.com/en_sg/ai/how-to-harness-artificial-intelligence-in-
accounting

Yahoo finance. (2020). AI Powered Equity ETF (AIEQ). Retrieved from Yahoo Finance:
https://finance.yahoo.com/quote/AIEQ/performance/
YTD Return. (2020). SPY. Retrieved from YDT Return: https://www.ytdreturn.com/spy/

28
9.2. Interview with Mohammad Kuskusi (21. Dec. 2020)

What is the biggest holdup of Machine learning AI:

"Machine learning AI is based on forecasting and probability. Since we don't know all the
factors and are limited in giving information, we can only predict in theory with an accuracy of
70% yet. And that is on paper not in practice. The second biggest problem is that we still don't
have enough computer power to perfectly analyze every single data point."
Since AI is most likely replacing a lot of jobs in the future do you think it will be compensated
by creating enough new ones?
"No, they won't ́. Of course, at first, a lot of software engineers are needed but at some point,
we will have developed AI ́s that will develop new AI ́s for us and even solve technical issues
with themselves. This will be necessary as we probably won't understand the software in itself
anymore as it has become entirely too complex. Personally, I think that business and specifically
trading will be strongly affected and that in 20-50 years all traders will be replaced by
algorithms."

Do you consider it dangerous to create an intelligence superior to the human mind?

„It depends on what we are planning to do with it. Humans also created cars that can go faster
than any other being but we use them for our purpose. The AI will just be another tool to get
faster from point A to B but then of course in reasoning."

What do you think will be the most influenced industries?

One of the most influenced industries is going to be the finance and investment industry. AI s
will by all means become superior to human traders. But I also assume that there are going to
be a lot of rules in the future against it. If an artificial intelligence controls the entire economy,
that can be very disturbing to humans as they depend on something they cant relate to."
Would you rather trust your money in an AI managed fund or a fund managed by human
expertise in the current situation?
"Investing is a risk game anyway. Since I am fascinated by the subject and I trust the current
technology level I would rather invest into the AI fund."

29
30