K. Treppides & Co Ltd
Artificial Intelligence (AI) in general and machine learning (ML) in particular, is not a new concept, but it is only in recent years that financial services firms have started to learn about and understand its full potential.
AI systems can be designed to learn to adapt behaviour by analysing how the environment is affected by previous actions. As a scientific discipline, AI includes several approaches and techniques, such as machine learning, machine reasoning, and robotics.
Now is a good time to start building greater knowledge and awareness in this area. The technology has moved beyondunrealistic fantasy to real business applications. At the same time, processes and approaches in the AI space have not yet been finalised.It is vital to ensure that any adoption of ML and associated technologies is valuable in the long-term without producing unacceptable side-effects for organisations and society.
EU and international regulators have also taken an active interest in AI, and while they recognise the benefits that AI can bring to financial markets, consumers, and their own work, they are increasingly mindful of the potential risks and unintended consequences that the use of AI by regulated firms may have.
AI raises profound questions across ethical, legal and regulatory domains, touching many fronts, from protecting national security and citizen rights to advancing commercial interests and international standing.
The European Commission has put forward a European approach to artificial intelligence and robotics and is well placed to establish a distinctive form of AI that is ethically robust and protects the rights of individuals, firms and society. It deals with technological, ethical, legal and socio-economic aspects to boost EU's research and industrial capacity and to put AI at the service of European citizens and economy. Base on this EU approach, Cyprus is developing a national strategy document for Artificial Intelligence for the country. The effort is organized by the Department of Electronic Communications, of the Ministry of Transport, Communications and Works.
Professional services firms have traditionally been at the forefront of the utilisation of new technology. Given that Accountancy firms traditionallyare compiling, organising, analysing and reporting on huge quantities of business and financial data, they are the leaders in the creation of new methodologies and technological tools for analysis.
To date, there has been limited use in real-world accounting, but early research and implementation projects include:
• using machine learning to code accounting entries and improve on the accuracy of rules-based approaches, enabling greater automation of processes;
• improving fraud detection through more sophisticated, machine learning models of ‘normal’ activities and better prediction of fraudulent activities;and
• using machine learning-based predictive models to forecast revenues;
In order to build a positive vision of the future, we need to develop a deep understanding of how AI can solveaccounting and business problems, the practical challenges and the skills accountants need to work alongside intelligent systems.
There is one key question:How do you achieve effective human supervision of AI? Can control velocity keep pace with risk velocity?
One of the major challenges for the audit process will be validation of outcomes or decisions made by an AI system. It is similar to the challenge faced by management of how to demonstrate to others that the AI’s outcomes are correct and appropriate.
Auditors have taken the lead for international standardization efforts because they are continuously confronted with the need to substantiate their opinion to management. Without a framework, this is an extremely difficult task.
The reality of AI is that you can automate transactions. The question is whether you can automate judgement. One of the things to bear in mind about AI is that it there is always an element of doubt. Even if you had perfect data, you would never get a perfect answer, but you can get good results. Therefore, a person’s judgement is needed.
Firms should adopt the principles of algorithmic accountability and auditability – these require firms to have organisational and technical processes in place to demonstrate, and for third parties to be able to check and review, that an algorithm is compliant with data protection requirements.
AI will increasingly become a core component of many firms’ strategies to deliver better customer service, improve operational efficiency and effectiveness and gain a competitive advantage.
K. Treppides & Co Ltd, the largest independent consulting firm in Cyprus, with established international presence and offices in London and Malta, it offers a full range of legal, tax, accounting, consulting and financial advisory services to international Investors that are operating within a wide range of industry sectors. The company possesses many years of experience and a team of experienced members of staff who remain on hand to assist individuals and businesses throughout the entire investment process, in and through Cyprus.
Nicosia: Treppides Tower, Kafkasou 9, Aglantzia, CY 2112, Nicosia, Cyprus
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