Artificial intelligence is poised to change the way that many of us work. Few roles will be more affected than that of the CFO.
Automation of data gathering, input and analysis, will make financial reporting virtually real time. Data previously siloed in far-flung engineering, business development and sales offices will be instantly available. CFOs will be charged with centralizing and making sense of all this real-time data; using it to enhance productivity and make better strategic decisions.
The CFO will be central to implementing and mentoring technological change that will fundamentally alter how people work, not just as individuals but, more importantly, as a team.
In short, the CFO is the catalysing agent that will facilitate the adoption of AI.
Regardless of how the role transforms, the CFO will still have one paramount responsibility; to be a firewall against financial fraud.
Who commits accounting fraud?
Some believe that automation will strengthen this role because software will quickly spot anomalies in the accounts that could indicate fraud. However, this response rather misses the fundamental question of who typically perpetrates financial account manipulation?
In virtually every discourse on account manipulation, there is no discussion about the likely perpetrators. Does account manipulation somehow occur in a vacuum? Should we blame the butler?
In the vast majority of cases, account manipulation is undertaken by management at the highest levels.
In the vast majority of cases, account manipulation is undertaken by management at the highest levels. This is the elephant in the room. If accounts are manipulated, the odds are that the CFO and/or the CEO might be involved.
And we are not talking about one-off events here. The best evidence we have is that, in an average year, 41% of companies are committing accounting violations, which are less severe than alleged securities fraud, while 10% of large public corporations commit alleged securities fraud.
CFOs and accounting manipulation
The suggestion here is that CFOs engage in account manipulation with roughly the same frequency that soccer players fake injury. It is practically part of the game. Everybody knows it, but accountants rarely point the finger.
By centralizing data, especially the analysis of data, technological change will vastly increase the power vested in the CFO.
By centralizing data, especially the analysis of data, technological change will vastly increase the power vested in the CFO. With decreased human engagement in the financial controlling process, there will be fewer and fewer whistle-blowers, suggesting that the scope for account manipulation will actually increase for tech-savvy butlers and CFOs.
Is it possible that the 41% of companies that manipulate their accounts each year will turn over a new leaf? Will the 10% engaged in alleged fraud simply own up to their sins and knock on the prison door? Or is it likely that they will leverage technology to engage in even more sophisticated account manipulation?
Since AI has already made it easy to identify the risk of account manipulation, it is highly likely that CFOs will come under increasing scrutiny from investors for their accounting practices as such technology becomes embedded in investment processes.
Measuring ESG
Moreover, at some point ESG index providers will finally realize that accounting quality is the single most important measure of governance. Once governance is measured correctly, many companies will be uninvestable to ESG funds, based on the accounting risk scores we observe on the Transparently.AI platform.
In such a world, how does a CFO with clean accounts signal accounting transparency? Surely the best way is simply to run the financial accounts through accounting manipulation detection software and proudly advertise the score.
At the very least, using such software would put the CFO in a position to anticipate difficult questions and explain anomalies raised by such a system. Quite possibly, the CFO might take simple measures to redress the anomaly before the accounts are published.
The question is not why CFOs would use accounting software to signal account transparency, but rather why they wouldn’t. Unless, of course, their companies are in the unfortunate 41% of account manipulators.
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