CPAOne: AI, Analytics and Beyond

Attended the CPA One Conference almost two weeks ago in Ottawa, Ontario. Given that my space is in audit innovation, I attended the more techno-oriented presentations. Here's a summary of the sessions that I attended:

"Big data: Realizing benefits in the age of machine learning and artificial intelligence": The session was kicked off by Oracle's Maria Pollieri. The session delved deep in the detail of machine learning and would have been beneficial to those who were trying to wrap things around thing more from a technical side. She was followed up by Roger's Jane Skoblo. She mentioned a fact that really grabbed my attention: when a business can just increase its accessibility to data by 10%; it can result in up to $65 million increase in benefits.

The next day started with Pete's and Neeraj's session on audit automation, "Why nobody loves the audit". They want over a survey of auditors and clients on the key pain points of the external audit. It turns out that these challenges are actually shared by both. For example, clients lack context on "the why" things are being collected, while auditors found it difficult to work with clients who lacked such context. On the data side, clients have hard time gathering docs and data, while the auditors spent too much time gathering this information. From a solutions perspective, the presenters discussed how Auvenir puts a process around gathering the data and enables better communication. This will be explored in future posts when we look at process standardization as a key pre-requisite to getting AI into the audit. 

The keynote on this day was delivered by Deloitte Digital's Shawn Kanungo, "The 0 to 100 effect". The session was well-received as he discussed the different aspects of exponential change and its impact on the profession (which was discussed previously here). One of the key takeaways I had from his presentation was how a lot of innovation is recombining ideas that already exist. Check this video he posted that highlights some of the points from his talk:



Also, checked out the presentation by Kevin Kolliniatis from KPMG and Chris Dulny from PwC, "AI and the evolution of the audit". Chris did a good job breaking down AI and made it digestible for the crowd. Kevin highlighted Mindbridge.ai in his presentation noting the link that AI is key for identifying unusual patterns.

That being said, the continuing challenge is how do we get data out of the systems in manner that's reliable (e.g. it's the right data, for the right period, etc.) and is understood (e.g. we don't have to go back and forth with the client to understand what they sent).

Last but not least was "Future of finance in a digital world" with Grant Abrams and Tahanie Thabet from Deloitte. They broke down how digital technologies are reshaping the way the finance department. As I've expressed here, one of the keys is to appreciate the difference between AI and Robotic Process Automation (RPA). So I thought it was really beneficial that they actually showed how such automation can assist with moving data from invoices into the system (the demo was slightly different than the one that can be seen below, but illustrates the potential of RPA). They didn't get into a lot of detail on blockchain but mentioned it is relevant to the space (apparently they have someone in the group that specifically tackles these types of conversations).


Kudos to CPA Canada for tackling these leading-edge topics! Most of these sessions were well attended and people asked questions wanting to know more. It's through these types of open forums that CPAs can learn to embrace the change that we all know is coming.

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

Financial Crisis: Why didn't they use analytics?

For the past while, I have been reviewing the aftermath of the 2007-2008 Financial Crisis. I came across an interesting piece that highlights the importance of using analytics and "dashboarding" to monitor risk within a company. To be specific, I came across this when going through Nomi Prins's book, It Takes a Pillage: An Epic Tale of Power, Deceit, and Untold Trillions. Nomi Prins was in charge of analytics at Goldman Sachs and other banks. The embedded video gives more information about her and the book she wrote:



While listening to her book, I came across a transcript from the hearings in the aftermath of the crisis. As can be seen in the following video, Representative Paul E. Kanjorski is questioning the now-former CEO of Country Wide financial, Angelo Mozilo about the sub-prime crisis.



The part to focus on is where he grills the CEO about why they didn't aggregate statistics to monitor the mounting losses from the sub-prime loans (click here for where the transcript was extracted from. Please note the italics and bold is mine):
"Mr. Kanjorski: How long did it take you to come up with the understanding that there was this type of an 18 percent failure rate before you sent the word down the line, "Check all of these loans or future loans for these characteristics so we don't have this horrendous failure?"
Mr. Mozilo. Yes, immediately--within the first--if we don't get payment the first month, we're contacting the borrower. And
that's part of what we do. And we are adjusting our----
Mr. Kanjorski. I understand you do to the mortgage holder. But don't you put all those together in statistics and say, "These packages we are selling now are failing at such a horrific rate that they'll never last and there will be total decimation of our business and of these mortgages?" "

In other word, the Congressman is wondering how the CEO could not know that his business was failings because it is only common sense to monitor the key metrics that measure the key risk indicators (KRIs) associated with his principal business activities.

I would be the first to argue that there was much bigger issues with the financial crisis, such as the 16 trillion dollar-bank-bailout, the failure to properly rate the bonds backed by the sub-prime mortgages, quantitative easing, and so on.  That being said, organizations and companies need to be aware of the importance of measuring the KRIs associated with their business. Regulators, and others charged with oversight, will eventually question the insufficiency of such monitoring controls. Furthermore, as these regulators are more tech savvy - such as the judge in the Oracle vs Google trial - the more sophisticated dashboards they will expect.

Huawei & ZTE: Corporate spies or victims of non-tariff trade barrier

On this episode of the TWIT network's Tech News Today had an interesting discussion regarding the recent allegations that Huawei and ZTE were spying on US companies that purchase and use their equipment. As they hosts of the tech news show pointed out, Congress does not have any evidence that the firms were involved in such activity, but were rather concerned with the relationship of the two companies with the Chinese government. Another interesting point that they pointed out was that Cisco would benefit from such a ban. And according to this article, Cisco has paid $640,000 in lobbying on "measures to enhance and strengthen cyber security". As one analyst quoted by Bloomberg put it, "This is going to allow Cisco and Juniper to compete more fairly". However, Huawei too has been lobbying the US government to the tune of  $820,000. Although many have cited Chinese hackers as a threat, for example, it is suspected that Nortel was targeted over a ten-year period by such hackers. However, it is important to recognize that other factors are at play on the specific issue of ZTE and Huawei and that the risk of Chinese hacks should not be overstated. After all, non-Chinese companies do conduct industrial espionage against one another. For example, SAP had to pay $120 million to Oracle for such activity, which occurred in 2007. But if you raised the threat of German firms hacking to get into American companies, people would think you are not well. So although this threat is real, it is not new and it's not just coming from the Chinese.

Oracle & Google IP Trial: the Judge is the Gem

Last week the "WorldSeries of intellectual property trials" came to a close. Oracle, who purchased Sun Microsystems, was suing Google over its use over Java. Oracle claimed the Google had infringed on 37 of its copyright "APIs" or application programming interfaces. 

What is an API, you may ask? I also had the same question and found the following resources that may be of help:

• Simplest definition that I found was on the Guardian's reporting of the trial who defined APIs as "computer language that connects programs and operating systems – known as application programming interfaces". But I wasn't satisfied with that, so I dug some more.
• CNET had a number of good resources on the topic. This FAQ gives a good broad overview of Java and explains the relevance of APIs to the programming language. However, the article that probably sheds the most light on the topic is this one. The article walks through a key part of the trial where Joshua Bloch (former Sun Java-expert-engineer now working for Google) defines an API "as "names or words and a set of rules." When the program speaks to a library, it has speak in a very precise language, he continued. Typically the words are verbs and phrases, such as "remove the header."". What is also helpful is the accompanying slideshow that illustrates the lines of codes that Oracle claimed that Google infringed upon.

Google sought to pay Oracle 2.8 million, but Oracle wanted a cool billion for what it deemed to be a violation of the copyrights. The end result was that Oracle lost; the judge delivered a narrow ruling that Google use of the APIs was not a violation of copyright because APIs cannot be copyrighted. As reported on GigaOm, "The crux of Alsup’s ruling today is that 37 of the Java application programming interfaces aren’t eligible for copyright in the first place. Copyright typically protects authors’ work — in the form of books, music, computer code, etc — but doesn’t extend to functions or ideas."

IP: A drain on innovation

The case is a good piece of evidence for those that are critical over the patenting of software.Critics, such as John C. Dovorak, point out that the system is dysfunctional altogether. From a resource allocation point of view, this trial illustrates that a significant amount of resources are dedicated to litigation. According to Patrick Doody, an-ex partner at Pillsbury law firm, the trial is estimated to cost $50 million. Leo Laporte, owner of the This-week-in-Tech (TWIT network), routinely points out in the podcasts that he produces - that software giants waste money on patent suits instead of spending those same funds on innovation. To quantify his argument: if the average salary paid to an IT professional is $80,000,Google and Oracle could have invested in about 625 full-time equivalents (FTEs)  worth of work instead of litigating this trial. Of course such logic is lost on Capitalist enterprise, whose focus is profits over innovation. 

Technology & Society: A Watershed Moment

Another nugget that came out of this trial was the reason that judge William Alsup's (the judge presiding over the trial) rejected Oracle's argument. The judge challenged Oracle's assumption that a "range check" was difficult to build - because he knew how to code in Java! 

According to Wired,  "he had learned to code in Java for the trial — implying that he knew other languages as well — and he said that he had written some of the infringing code at least a hundred times since Oracle filed its suit in August 2010. “I can do it. You can do it. It’s so simple,” he said, adding that it takes less than five minutes. Then looked directly at Boies. “You’re one of the best lawyers in America — how can you make that argument?” he demanded." 

Posts in the tech community, notably on I-Programmer and O'Reilly, point out that this is  a watershed moment in society: code and technology is "a part of the world we live in".

Can one make the analogy that if judges should be this technology proficient, so should audit practitioners?  

Given the nature of the accounting profession, it would be difficult to make it mandatory for audit practitioners to program. However, on the other hand, the profession should use this opportunity to re-examine what aspects of technology should be a part of the audit practitioners skill set - given that is clear that society's attitude towards technology has clearly changed.