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3.1.2. Tax Like auditing, taxation was an early entrant into expert systems development (Michaelsen and Messier, 1987). Its plethora of rules and regulations make it an intuitively obvious and appropriate domain for expert systems development, particularly rule-based systems. The earliest development effort in tax was TAXMAN, a system primarily developed to investigate legal reasoning rather than accounting reasoning. TAXMAN-I, developed by McCarty, could represent the statutory requirements, but not the additional substantive requirements identified by the Supreme Court. TAXMAN-II, developed by McCarty and Sridharan, used a prototype and deformation model to represent the concepts involving substance over form. Systems that followed relating to U.S. tax law were BLAH, developed by Weiner, a system based on a subset of U.S. Income Tax Law that structured explanations so they did not appear complex and thus were easy to understand; TAXADVISOR, developed by Michaelsen, determined if the client met the profile for which the system was designed and, if so, provided recommendations regarding: potential insurance purchases, retirement investments, trust and tax shelter actions, transfers of wealth, and modifications to gift and will provisions; TA (Tax Advisor) developed by Schlobohm, COTES (Constructive Ownership Tax Expert System), and TaXpert developed by Black deal with the constructive ownership of stock for income tax purposes; INVESTOR, developed by Michaelsen, assists in the selection of real estate or oil and gas tax shelters. As the result of an environmental scan of artificial intelligence in 1983, the U.S. Internal Revenue Service decided to begin training employees in the emerging technology. By 1986 they had at least eight systems in progress (Needham, 1986). IRS systems addressed such diverse topics as identifying audit issues on tax returns, perfecting estate tax returns, assessing pension plans, processing tentative carryback claims, and allocation of income and expenses by multinationals. Systems relating to U.K. tax law included: CORPTAX, developed by Hellawell, models the tax law relating to Section 302b of the IR Code that deals with tax treatment for stock redemption; ACCI, developed by Roycroft, addresses the apportionment of close companies' income in the U.K. (Close companies are similar to closely held companies in the U.S.) The intended users were tax inspectors. PAYE was written in Prolog and its domain knowledge is U.K. employee income tax, National Insurance Contributions, and Statutory Sick Pay. A very interesting system related to Finnish tax law is FINSTEX (Financial Statements Expert), developed by Back (1991). It does the very complex task of financial statement planning that seeks to achieve high, stable earnings on financial statements while minimizing taxes. The system was demonstrated to both achieve high-quality results and improve learning by novices. 3.1.3. Management Accounting As would be expected for a staff rather than line function, the early work in management accounting was sparse. Early prototype systems include: PREFACE-EXPERT, reported by Senicourt, a rule-based expert system that identified financial problems with new projects and suggested ways in which to increase profitability while decreasing risk; FINEX, an expert support system for financial analysis based upon ratio analysis, used an "intelligent spreadsheet" approach to ascertain a company's well-being; Variance Analysis, a rule-based approach to variance analysis; Standard Cost Variances, which considered whether a particular variance merited further investigation; Sales Analysis produced a list of the items or salespersons that required attention because of possible problems with sales (Böer, 1989). 3.2. MOVING INTO PRACTICEIn 1986, with much fanfare, the major accounting firms began to publish articles about their development efforts. The large CPA firms have literally hundreds of relatively small semi-independent offices scattered around the U.S. and the world. Thus, systems for these organizations at that time had to run on relatively low-power personal computers to be used effectively in the field by their auditors. This requirement set severe restrictions on what could be deployed. The most prominent early commercial systems for use by a single audit firm were ExperTAX and Loan Probe. The primary motivation for development of commercial systems has been to automate processes that nonartificial intelligence techniques have not been able to automate. The desire to automate can come from a desire for higher-quality, more-consistent performance and from a desire to make the process more efficient. The earliest commercial entrants into the marketplace were motivated by a desire for better, more consistent performance. ExperTAX: assists auditors with assessing the adequacy of the deferred tax accrual and with tax planning. ExperTAX was developed by Coopers & Lybrand and was in field use by 1986. With over 2000 rules, ExperTAX incorporated both tax planning and auditing of the deferred tax accrual for corporations; thus, it related both to auditing and to tax. One of the goals of ExperTAX was to set a minimum standard of excellence for tax planning in all their U.S. offices. Later, modules for the insurance industry (1988) and the oil and gas industry (1989) were added. Loan Probe: assists auditors in assessing the adequacy of the loan loss reserve for commercial loans. Loan Probe was in field use by 1987. The system ran on a Macintosh and contained in excess of 7000 rules. Early papers refer to the system as CFILE -- it was called Loan Probe when used commercially by KPMG Peat Marwick. The system was deployed during the time when the savings and loan industry collapsed. While Peat Marwick had originally planned to market their system to others, they scrapped the idea because, given the climate, the risk was simply unacceptable. Use of the Loan Probe was discontinued primarily due to work flow issues. A stand-alone system with a relatively narrow task domain simply did not fit well in the audit practice environment. Another interesting early system is VATIA. Ernst and Whinney had 600 copies in use by May 1988, assisting with ensuring their clients' compliance with U.K. Value Added Tax. By 1991, all the Big 6 accounting firms had expert systems in use and under development. Brown (1991) lists well over 50 such systems. During the same time period, expert systems were developed and marketed for use by smaller public accounting firms, businesses, and the general public. ANSWERS assists auditors in audit risk assessment and audit planning. Other companies use ANSWERS for financial analysis tasks. Development of ANSWERS by Blocher began in 1984 and the product was formally introduced in January 1986 by Financial Audit Systems. Financial Advisor (renamed Management Advisor): developed by Palladian for advising managers in Fortune 1000 companies on products, projects, mergers, and acquisitions, including both tax and non-tax considerations. The system had an impressive list of experts (eight faculty members from the Sloan School of Management and MIT and ten senior financial officers from major corporations). With the introduction of commercial accounting expert systems, the nature of research and publications in the area began to change. In the period between 1987 and 1992, several conferences, journals, and books began publication that focused on accounting expert systems.
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