AI and the CPA: OpenAI's ChatGPT will Blow Your Mind! Try it Now!

We previously discussed OpenAI in this post. In that post, I closed with this comment:

"We should be aware of the concept of exponential change. Technology, like AI, improves at an exponential rate and not a linear rate. Consequently, monitoring the space is key for CPAs and other to ensure that they see change coming and adapt accordingly."

And so, my fellow CPAs, you need to check out how much AI has advance in the two years since that post. It's absolutely amazing to see how advanced the technology is and how quickly it has come:

YouTube is one thing. But testing it out is another. To be honest, I was about to review the video and then summarize it. Then I thought, why not ask ChatGPT? 

Question to ChatGPT: "What are 5 key takeaways for CPAs with respect to ChatGPT?"

Answer: 

1. ChatGPT is a large language model trained by OpenAI.
2. ChatGPT has a knowledge cutoff of 2021, and it does not have access to the internet or current events.
3. ChatGPT is able to generate human-like responses to a wide range of questions, but it is important to keep in mind that it is a machine and may not always provide accurate or complete information.
4. ChatGPT is not a substitute for professional advice or guidance, and it should not be used as the sole basis for making important decisions.
5. ChatGPT is intended for general informational purposes only, and it is not a substitute for professional judgment or expertise. It is important for CPAs to consult with appropriate sources and to exercise their professional judgment when making decisions.

Reading through the takeaways, it seems like it added an extra dash of risk management. Could it have accounted for our risk-aversion?

Then I thought, why not ask it directly about the video itself? 

Question to ChatGPT: "What are 5 key takeaways from It’s Time to Pay Attention to A.I. (ChatGPT and Beyond)"

Answer:

1. Artificial intelligence (AI) is a rapidly developing field with the potential to significantly impact many aspects of society, including the accounting profession.
2. AI technologies, such as chatbots and language models like ChatGPT, are becoming increasingly sophisticated and can be used for a wide range of applications.
3. It is important for CPAs to stay informed about the latest developments in AI and to consider how these technologies may impact their profession and their clients.
4. While AI has the potential to improve efficiency and accuracy, it is important to carefully consider the risks and limitations of these technologies, including the potential for errors or biases.
5. CPAs should consider ways to incorporate AI into their practices, such as by using AI tools to automate certain tasks or by providing guidance to clients on the use of AI. However, they should also ensure that they have the necessary skills and knowledge to effectively use and understand these technologies.

Notice how I did not have to tailor this questions for CPAs? ChatGPT automatically brought the context over from the previous question.  (As for how good this summary is, you can judge for yourself.)

Then, I decided to ask it about how exponential technologies will impact the CPA profession. 

First question, "Will blockchain replace the need for financial auditors?"

Answer:

"Blockchain technology has the potential to revolutionize many aspects of the financial industry, including auditing. However, it is unlikely that blockchain will completely replace the need for financial auditors.

One of the main features of blockchain is its ability to provide a tamper-evident record of transactions. This can be beneficial for auditing purposes, as it allows auditors to more easily verify the accuracy and completeness of financial records. However, auditors still need to be able to interpret and analyze the data contained in these records, and to ensure that the data is consistent with other information and documentation.

Additionally, while blockchain can provide a secure and reliable record of transactions, it is not a substitute for the expertise and judgment of trained financial professionals. Auditors bring a deep understanding of financial principles and practices, as well as the ability to identify and assess risks and potential areas of concern.

Overall, it is likely that blockchain will augment and enhance the role of financial auditors, rather than replacing them entirely."

Notice the nuanced response? It should have spoke to validity, instead of completeness when it came to how the blockchain will assist the auditor. However, it didn't just list all the audit objectives just "to be safe". 

Then I asked about artificial intelligence:

Question: "How can AI be used to automate financial auditing?"

Answer:

"Artificial intelligence (AI) can be used to automate certain aspects of financial auditing, such as the analysis and interpretation of financial data. This can potentially improve the efficiency and accuracy of the audit process.

For example, AI algorithms can be trained to analyze large amounts of financial data and identify patterns and trends that may not be immediately apparent to human auditors. This can help auditors to more quickly and effectively identify areas of potential risk or concern.

AI can also be used to automate the testing of transactions and the evaluation of internal controls. For example, an AI system could be trained to perform automated tests on transactions to ensure that they are recorded correctly in the financial records. This can help to reduce the time and resources needed to perform these tasks manually.

Overall, the use of AI in financial auditing can help to improve the efficiency and accuracy of the audit process, while also freeing up auditors to focus on more complex and higher-level tasks that require human judgment and expertise."

Recognize the theme of "race with the machine" in both this response and the previous blockchain response? This is especially integrated into the last paragraph, which speaks to what AI can do versus what "human judgment and expertise" can do. Also, notice how it explains AI role in both risk assessment and testing of internal controls. That is, it had enough where "understanding" to breakdown the response into different aspects of the audit. 

When looking at this, we need to ask ourselves: is this inflection point for exponential rise of AI? 

Do review the last part of the video, where Samuel H. Altman, CEO of OpenAI, explains how he anticipates the impact of such technology on the legal profession. (The video earlier takes about how Josh Browder's Do Not Pay, will leverage the tech. I had previously seen Browder on a panel in 2016; see this post for the video). 

It's not quite a stretch to apply what he says to the CPA profession. There are key differences; in that we opine on financial statements, provide tax advice based on financial data, and the like. However, audit data analytics tech has been around for decades. It's just a matter of getting the different parts to talk to each other. 

Clearly, it's early days for ChatGPT and many issues need to be sorted out. For example, it has already earned the moniker "CheatGPT" for how it can be potentially used as a short-cut by students. That being said, it's clearly the biggest watershed moment for AI and the white-collar workforce, since IBM's Watson defeated Ken Jennings and Brad Rutter. 

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else

Figuring out FTX (Part 3): 5 Videos You Must Watch on SBF’s Arrest!

Sam Bankman-Fried (SBF) was scheduled to testify in front of congress on Tuesday. Forbes caught a copy of his testimony, which is available here.  However, this testimony won’t be delivered. Instead, SBF got arrested in the Bahamas. The US Department of Justice (DoJ), in a joint conference with the SEC and CFTC, unveiled the following 8 charges:

• Conspiracy to Commit Wire Fraud on Customers
• Wire Fraud on Customers
• Conspiracy To Commit Wire Fraud on Lenders
• Wire Fraud on Lenders
• Conspiracy to Commit Commodities Fraud
• Conspiracy to Commit Securities Fraud
• Conspiracy to Commit Money Laundering
• Conspiracy to Defraud the United States and Violate the Campaign Finance Laws

 

CryptoSlate reported that “the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have both filed separate charges against the ex-CEO…The SEC has charged SBF with offering securities for sale and selling securities for fraud. Specifically, the charges fall under the Securities Exchange Act of 1934 and the Securities Act of 1933 pertaining to anti-fraud provisions…Further, the CFTC charged SBF with fraudulent misstatements and omissions.” 

 

The SEC complaint is available here (and here is their press release). The CFTC’s complaint is available here (and here is their press release). The full press conference is available here.

 

Video #1 – Will SBF’s Ill Advised Media Tour contribute to his Downfall?

Since the November collapse, SBF has been giving interviews (e.g. NYTimes, ABC, WSJ, BBC). This is of course against the advice of counsel.  Regardless, he has been talking up a storm, claiming to be the incompetent CEO and then apologizing for his screwups. That is, he was able to successfully bob-and-weave during these interviews and avoid admission of fraud.

 

That was until he was interviewed by Coffeezilla.

 

Coffeezilla admitted he too got outmaneuvered when he attempted to pin him down here and here. However, by reviewing his mistake and the mistake of others, he cornered SBF in this video and got him to admit to the lack of segregation of funds:

 

 

SBF, in contrast to his other interviews, got annoyed and accused Coffeezilla of monopolizing the interview time. Coffeezilla easily refutes this claim, noting SBF was factually incorrect. That being said, it would be surprising if this interview is not captured as part of the evidence that the DoJ, SEC, and CFTC will ultimately use against SBF.

 

Video #2 – WSJ Overview on the Players and Places

The following gives a good overview of what is happening. This includes the jurisdictions involved, the charges laid, and the Congressional hearings that are occurring in parallel.

 

See here for Coffeezilla’s analysis of the charges. The video also includes commentary from Legal Eagle.  

 

Video #3 – Summary of the Criminality at FTX and Alameda

 

FTX’s CEO, John J. Ray III, testified before congress about his findings so far. Ray was the same CEO that managed the Enron bankruptcy and has previously said that he has never seen “a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred [at FTX]”. This video, from the Washington Post, seems to capture the essence of the criminality that was a foot at the crypto-exchange and the hedge fund:

 

 

Video #4 – Did the multi-Billion Dollar FTX use QuickBooks and Slack?

For the poor state of governance and controls, see Ray’s opening remarks during his congressional testimony:

 

And to answer the question, yes they did!

Video #5 – The Nature of Crypto is making it hard for Ray to Locate FTX’s Assets

 

Locating assets in a bankruptcy is usually a matter of following the paper trail. Admittedly, FTX has poor records as noted in the last video. However, the problem is compounded by the ethereal nature of crypto/digital assets. See WSJ’s summary of Ray’s testimony, which highlights this unique challenge within FTX’s bankruptcy proceedings:

 

 The FTX story continues to evolve. There is definitely more to discuss, as additional details come to light. However, another story that will be explored in future post(s) is the contagion that has spread through the crypto-verse due to FTX and the other collapses in the nascent industry.

 

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else.

 

Figuring out FTX (Part 2): The Ten Days In November that Brought FTX Down

In our last post, we looked at the epic rise of SBF and FTX. In this post, we examine the Ten Days of November that shook FTX to its core and resulted in its spectacular collapse.

Post #1: The CoinDesk FTX Timeline

The best place to start is this timeline, which is taken from this CoinDesk post. I’ve also added the amount withdrawn from FTX, which was taken from this Reuters article:

Post #2: The Leaking of the Alameda Balance Sheet

What must be said, the much vaunted transparency of the blockchain did not bring down the FTX empire. Instead, it was classic journalism at CoinDesk. The killer quote from the article:

“That balance sheet is full of FTX – specifically, the FTT token issued by the exchange that grants holders a discount on trading fees on its marketplace. While there is nothing per se untoward or wrong about that, it shows Bankman-Fried’s trading giant Alameda rests on a foundation largely made up of a coin that a sister company invented, not an independent asset like a fiat currency or another crypto. The situation adds to evidence that the ties between FTX and Alameda are unusually close.”

As noted in the above timeline, this is what prompted Changpeng Zhao (CZ) to tweet this and then caused the billions to be withdrawn, as mentioned in the Reuters article.

Post #3: Prelude to the FTX Collapse

The first of Coffeezilla’s video on the collapse really captures not just the rivalry between SBF and CZ, but the killer-business logic that was potentially at play. Far from the crypto-utopian visions of an egalitarian ecosystem, we see the same sort of cutthroat competition in the banking world itself. For example, one theory holds that Bear-Stearns collapse was triggered in the 2007-2008 Financial Crisis. The reason? Payback. Bear-Stearns did not help out in the Long-Term Capital Management (LTCM) bailout and so Goldman-Sachs returned the favour almost 20 years to the day.  

Post #4: FTX and the Mystery of the Stolen Crypto

This video, published 3 days after the last, explores the complex web of relationships that is FTX (far more complex than Lehman), but zooms in on the entanglement between Alameda Research and FTX. The big reveal here is that an Alameda insider noted that “not only did they [Alameda Research] have access to FTX's back end [but] they [also] managed withdrawals for FTX and had a giant line of credit that they could draw on, which seems like partially may have been users funds something that no separate entity would normally have”.  The insider was corroborated by the Wall Street Journal.

Post #5: An Inside Look at the Chaos and Ineptitude at FTX/Alameda

Shout out to Tim Bauer for passing on this link from MilkyEggs! (Bloomberg’s Matt Levine, also referred to the post here with all the necessary caveats). It gives more details around the sheer chaos and ineptitude that existed at FTX and Alameda. With respect to the chaos, it gives some details around SBF’s mental state. It is quite the contrast to the image that was portrayed to the outside world, which we saw in the first video in the last post. With respect to ineptitude, it highlights the “farcically simplistic” accounting records the company kept.  

In terms of the top three takeaways, it firstly casts doubts on the origin story of SBF. The post alleges (based on an insider) that SBF quickly lost all the wealth he made from those bitcoin US vs Japan arbitrage trades. Secondly, it gives some insight into the inordinate amount of risk SBF was taking. Lastly, it attempts to breakdown the losses incurred by FTX-Alameda. That is, they attempt to piece together where the money - $15.5 billion in total – was spent. Also, do check out the postscript where they “found” another $3 billion in losses. Of course, this is not an official audit or anything like that. However, it’s nice to get a more wholistic understanding of the FTX-Alameda situation – beyond the puff pieces in the mainstream press.

In our next post, we will begin exploring the aftermath of FTX collapse.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else.