Technology constantly evolves, and small business owners are often among the earliest to adopt new technology that can ease their workload and better manage their business needs. And because bookkeeping and accounting are among the most volume-heavy day-to-day jobs in any business, any tool that makes life easier is heartily welcomed. Manual accounting gave way to digital accounting, then evolved into cloud accounting, and has now taken the form of AI (Artificial Intelligence) accounting.
From creating workflows to handling invoicing and payroll, managing inventory, and even supporting growth planning and budgeting, businesses use AI to enhance operations.
However, AI accounting also comes with risks. That’s why hiring a professional accounting firm is becoming more of a necessity than an option for a growing business.
The CRA’s Requirements to Manage Financial Records
It’s not just the technological accounting tools that have evolved – so have the Canada Revenue Agency’s (CRA) requirements. The CRA’s requirements for businesses include:
- Keeping accurate financial records for a minimum of six years
- Storing sensitive information securely, complete with data encryption and multi-factor authentication.
- Protecting crucial business processes such as business transactions, payroll, and tax filings from unauthorized access
- Ensuring thorough disposal of outdated financial records through shredding (for physical documents) or data-wiping (for digital records).
Although this sounds simple enough on the face of it – after all, you can ask AI to help – the truth is, it isn’t. Using AI to do this could be the biggest risk you take with your business.
How Accounting Firms Protect You From AI
What you actually need is experienced human guidance from a professional accounting firm on how to use AI accounting to enhance operations without compromising security, quality, and CRA compliance.
So what exactly does an accounting firm bring to the table to ensure ethical, safe AI accounting?
Data Privacy and Confidentiality
Business accountants handle hordes of confidential information, including client names, bank details, financial records, and other personal data. When using AI tools to help with accounting, these details become vulnerable to data breaches, unauthorized access, fraud, and identity theft, since AI can use this information to “train” its models. It is hard to tell when private information becomes public, and even harder to contain once a leak happens.
However, accounting firms are well aware of these risks and have several ways to mitigate them. First, accounting firms must follow the Personal Information Protection and Electronic Documents Act (PIPEDA), which sets rules for how client data is collected, stored, and shared, reducing the risk of a data leak. All AI tools are also thoroughly checked to ensure they can process data securely using verified Canadian or CRA-approved cloud providers. Most importantly, the accounting firm’s employees have to adhere to a strict code of conduct and respect confidentiality laws, something that is not applicable to AI.
Cybersecurity Safeguards
With AI-powered cyberattacks, phishing scams, deepfake fraud, and hacking incidents on the rise, it is important to put guardrails in place to prevent these scenarios, especially in a business setup with large amounts of confidential information.
An accounting firm constantly updates and upgrades its systems to meet the highest security and compliance standards. Hence, they can help set up AI-powered accounting systems with security measures like multi-factor authentication, encryption, and secure cloud storage for your business. They can even reduce cross-border data risk by using Canadian-hosted or CRA-verified servers, while also regularly monitoring for AI-related fraud threats.
Inaccurate Output Due to AI Hallucinations
Generative AI tools are masters at producing responses that sound and look professional, credible, and authoritative. However, these responses, also known as “hallucinations”, can turn out to be factually wrong, leading you into making misinformed analysis, wrong interpretations, and misguided decisions.
Because of this unreliability and the risk it poses to your business’s credibility and financial stability, an experienced, knowledgeable professional accountant should vet any AI responses. While AI can handle routine, repetitive tasks such as recording daily transactions, categorizing expenses, and automating invoices, it’s always better to have a professional double-check and verify the accuracy of AI-generated outputs.
Transparency
At the core of accounting is transparency and data privacy. Any figure, data-backed decision, or financial plan needs a paper trail that shows how you arrived at the outcome. But with AI, you have an input and an output, with a black box in between. There is no way to know how your input was used. The outcome may seem logical, but you may not be able to support it with documentary proof or a compliant process.
An accounting firm brings transparency. They will inform you before using authorized AI tools for routine tasks like scanning a receipt or categorizing an expense. For any calculation in which they use AI, they will be transparent about it, scrutinize the outcome for compliance, and prepare documentary support with detailed explanations to ensure CRA compliance.
Accountability
An important thing that accounting firms offer, and AI accounting tools certainly do not, is accountability. Even when accounting firms use AI tools, they remain liable for their work. Many accounting firms have Errors & Omissions (E&O) insurance coverage that protects companies and individuals against financial loss, settlement, or defence costs incurred due to a professional slip-up, even if it is an AI error, provided the accounting firm used AI incorrectly.
Over-Reliance on AI Clouds Professional Judgement
Artificial Intelligence can speed up routine tasks and improve day-to-day operations, but it cannot replace experience and professional judgement. Relying on AI for all your thinking, planning, brainstorming, and even decision-making can reduce critical thinking, weaken monitoring and quality control, and increase detachment from business and industry reality.
Hiring an accounting firm discourages this overdependence on AI. Accountants at the firm can not only offer customized suggestions that suit your business needs and optimize your financial resources, but also ensure you comply with the CRA and industry regulations.
New Layers of AI Regulations and Compliance
Whether you’re a small business or a conglomerate, compliance standards are equally strict for everyone. The CRA is very particular about rules ranging from documentation requirements and data governance to audit regulations. Any oversight or failure to follow these rules can cost your business money, reputation, and future growth.
An accounting firm is well-versed in these compliance requirements and the CRA’s strict decree on transparency, integrity, data protection, and security. As a result, they’re well equipped to protect your business from AI tools that could put your data and information at risk. They constantly upgrade their systems to offer enhanced security against new AI risks while also following the CRA’s ethical guidelines for client protection.
Migrating to AI accounting isn’t a bad idea. In fact, for small businesses, AI accounting tools can drive growth by freeing you from time-consuming tasks so you can focus on the road ahead. However, using AI tools without understanding how to use them safely can be dangerous. This requires training and practice. Train your employees on how to use the AI accounting system properly to minimize the risk of data leaks and fraud.
Contact Glenn Graydon Wright LLP in Oakville to Help You with Accounting Needs
Consulting a professional accounting firm can help you tick all these risk-management boxes, keeping your business tech-savvy and tech-safe. At Glenn Graydon Wright LLP, our accountants and bookkeepers can provide services such as setting up a cloud accounting system with AI tools and monitoring its outcome. To learn more about how Glenn Graydon Wright LLP can provide you with the best accounting and bookkeeping services, contact us today at 905-845-6633 or connect with us online to schedule an initial consultation.