Both AI and automation will help your firm operate smarter and more efficiently, but in different ways. These terms might sound similar, and some people even use them interchangeably, but it is important to know the difference to harvest the right one for your business:
- Automation uses software that follows pre-programmed rules and steps.
- While artificial intelligence is capable of performing tasks in a more "smart" way, making their own decisions.
Which one should you use? Well, let’s get into it.
What Is Automation In Accounting?
Automation is a broad term that refers to any system or process that can operate without direct human intervention. Automation involves using computers, machines, or software to increase efficiency and reduce human effort, especially for repetitive tasks. It is fundamentally about following a set of predefined rules or instructions to perform these tasks, often at a much faster pace and with greater accuracy than a human could achieve.
From an industry perspective, automation is everywhere. In manufacturing, we see automation in the form of assembly lines and robotic arms that help assemble cars or other products. In the retail sector, automation might look like self-checkout lanes or inventory management systems.
In finance and accounting it's been applied to a multitude of processes such as data entry, invoice processing, bank reconciliations, and payroll processing, to name just a few. By automating these repetitive and time-consuming tasks, businesses have been drastically reducing manual errors, cutting operational costs, and offering their employees to participate in more strategic, and value-adding tasks.
The downfall? It lacks the capacity to learn from its actions or make decisions beyond its pre-programmed instructions. That's where AI comes into play, adding a layer of intelligence and learning ability to the mix.
So, automation it's fantastic for performing repetitive tasks like data entry, reconciliations, or generating regular financial reports, all tasks that the accounting and finance industry knows all too well. While automation can drastically reduce the time spent on these routine chores, it's only capable of doing precisely what it's programmed to do. That's where AI comes in.
What Is Artificial Intelligence In Accounting?
AI for accountants and finance professionals transcends the boundaries set by traditional automation. While you could argue that AI, at its core, is a type of automation, it is not just about following a predetermined set of rules. Instead, AI adds an extra layer of complexity through its ability to learn, reason, perceive, infer, communicate, and make decisions like a human (or based on human behavior).
A subset of AI, known as machine learning, allows systems to learn from data, adapt to new inputs, and perform human-like tasks. In accounting, these include applications such as intelligent financial analysis, fraud detection, or even predictive forecasting.
Using AI for accounting means your software can sift through data, pick up on patterns and trends, and even provide actionable insights. What sets AI apart from automation is its capacity to improve its performance and make more sophisticated decisions over time. It's like having a digital assistant that doesn't just follow orders but also grows smarter and more efficient with each task it performs.
Is AI a Part Of Automation?
Not necessary, but it could. The two can indeed work hand in hand as part of a larger system—think of AI as the brain that adds a level of intelligence to the brawny machinery. But they are not the same thing. Automation carries out tasks, while AI, particularly through machine learning, gives the system the ability to learn and improve from those tasks. It's the combination of both - the brute force of automation and the nuanced intelligence of AI - that can create a robust, future-ready finance operation.
Why Is AI Good for Accounting Automation?
When infused with AI, an automated process can learn from its past runs, adapt to changes, and provide results that aren't just faster, but also smarter and more accurate. This is sometimes referred to as intelligent automation, where AI's machine learning capabilities can be used to make automated processes more effective.
Imagine an AI-powered tool that can scan or 'read' incoming invoices, even if they come in various formats from different vendors. This technology, known as Optical Character Recognition (OCR), can identify and extract essential details like invoice number, date, vendor name, line item details, and amounts.
The 'intelligent' part comes when the AI tool doesn't just blindly enter the extracted data into the system. Instead, it cross-references the invoice details against existing purchase orders and delivery receipts in the system. If everything matches up, the invoice can be automatically marked for payment.
The real magic happens when things don't match up. Instead of kicking out an exception and waiting for a human to intervene, the AI uses machine learning algorithms to understand the discrepancy. For example, it might realize that a particular vendor often uses a slightly different product name on their invoices, but it's essentially the same item mentioned in the purchase order. Over time, the AI learns from these experiences and gets smarter, reducing the number of exceptions that need human intervention.
AI Tools For Accounting And Finance Firms
AI for accounting isn't just a lofty future goal; it's a practical tool being implemented by forward-thinking firms across the globe right now. For instance, AI can be used to analyze and understand a firm’s financial patterns, predict future trends, and even offer strategic advice.
Imagine having a tool that can analyze your client's financial history, pick up on subtle patterns, and predict future performance. It's like having a crystal ball, but backed by data and sophisticated algorithms rather than mystic power.
This is exactly what softwares like MindBridge Ai Auditor do: This platform uses AI to analyze financial data, identify anomalies that might suggest fraud, and provide insights for auditing. It can learn from user interaction and improve its analysis over time.
QuickBooks Online Advanced, the go-to accounting software in the industry, has been consistently adding AI-powered features to its lineup. Its Cash Flow Planner uses predictive modeling to help businesses forecast cash flow over the next 90 days.
Intelligent automation, powered by AI, can take care of repetitive tasks, leaving accountants free to focus on more complex tasks that require human ingenuity and expertise. It can extract data from multiple sources, process it, and present it in an understandable format, drastically reducing the time spent on data entry and validation.
AI and automation are not the same, but together they form a potent mix of efficiency and intelligence. While automation streamlines routine tasks, AI adds a layer of cognitive functions that can learn, improve, and make intelligent decisions. They are indeed two sides of the same coin, working in tandem to drive the future of accounting and finance.
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Kevin Mitchell, CPA
Senior Manager and CPA with over 20 years of experience in accounting and financial services, specializing in risk management and regulatory compliance. Skilled in managing audits and leading teams to deliver exceptional services. Proud father of two.
Reference:
Homann, M. (n.d.). What is the Difference Between AI and Automation? What Is the Difference Between AI and Automation? https://www.leapwork.com/blog/ai-and-automation-what-is-the-difference
Gaynor, M., & Avenue, T. (2020, January 29). Automation and AI sound similar, but may have vastly different impacts on the future of work. Brookings. https://www.brookings.edu/blog/the-avenue/2020/01/29/automation-and-artificial-intelligence-sound-similar-but-may-have-vastly-different-impacts-on-the-future-of-work/
