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Inside ISO 42001 framework on AI management systems

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Artificial intelligence, particularly generative AI, has advanced rapidly in a very short time, with the technology insinuating itself into businesses big and small across the world. But the speed at which it has been adopted, and the scale of its impact, has led to many concerns about its use and misuse. This, in turn, has highlighted the importance of adequate governance for these complex systems.

Accounting professionals are long used to helping clients through the governance challenges of other complex systems, from financial data integrity to cybersecurity protocols. Consequently, they are uniquely positioned to help with AI governance challenges as well, especially through standards such as the recently released ISO/IEC 42001.

The ISO/IEC 42001 Standard, released towards the end of last year, concerns artificial intelligence management systems; it specifies requirements for establishing, implementing, maintaining, and continually improving an AIMS within an organization. Having developed the standard in response to the rapid development of AI technology, the ISO said it is meant to be applied to organizations of any size involved in developing, providing, or using AI-based products or services. It is applicable across all industries and relevant for public sector agencies as well as companies or nonprofits.

The standard defines an AI management system as a set of interrelated or interacting elements of an organization intended to establish policies and objectives, as well as processes to achieve those objectives, in relation to the responsible development, provision or use of AI systems. ISO/IEC 42001 specifies the requirements and provides guidance for establishing, implementing, maintaining and continually improving an AI management system within the context of an organization.

It is distinct from other standards that pertain to AI, such as ISO/IEC 22989, which establishes terminology for AI and describes concepts in the field; ISO/IEC 23053, which establishes an AI and machine learning framework for describing a generic AI system using ML technology; and ISO/IEC 23894, which provides guidance on AI-related risk management for organizations.

ISO/IEC 42001, on the other hand, is a management system standard. 

Implementing this standard means putting in place policies and procedures for the sound governance of an organization in relation to AI, using the Plan‐Do‐Check‐Act methodology. Rather than looking at the details of specific AI applications, it aims to provide a practical way of managing AI-related risks and opportunities across an organization. 

Top 50 Firm Schellman, in a published guide on the standard, requires that organizations first identify the scope of their AIMS, all the issues relevant to the purpose and strategic direction of their AIMS, and the needs of both internal and external stakeholders, who may include customers, suppliers, employees, and regulatory bodies. To this end, Schellman recommended that organizations clarify their strategic business objectives, relevant risks and customer expectations. 

They must also demonstrate the commitment of top management to AI governance through policy, roles, responsibilities and authorities. Overall, management must be actively involved in support, especially through the artificial intelligence policy and communicated roles and responsibilities. 

Organizations must also outline their AI objectives; determine AI risks, impact and opportunities; and plan actions to address them. Schellman noted that the required completion of an AI impact assessment goes a little further than other ISO standards.

Organizations are recommended to:

  • Define a process to assess the potential consequences that can result from AI systems on individuals, groups, and societies;
  • Outline the potential consequences of an AI deployment, intended use, and potential misuse for individuals, groups, and societies;
  • Understand the context — both technical and social — where the AIMS is primarily deployed considering applicable jurisdictions;
  • Retain documented information of the AI impact assessment, available to internal and external interested parties (as determined by the organization’s strategic alignment); and,
  • Use the results of the AI impact assessment as inputs for their AI risk assessment as required by ISO 42001.

They must also demonstrate allocation of adequate resources to support the AIMS, appropriate competence for persons doing work under the AIMS, and personnel’s awareness of the AIMS, as well as communication and documented information regarding the AIMS. This includes employing adequate personnel, but also deploying the necessary data, tooling, systems, and assets (including human capital) to support the AIMS. The framework also mandates a certain level of competence, awareness, communication, and documented information as part of that support.
In addition, organizations must outline the implementation of processes regarding artificial intelligence offerings to ensure the conformance of AI operational planning and control within the design, development, and production processes through effective, efficient, and agile implementations.

There must also be monitoring, measurement, analysis, and evaluation of AIMS processes and performance, and internal audit against the AIMS framework and other applicable controls, as well as a dedicated management review. 

Finally, the standard calls for the correction of nonconformities and continual improvement of the AIMS. The compliance journey will necessitate the correction of major or minor nonconformities, which can be raised by the organization, the internal auditors, or by an external certification body performing a readiness assessment or initial certification.

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Accounting

Trump win may threaten IRS funding

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The Internal Revenue Service may be facing steep cuts in its budget with the win on Tuesday night of President-elect Donald Trump.

Funding for the IRS has become a political issue, with Republicans successfully pushing to cut the extra $80 billion funding from the Inflation Reduction Act of 2022 already during battles over the debt limit.

“I think IRS funding is at significant risk right now, both the annual appropriation funding as well as the remaining IRA funding,” said Washington National Tax Office principal Rochelle Hodes at the Top 25 Firm Crowe LLP. 

Donald Trump during an election night event in West Palm Beach, Florida
Donald Trump during an election night event in West Palm Beach, Florida

Win McNamee/Getty Images

So far, Republicans have mainly called for cuts in the IRS’s enforcement budget. The increase in enforcement is supposed to be used to pay for the cost of the IRA, but the funding increase is also supposed to be used for taxpayer service and technology improvements.

“The only question for me on funding is, will any portion of the funding remain available for taxpayer service-related improvements at the IRS?” said Hodes.

The Direct File free tax prep program that the IRA funded could also be targeted, even as the IRS makes plans to expand it beyond the original 12 pilot states this year to 24 next tax season.

“I don’t think that will be in the sight line, but the IRA money is part of what’s being used for that,” said Hodes. “As we’ve seen in appropriations bills, there could be language directed at that, that no money can be spent on that initiative.”

A more important priority will be the extension of the expiring provisions of the Tax Cuts and Jobs Act of 2017. “Getting TCJA resolved is going to be the first priority,” said Hodes. “The second question is, how will the cost of that endeavor be determined. If the view that is held by several Senate Republicans wins the day, then the cost of extending the expiring provisions will not be counted under those particular budget rules that are created dealing with extending current policy. If, however, that view is not adopted, then there is a high cost just to TCJA, and so any other provisions with cost will sort of stretch the boundaries of what many in Congress would be comfortable with. I think it will be necessary to see how the scoring goes for extending TCJA provisions.”

Trump has also called for exempting various forms of income, such as tip income, Social Security income and overtime from taxes.

“I also am not sure which of the ideas that were put forward on the campaign trail, other than extending TCJA, are provisions that have true champions who will want to pursue those,” said Hodes. 

That may depend on who ends up in Congress, with several important races in the House yet to be decided.

“Although the House remains undecided, the Republicans’ control of the Senate makes it much more likely that Republicans will be able to implement many of Trump’s proposed tax policies, such as making parts of the expiring 2017 TCJA provisions permanent,” said John Gimigliano, principal in charge of the Federal Legislative & Regulatory Services group within KPMG’s Washington National Tax practice, in a statement. “The pressing question now is how the Administration and Congress will fund such an ambitious agenda and what additional measures they might introduce, such as eliminating taxes on tips and overtime. These items will only add to the hefty $4+ trillion price tag they face. Until then, taxpayers should continue to stay apprised of developments and scenario plan for the different outcomes to get ahead.” 

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Accounting

Firms plan to raise fees next year

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Over half of accounting and tax firms plan to increase fees across all services in 2025, according to a new survey.

The survey, released Wednesday by practice management technology company Ignition, found that the majority (around 58%) cited rising business costs as the main motivator for their fee increases, while only 5% are raising prices to increase revenue. Most of the nearly 350 firms surveyed intend to increase fees across services by 5% or 10%.

Some 57% of the respondents plan to increase fees across all services. With regard to tax preparation specifically, 90% of the survey respondents plan to increase fees for individual tax returns, and 87% plan to increase fees for business tax returns. In addition, 70% plan to increase fees for tax planning and advisory services;. 85% plan to increase fees for bookkeeping and accounting services; and 76% plan to increase fees for CFO and controller services.

“While accounting firm owners are embracing price increases in 2025, the report shows that the majority (around 58%) cite rising business costs as the main motivator,” said Ignition global president Greg Strickland in a statement. “Only 5% are raising prices to increase revenue, which indicates an opportunity for firms to leverage pricing as a strategic tool to unlock revenue growth.”

The report found a shift from hourly billing to fixed-fee and value-based pricing, with 79% of the survey respondents indicating they use fixed-fee or value-based pricing for bookkeeping and accounting services. Over half (54%) use fixed-fee or value-based pricing for tax preparation services, 67% use fixed-fee or value-based pricing for tax planning and advisory services, and 75% use fixed-fee or value-based pricing for CFO and controller services.

The report benchmarked current fees for tax, accounting and advisory services, which varied based on firms’ annual revenue range. The biggest variation in pricing was for tax planning and advisory services in particular. For firms with revenue of as much as $250,000, approximately 23% said they charge less than $500 for these services, while a nearly equal number (around 21%) indicated they charge more than $2000.

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Accounting

Millionaire tax backed by Illinois voters in threat to Chicago

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Illinois voters approved a nonbinding proposal to add an extra 3% levy on annual incomes of more than $1 million, which could fuel a new effort to raise taxes on the state’s highest earners.

The ballot measure – which was an advisory question – won 60% of support, according to the Associated Press. About 90% of the votes have been counted.

“The vote is a gigantic step in the right direction,” said former Governor Pat Quinn, a supporter of the measure. 

quinn-pat-bl020212-357.jpg
Pat Quinn

Daniel Acker/Bloomberg

While the proposal has no legal effect, the vote opens the door to a new debate over ramping up taxes on the rich even as Illinois and Chicago, its biggest city, contend with population declines and a string of departures by major companies and wealthy residents. In 2020, voters rejected a separate measure backed by Governor JB Pritzker to replace the state’s flat tax on incomes with a graduated system that would raise rates on higher-earners.  

The Pritzker plan drew staunch opposition from billionaire financier Ken Griffin, who donated about $50 million to help torpedo the initiative. Griffin then left Chicago for Miami in 2022, moving the headquarters of his Citadel empire there as well. Companies from Caterpillar Inc. to Boeing Co. have also departed amid rising concerns over public safety, regulation and taxes. 

This year’s referendum asked voters if the Illinois Constitution should be amended to create the additional tax on income over $1 million. It called for using the proceeds to ease the state’s notoriously high property levies. 

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