Understanding AI governance and risk management in accounting and finance

AS artificial intelligence (AI) sweeps across the professions of accounting and finance, it is shaping a new landscape that is both promising and fraught with challenges.

Jane Ohadike, who leads the Association of Chartered Certified Accountants' Public Affairs agenda across Africa, says as institutions harness AI’s potential for enhancing productivity, governance and ethical considerations should take precedence in steering the future of the technology.

The debate surrounding AI's role in financial regulations and practices is nuanced, she said. Early adopters of AIs are reaping substantial rewards, using the technology to optimise operations, enhance risk management, and create tailored investment strategies. However, a countercurrent of caution persists among professionals wary of AI's complexities and opaque decision-making processes. This ambivalence makes the fundamental need for trust in what AI produces an essential talking point within the industry.

Ohadike points out that while AI holds the promise of streamlining financial processes, it simultaneously introduces a host of security and data privacy concerns. The implications are particularly acute in highly regulated sectors like financial services, where failures in data management can lead to damaging breaches and devastating consequences. Thus, the establishment of robust AI governance structures is paramount. Yet many organisations are still grappling to find clarity and establish the essential frameworks required.

Effective AI governance entails a thorough understanding of the ethical principles, policies, and processes that govern AI systems. As Ohadike articulates, this requires a concerted effort across stakeholders to mitigate ethical threats effectively. It is not simply the responsibility of individual users, but a shared obligation that mandates fundamentally rethinking the processes and workflows currently in place.

The increasing complexity brought about by AI requires that organisations adopt more collaborative approaches to addressing emerging risks. Current frameworks, often inadequate in dealing with the unknowns of rapidly advancing technologies, call for a radical re-evaluation. The core challenge emerges from confirmation biases that lead to “blind spots,” resulting in a failure to see emerging risks associated with AI.

Furthermore, as organisations reassess their risk management strategies, it becomes imperative to align them with their overarching purpose. Gaps in current thinking reflect a lack of understanding surrounding trust and reputation management, making it crucial for firms to foster environments wherein shared knowledge is cultivated.

The narrative of risk management does not, however, undermine the foundational principles inherent to the accounting profession — integrity, objectivity, and accountability remain steadfast. Strengthening overall AI literacy within finance professions ensures that these principles continue to underpin decision-making, safeguarding the public's trust in financial institutions.

According to Ohadike, equipping teams with in-depth knowledge of AI will empower organisations not only to adopt it strategically, but to navigate the ethical frameworks required for its implementation effectively.