The arrival of artificial intelligence promises game-changers in all industries. But what if the rise of AI created new ways to simplify things — as well as a whole new set of complex client expectations for accountants? 

As businesses expect AI-driven solutions, accountants could find that what initially were accepted as benefits in cost-efficiency, speed, and enhanced service could be the most unexpected complications. Let us explore how AI’s promise to transform the accounting profession might go the unexpected way. 1. Faster service: When speed feels too fast for comfort. Where AI can automate repetitive tasks, accountants will process data faster than ever. This presumes that clients value that speed. 

Increased speed might mean that clients will demand information even faster than the speed at which it is created, without stopping to think about any deep analysis or nuanced judgment. 

The new challenge? Keeping up with unrealistic demands.

2. Value for money: The hidden cost of always expecting more for less. AI’s ability to perform tasks with minimum human intervention promises cost savings. However, the drive toward cost efficiency can be detrimental because it can feed into clients’ mindset that the value of professional accountants’ services would continue to drop. 

What is often left unsaid is that AI tools are costly in terms of investments in technology, learning, training, and keeping up with constant updates, and hence AI tools are not cost-neutral. Accountants will likely not sell any AI tool independently — so by itself, any AI tool won’t be a profit center. 

What is the paradox? Clients expect more for less, while accountants have to deal with higher costs to operate their practices. 

3. Better service: When AI lacks the human touch. Clients may also expect that AI will enhance service quality. After all, AI will be able to recognize patterns, predict trends, and perform complex calculations. 

In businesses where AI-driven processes take precedence over traditional ways of doing things, clients may miss the personal counsel, insight, and display of empathy accompanying human contact. AI, for all its power, cannot establish relationships and provide specific advice relevant to a client’s particular circumstances. 

The paradox arises: Better service in terms of raw data analysis does not equate to better service as perceived by the client.

4. Greater privacy: AI’s paradox of data security. Where there is AI, there is the ability to sift through enormous amounts of data at unbelievably fast speeds. This can open up a broad avenue for breach of privacy. At the same time — and quite rightly — all clients will expect AI to handle their sensitive financial data with more security than ever. 

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Yet the same AI systems that make accounting tasks quicker and more efficient are those prone to cyber-attacks, breaches, and intentional or unintentional mismanagement of sensitive information. It is an expectation, but the reality is that AI systems may not have perfect security, especially when it comes to human use of AI tools. Hence, it is essential to have an “AI use policy.“

5. More predictability: When clients expect crystal-ball forecasting. AI’s predictive powers promise more accurate financial forecasting, and clients may believe that AI will provide flawless predictions about future market trends, tax burdens, and revenue streams. 

However, AI is not perfect, and AI predictions are based on historical data that cannot predict unforeseeable events such as crashes, regulatory shifts, or political upheaval. 

As clients become more reliant on AI predictions, the likelihood increases that expectations will be set unrealistically high, and frustration will mount when predictions inevitably prove imperfect.

Navigating the AI-fueled expectations

With the rise of AI comes a whirlwind of expectations — faster service at lower costs, superior quality, greater privacy, and predictive accuracy. While AI can deliver on many of these promises, accountants should be aware of the new pressures created by such expectations. 

The future in accounting will be about mastering AI tools and managing the evolving and sometimes unrealistic demands coming hand in hand with those tools. As client expectations continue to grow, so must accountants balance the capabilities of AI with the irreplaceable value of human insight, judgment, and relationship-building.

It’s simple: Although AI may enhance processes, it cannot replace accountants’ multifaceted expertise. Accountants will need to communicate that to their clients effectively to be in a better position to turn these challenges of AI into opportunities for more profound, more impactful, more value-added services.

With its decision in Loper Bright Enterprises v. Raimondo, the Supreme Court ended a 40-year precedent established by the case of Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. of giving deference to regulatory agencies in interpreting legislation such agencies administer. 

While neither of the cases is a tax case, the decision in Loper has broad implications for the tax regulations written and administered by the Department of the Treasury and the IRS as well as the agencies tasked with the regulation of the alternatives industry. 

Under Chevron, the examination of regulations was subject to a two-step approach: 

1. Determination of whether there is ambiguity in the statutory language, and if there is, 
2. Whether the regulatory agency provided a permissible interpretation of the statute. 

To the extent both conditions were met, agency interpretation of the statute would receive deference, even if the interpretation was not one that would have been reached by the courts. Over the years there has been a move toward making ambiguity in the statutory language a given, leaving the courts with the determination of the reasonableness of the interpretation by the agencies. 

Loper intends to return the task of determining the best (as opposed to permissible) interpretation of the legislation to the courts. The Loper decision has the potential to have widespread implications for tax regulations and administration and provide opportunities for taxpayers, while creating a more uncertain regulatory environment. As it relates to tax provisions relevant for alternative investment firms, two could be specifically impacted. 

Code Section 1061 was enacted by the Tax Cuts and Jobs Act of 2017 and is intended to limit carried interest earned by alternative funds managers taxed at preferential long-term rates to amounts earned from the sale of assets held for greater than three years. While simple on the surface, the details of getting the goal of the legislation accomplished are quite complex and were largely left to the regulations to work out. 

One of the exceptions provided for in the Code, by Section 1061(c)(4)(A), is the exception for carried interest held by a corporation. On its surface, by the plain reading of the statute, the exception means provisions of Section 1061 should not apply to carried interest held by a corporation. However, Regulation Section 1.1061-3(b)(2)(i) was published to interpret Section 1061(c)(4)(A) and provides that the exception should not apply to a corporation that has made an election to be treated as an S corporation or a passive foreign investment company that has made a Qualified Electing Fund election. 

While many commentators have expressed a view that exclusion of certain corporations from the definition of a corporation for purposes of Section 1061 by regulation is an overreach and is contrary to the plain reading of the statute, to date taxpayers have been reluctant to take positions contrary to the regulation or to litigate the matter. As with other positions taken contrary to regulation, taxpayers’ decisions with respect to the application of the Section 1061 regulations may need to be reexamined in light of the Loper decision. Without the same deference awarded to the Treasury’s interpretation of the legislative intent and the statute, the courts may take a broader view of what “corporation” means for purposes of Section 1061. And the government, for its part, may need to take legislative action if its true intent was to exclude certain corporations from the exception provided for in Section 1061. 

The other area to watch with particular interest for alternative asset managers is the saga surrounding regulations under IRC Section 1402(a)(13). Broadly, Section 1402(a)(13) exempts income earned by limited partners from self-employment taxes. The exemption has been relied on by alternative asset managers, most commonly structured as limited partnerships, to exempt large portions of their net management fees from self-employment taxes. The struggle to define “limited partner” for purposes of Section 1402 has been undertaken by the Treasury when it issued proposed regulations in 1997 and by courts on numerous occasions, but most recently in the case of Soroban Capital Partners v. Commissioner. 

The 1997 proposed regulations tried to provide a functional test to determine whether an individual was a limited partner for the purposes of Section 1402. These regulations were withdrawn after the Senate specifically expressed concerns that the proposed regulations exceed the regulatory authority of the Treasury and indicated that “Congress, not the Department of the Treasury or the Internal Revenue Service, should determine the tax law governing self-employment income for limited partners.” 

In the Soroban case, the court has chosen to continue pursuing the functional analysis in determining whether limited partners in asset managers were limited partners for purposes of Section 1402(a)(13), most recently ruling that they were not. The IRS, however, has included regulation under Section 1402(a)(13) on its priority guidance plan for fiscal year 2023-2024. The year ended June 30, 2024, and the plan for 2024-2025 fiscal year has yet to be released, but if the self-employment for limited partners guidance remains on the priority guidance list, and the IRS in fact undertakes the task of providing regulations defining a limited partner, there could be tension between what impact the Loper and Soroban decisions would have on the direction the IRS takes in its rulemaking. It also can cause further confusion for the principals of asset management firms (as well as other service-type businesses operating as limited partnerships) and serve as a reminder to Congress that it indicated that the guidance on the matter should come from them. 

While the Loper decision does not provide any clarity or guidance on the complicated and uncertain tax issues facing alternative asset firms, it might provide opportunities for taxpayers to refine and redefine their tax positions in cases where current or prospective tax regulations do not provide the best interpretation of the statute.

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Talent acquisition and retention is a growing challenge in the accounting profession. Despite efforts to raise salaries, and firms diving deeper into the realm of artificial intelligence to make up for staffing shortages, experts say widespread changes are needed to refocus the next generation of talent on the future of accounting — not the present.

To start, average starting salaries for those with accounting majors fall short of those offered to business majors and applicants in the technology and finance sectors.

Data from Accounting Today’s inaugural salary survey found that average annual wages are uncompetitive at $65,000 and $88,000 for entry-level staff and senior team members respectively. It’s not until reaching managerial roles that average salaries go beyond six figures at $106,000 at small firms and $121,000 for those working at large organizations.

“The industry as a whole is not attractive to the younger population, and it’s difficult for our staff to work remotely,” Paul Miller, a CPA and managing partner at Miller & Company in New York, said in an interview with Accounting Today’s Jeff Stimpson. “We pay our staff above [the] industry average, we offer excellent benefits, we have a matching pension plan [and] more importantly … we treat people well and respect our staff.”

Read more: Misconceptions and mismatches: Dealing with the staff shortage

Wage disparities are only one piece of the puzzle, however. 

Leaders of audit firms and accounting practices have taken to integrating traditional and generative AI tools into their organizations to handle the mundane tasks that normally plague professionals. The challenge then becomes, how can firms effectively use this technology without outmoding the entry-level positions that would otherwise handle the mundane?

Shagun Malhotra, CEO and founder of Skystem, told Accounting Today last month that modifying accounting education and certifications to include a greater focus on technology “could make the profession more appealing and relevant to a younger, broader set of professionals,” she said.

“The focus needs to shift from routine compliance tasks to strategic, technology-driven roles that still add value to the business without wasting time on [un]necessary tasks,” Malhotra said.

Read more: Do we need a paradigm shift to overcome the accountant shortage?

AI adoption will only continue to grow as regulators become more knowledgeable and comfortable with the technology, which executives hope will ease the workload for accountants across the profession and, in turn, reduce turnover.

“We’ve asked tax and accounting professionals to do too much with too few resources for too long. … The burnout shows through high attrition rates and professionals committing highly visible errors,” said Elizabeth Beastrom, president of Thomson Reuters Tax & Accounting.

Read on for a look at the top talent struggles hitting firms across the U.S. and expert commentary on what factors are underpinning this trend.