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From novelty to necessity: How GenAI is reshaping investment accounting

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Imagine a tool so integral to your daily routine that it becomes second nature in your professional life. Generative AI has done that for investment accounting. In just two short years, GenAI’s impact has reimagined how investment accountants interact with data, make decisions and drive financial strategies.

Today, nearly two-thirds of organizations say they regularly use GenAI in at least one aspect of their operations. Such rapid adoption makes it easy to understand why global GenAI spending is set to hit $202 billion — 32% of all AI spending — by 2028. Yet, as the tech continues to take shape and offer more ways to deliver intelligence, its rapid rise has also raised expectations for measurable, higher-level returns on investment. 

In the past year, GenAI has streamlined routine tasks such as document summarization and sifting through mountains of portfolio data to create actionable reports. Beyond these applications, GenAI is tackling more complex work: from demystifying the intricacies of reconciliation work to pioneering multi-country compliance automation. With each breakthrough, we’re eager to see what GenAI can do next — solving data puzzles within middle- and back-office operations is just the beginning.

However, integrating GenAI is a gradual process, with many investment accountants still learning to maximize their return on investment from these tools. The crux of GenAI implementation lies in how it can take very complex work that has involved many teams of experts and engineers harnessing very large datasets and build a data architecture that delivers remarkable output. Thus, the key to unlocking this next level of innovation lies in building a strong data architecture foundation.

Ensuring data integrity and accuracy

 
Much like investment accounting itself, the quality and accuracy of the data inputs into GenAI are essential to the reliability of its outputs. As we pioneer more advanced applications of GenAI, the creation of domain-specific prompts becomes crucial. They act as guardrails, ensuring models capture the granular context of queries and deliver accurate results. Before this can happen, we must ensure our data architecture is not only resilient but entirely without defects.

To prepare for a GenAI-driven future, businesses must maintain impeccable, validated and standardized investment data. Given the heightened regulatory scrutiny they operate in, investment accountants don’t have the luxury of simply writing off minor data errors. Even the smallest hallucination or inaccuracy can escalate into significant regulatory issues, reinforcing the need for rigorous data management practices. With this in mind and to ensure a smooth GenAI deployment, organizations should focus on three key aspects: 

  • Establish a data governance framework. Assigning clear responsibilities and processes is crucial. A formalized structure should define roles in data oversight, specify tasks for data quality control, and ensure compliance, all contributing to a trustworthy data environment.
  • Enhance data preparation. As the demands for GenAI evolve, so must our data management practices. Organizations must elevate their data preparation processes, such as collecting, formatting and organizing raw data into a structured format suitable for analysis. Automation and validation are critical for transforming data into analytics-ready information, quickly rooting out and addressing any anomalies.
  • Break down data silos. Despite more organizations migrating to the cloud, the challenge of unstructured data from disparate systems remains a hurdle for technology success. Centralizing a data story into “data lakes” can boost collaboration, standardize data and streamline data operations, paving the way for a successful GenAI integration.

 

Address legacy technology barriers that stunt AI overhauls

Financial organizations, especially within back-office functions, are still grappling with outdated legacy technology systems. These systems, although familiar, resist large-scale AI transformations. Internal inertia, external constraints and other reasons keep organizations from breaking free from the status quo. As a result, many organizations tiptoe into AI integrations on a piecemeal basis, hindering their ability to scale and evolve.

While modernizing systems involves complexity, the payoff can be significant. A transition to agile, interconnected systems can result in enhanced operational efficiency, a culture of continuous innovation, and a seamless data flow that’s vital for GenAI’s success. It’s about trading in the old for new ways of working that are more in sync with our dynamic digital world.

A phased approach to replacing legacy systems can minimize disruption and facilitate a smoother changeover. Additionally, fostering open collaboration between everyday users and engineering teams is essential. This partnership ensures upgrades are implemented efficiently and in a way that maximizes ROI — turning the complex task of replacing legacy systems into a rewarding journey of transformation.

Enabling strategic alignment before launch

Organizational adoption of bold technologies like GenAI can often feel like embarking on an epic expedition. The journey begins with grand visions, but can run off course due to competing priorities and misalignments between teams and executive stakeholders. A stark reminder of this is the sobering statistic that only 54% of AI projects make it from pilot to production — with even fewer delivering their intended ROI.

To navigate a successful transition, organizations must have a clearly defined outcome-centric roadmap before launching AI projects. This includes clearly outlining what GenAI can achieve in terms of use cases and what lies beyond its current reach. For instance, while GenAI can automate routine tasks and provide data-driven insights, it may not replace the need for human judgment and decision-making.

Such a roadmap should highlight milestones, pitfalls to avoid, deadlines and expected outcomes, bringing the team closer to realizing the project’s full potential using GenAI. Ultimately, the success of GenAI integration depends on strategic alignment and collaboration — ensuring communication lines are open so every team member, from the front line to decision-makers, is informed and vested in the mission.

Fulfilling the promise of GenAI

As we peer into the future, GenAI adoption within the accounting space is set to skyrocket this year and beyond. It’s natural for business leaders to feel the pressure to dive headfirst into AI initiatives. However, it’s crucial to discern between merely adding GenAI to the toolkit and harnessing its potential to general value-added outcomes. Despite GenAI’s transformative promise, it’s not simply a plug-and-play proposition.

Success depends on several pillars: robust data governance, the modernization of legacy systems and a strategy that aligns with the organization’s objectives. Keeping these considerations front and center, investment accounting organizations can rely on a sound foundation necessary for a thriving GenAI ecosystem. By doing so, they stand the best chance to gain ROI that not only fits, but also advances their organization’s strategic objectives in the short and long term.

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Accounting

Resolution to reconciliation: What’s ahead in tax legislation

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Congress has been extremely busy, with both bodies passing budget resolutions. However, they have passed very different budget resolutions, according to Marc Gerson, former chief tax counsel to the House Ways and Means Committee and a member at law firm Miller & Chevalier. 

“They have to agree to a concurrent budget resolution to unlock the budget reconciliation process,” he said. “This month has been taken up by dealing with funding the government to avoid a shutdown, with a recess scheduled for this week. They  have to await the results of the Florida special election, which will give Republicans more breathing room in the House. The House has outlined what a tax package would be, of $4.5 trillion using a standard current law baseline including extensions of the [Tax Cuts and Jobs Act] and expiring provisions.”

That, he noted, may not be sufficient to cover the permanency of the TCJA and other expiring provisions, and the promises made by President Trump during the campaign, such as no tax on tips, Social Security, and overtime pay. 

Attendees hold signs as Donald Trump speaks during a campaign event

“If they ultimately agree to the House approach, they have to either add revenue raisers, or additional spending cuts or abandon permanency and agree to shorter-term extensions,” he explained. “That would create room to add other things, or to use the current policy baseline. Then they would not have to pay for the extension of current law, and it would provide more flexibility, but it’s unclear whether it would pass muster with the Senate parliamentarian.”

A key priority for lawmakers is the extension of the “Big Three” business extenders, according to Gerson: R&D expensing, EBITDA-based interest expense deductions, and 100% bonus depreciation. They are also debating the retroactive effective date, with Trump proposing Jan. 20, 2025, which may complicate efforts to secure earlier relief. 

“R&D, Section 163(j) EBITDA, and 100% bonus depreciation will definitely be included, but there is uncertainty as to whether they will be applied retroactively,” he said. 

“These three provisions were enacted as part of the Tax Cuts and Jobs Act of 2017 but were sunset due to revenue limits,” he explained. 

Fully deductible R&D expenditures expired at the end of 2021, along with the ability to use EBITDA for the 163(j) interest expense deduction limitation, and 100% bonus depreciation. Since then, taxpayers have had to capitalize and amortize these expenditures over five years. Also, since 2022 taxpayers have been required to use the less favorable earnings before interest and taxes for the Code Section 163(j) limitation on the deduction for business interest expense. And 100% bonus depreciation began decreasing at the end of 2022, and is currently at a 40% rate for 2025. 

Each of the “Big Three” would have been extended by the Tax Relief for American Families and Workers Act of 2024, which provided for retroactive extension through 2025. The bill passed the House on a bipartisan vote in January 2024, but was bogged down in the Senate.  

The fact that President Trump indicated his support for 100% bonus depreciation by referring to his inauguration date of Jan. 20, 2025, in his recent joint address to Congress is an indication that the provisions will be drafted to apply retroactively, but is at odds with the general practice of tax bills applying to tax years “beginning after December 31,” or “beginning before January 1.”

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Accounting

Small business owners run into IRS tax deadlines

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Small businesses may have been caught unawares by the earlier tax deadline for filing their taxes amid all the upheaval at the Internal Revenue Service this year, but they can still file for an extension. 

“A lot of the time, small business owners are busy running their business, and that deadline sneaks up on them,” said Alison Flores, a manager with The Tax Institute at H&R Block. “The deadline is usually March 15. This year, that’s a Saturday, so you actually get two extra days. You have until March 17 to file that return. This deadline applies to S corporations and partnerships. It does sneak up on people. They may have spring break on their calendar. They may have St Patrick’s Day on their calendar. If you’re running a business, you may be looking at staff needs to cover spring break and just not realize that small business deadline is here. There are a couple things that cause this confusion. One is the regular deadline for individuals is April 15, and this is an entire month early.”

She noted that there are actually two different deadlines for people in this situation. 

“One thing you have to keep in mind is, if you get an extension because it snuck up on you and you can’t file by Monday, if you do request an extension for your S corporation or your partnership, another thing you need to do is go ahead and request an extension for your individual tax filing,” said Flores. “Most of these businesses are actually owned by one or two people. They’re usually very small. You need to look at two extensions, one for the business and one for your personal return.”

Both extensions are for six months. ‘The extension for your business, if you’re an S corporation or partnership, runs until September 15, and the extension for your individual return runs until October 15,” said Flores. “The same situation occurs in the fall. You’ll need to have that business return done first … and then the individual return because an S corporation and a partnership are pass-through businesses. They pass through income and expenses to the individual partners or shareholders. You’ll need to have that business return complete and then file your individual return.” 

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Accounting

IRS suffers another $20B budget cut

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The continuing resolution that the Senate narrowly approved last Friday and President Trump signed on Saturday included a $20.2 billion cut in the Internal Revenue Service’s budget, the third such cut since 2023, clawing back over three-fourths of the $80 billion that the IRS was supposed to receive over 10 years from the Inflation Reduction Act of 2022. The agency is now planning to pause its technology modernization efforts.

The budget reduction occurred as the Trump administration and the Elon Musk-led U.S. DOGE Service have already begun layoffs at the embattled agency, with between 6,000 and 7,000 employees cut from its ranks. According to CNN, 6,700 probationary employees at the IRS have been laid off, and 4,700 accepted the voluntary buyout offer from the Office of Personnel Management’s “Fork in the Road” memo, also known as the “deferred resignation program.” However, IRS employees who accepted the buyout offer have been told to continue working through May 15, a month after the April 15 tax filing date, unlike other federal employees, and the buyout program closed as of Feb. 12. 

After the resignations of former IRS commissioner Danny Werfel, who stepped down shortly before Trump’s inauguration, and the abrupt retirement of acting commissioner Doug O’Donnell, the new leadership at the IRS has reportedly been making plans for staff reduction of up to 50%. That percentage now seems to have been revised down to a reduction of about 20% of the agency’s workforce by May 15. However, it’s unclear what the final number will be in the staff reductions. In January, the IRS reportedly had over 100,000 employees, according to the Federal News Network.

“I’ve seen numbers of 20%, I’ve seen numbers of 30%, I’ve seen numbers of 50%,” said Tax Guard CEO Hansen Rada. “It’s really difficult to tell what is true, and I don’t think anybody knows, because the proposal has been private, so there is definitely a giant question mark as to how strong the IRS will be going forward.”

Treasury Secretary Scott Bessent disputed the numbers that have been reported in the news during an interview Sunday with Kristin Welker on NBC’s Meet the Press. “I will tell you that there were about 15,000 probationary employees that we could have let go,” he said. “We kept about 7,500, 8,500 because we view them as essential to the mission. And we will know once we get inside. But what I can tell you is that we are doing a big review. We’re not doing anything — right now it’s playoff season for us. April 15 is game day, and even employees who could take voluntary retirement — the rest of the federal workforce, their date was in February —our date for them is in May. So I have three priorities for the IRS — collections, privacy and customer service — and we’ll see what level is needed to prioritize all of those.”

Despite the cuts in the IRS budget and staffing levels, the agency has spent relatively little of the funding it was set to receive under the Inflation Reduction Act before and after it was reduced. According to a report released last week by the Treasury Inspector General for Tax Administration, as of Sept. 30, 2024, the IRS has spent approximately $9 billion (16%) of its $57.8 billion in Inflation Reduction Act funding. The biggest expenditure was $3.7 billion for employee compensation. “IRS officials indicated that approximately $2 billion has been used to supplement its annual appropriation because the amount the IRS received was insufficient to cover normal operating expenses,” said TIGTA.

The TIGTA report noted that the Further Consolidated Appropriation Act, 2024, provided annual appropriated funding of approximately $12.3 billion for three out of four IRS primary budget activities for fiscal year 2024. However, Congress provided no appropriated funding for business systems modernization, which normally funds upgrades to IRS information technology systems.  

The IRS originally received $79.4 billion in supplemental funding when President Biden signed the Inflation Reduction Act into law in August 2022, and the extra funding was supposed to be used for improving the IRS’s enforcement, taxpayer services and technology efforts. Congress subsequently rescinded approximately $21.6 billion in IRA funding, reducing the available IRA funding to approximately $57.8 billion. In addition to the rescissions, the American Relief Act, 2025, which provides appropriation funding to federal agencies through March 14, 2025, froze another $20.2 billion in IRA enforcement funds. The report said this supplemental funding is available through Sept. 30, 2031, but it was released before the latest cutback from the stopgap funding bill that passed over the weekend, clawing back another $20.2 billion.

Last week, a senior IRS official told reporters that the IRS would be pausing its technology modernization efforts and reevaluating its approach to leverage artificial intelligence, according to Reuters. The IRS is going to be reviewing a number of its recent initiatives during the “strategic pause,” including its Direct File program for free tax preparation, which expanded from 12 states during a pilot program last year to 25 states this tax season. 

The IRS has also been facing questions over the security and privacy over the data in its systems after DOGE employees demanded access to its systems, leading to the ouster of IRS acting chief counsel William Paul, who was replaced by Andrew de Mello. A court granted a preliminary injunction against DOGE getting access to taxpayer data held by the Treasury Department in response to a lawsuit from 19 states, led by New York.

“The preliminary injunction that’s in place in New York v Trump prohibits any access to IRS data systems by people at DOGE or employed by DOGE,” said Anne Gibson, a senior legal analyst at Wolters Kluwer. “For the moment, that seems like it would prevent their access to IRS data systems, and if they were to access it, it would be in violation of the preliminary injunction. That said, this preliminary injunction is on the basis that the training, vetting and credentialing of the DOGE employees who did have access to Treasury data briefly was inadequate and wasn’t done properly. And the government is given an opportunity to file a report with the court explaining how they would give DOGE employees proper training, proper oversight, proper vetting, and if they could do that, the preliminary injection would be reconsidered, and that process has actually already started.”

A key date in that process is today. “The government submitted a report,” said Gibson. “It seemed to be only in relation to only one employee, but the court, on the basis of them following that report, set up a new briefing schedule, the final pieces of which are due on the 17th of March, so an opportunity for the government to file their motion, and for the states to file their opposition motion, and then for replies. That’s all due by March 17, and then we could see further action from the court, so there’s a possibility that that preliminary injunction, if the court is happy with the government’s new process, could be lifted relatively soon.”

A lawsuit has also been filed by a pair of immigrant advocacy organizations over the Department of Homeland Security’s demands for information from taxpayers suspected of being in the U.S. illegally, specifically from holders of Individual Taxpayer Identification Numbers, also known as ITINs. This reportedly led to O’Donnell’s abrupt retirement, as such a demand could violate Section 6103 of the Tax Code, which provides civil and criminal penalties for improper disclosure of taxpayer information.

“In terms of Section 6103, I think that’s a bigger issue,” said Gibson. “The restrictions on both disclosure of tax return information, or even just accessing tax return information that’s not for one of the specified purposes that’s laid out in that section, it’s very stringent, very strict requirements there, and there are criminal and civil penalties for violating that, and it specifically references the strict requirements for giving tax return information to the executive branch and to the President, in particular the agencies under the president. However, if that section were violated, any criminal or civil penalties would need to come after the Attorney General brings a case. That’s a question if that would happen. On the other hand, taxpayers can bring a lawsuit for money damages if their data has been inappropriately accessed.”

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