AI and Data Privacy in Accounting: What Firms Must Know

AI is now becoming widespread in accounting, driven by advances in cloud computing, big data, and machine learning. It has grown from basic automation tools for data entry and reconciliation into advanced solutions that support auditing, fraud detection, forecasting, and decision-making. 

The 2024 report from the Thomson Reuters Institute found that 30% of tax and accounting firms are considering the use of AI tools, while 49% do not plan to use them.   

One hard truth about innovation is that as technology evolves, so do the risks of using it. While AI offers significant benefits, it also introduces new risks related to compliance, data security, and unauthorized access to sensitive information.

In January 2025, Sage Group—an established provider of accounting and financial software—temporarily suspended its AI assistant, Sage Copilot, following a privacy incident.

When users requested recent invoices, the AI inadvertently displayed invoices from other customer accounts, effectively leaking sensitive financial data across unrelated clients. The issue, attributed to flawed data isolation in the AI’s design, was promptly taken offline for several hours to address the problem.

The Rise of AI in the Accounting Sector

The integration of AI in the accounting sector enables accounting professionals to focus on strategic decision-making and higher-value activities. Here’s how AI is revolutionizing accounting processes:

Automation of Repetitive Tasks

AI is now being used to automate routine tasks such as invoice processing, data entry, and transaction processing, reducing the risk of human error and ensuring reliable reporting. The use of AI in accounting processes enables CPAs and accountants to be more productive, allowing them to focus on their core strengths – strategic analysis and providing valuable business insights.

Enhances Data Analytics

AI can analyze vast amounts of data in real-time, identify trends and risks, and predict upcoming financial patterns. It can recognize data patterns that were previously resource-intensive and time-consuming. This helps businesses gain immediate insights into expenditures, cash flow, and profitability, which enables them to improve their financial forecasting. 

Fraud Detection and Risk Mitigation

AI fraud detection leverages statistical models, algorithms, and machine learning to analyze huge datasets and identify suspicious patterns that indicate fraudulent activities. This enhances visibility into fraud risks and increases confidence in the control effectiveness of controls, which often burdens accounting teams. 

Top 5 AI Privacy Concerns for the Accounting Sector

As accounting firms integrate AI into their daily operations, they must also recognize that AI presents some significant risks. Below are some of the key issues an accounting firm may face: 

• Data security and privacy: AI systems process vast amounts of data, raising concerns about the misuse of personal data and unauthorized access. This misuse of data may lead to the creation of manipulated images and fake profiles. 
• Algorithm bias and fairness: Algorithm bias in AI has gained significant attention in recent years. Since AI systems are trained on large datasets, any bias in the data can lead to biased outcomes. These biases may be gender, racial, political, or language-based and can raise serious concerns about fairness and accountability in financial decision-making.
• Data loss: AI systems may lose critical client data due to technical errors or natural disasters, causing major harm to both clients and accounting firms.
• Compliance and legal issues: AI systems may misinterpret or overlook context in complex compliance situations. Accounting firms must incorporate human reviews while making key decision points to ensure reliability and accuracy. 
• Lack of transparency: AI systems process data and deliver results, but the methods behind those results often remain unclear. This poses a significant concern in the accounting industry, where clear explanations are essential for compliance and auditing. Emerging risks, such as prompt injection, where malicious inputs can manipulate outputs, further highlight the need for stronger controls when applying AI tools to sensitive accounting data.

AI Data Privacy: Ethical Considerations and Best Practices

If you’re in an accounting firm using AI, you must be cautious. Improper use can jeopardize financial data and cost millions.

Here are the best practices accounting firms must follow to stay safe while using AI: 

1. Ensure Ethical AI Usage

Every accountant is bound by a code of ethics. When incorporating any AI tool into their processes, embedding ethical principles from the beginning is essential. Accountants should exercise caution when identifying bias in AI systems to ensure fairness.

If you use AI services for compliance or advisory purposes, ensure the solution provides a clear and explainable output. 

2. Avoid Adding Sensitive Client Data 

Different jurisdictions have specific codes of conduct; for example, the AICPA in the US and ICAEW in the UK explicitly warn against sharing client information with AI without proper safeguards.

Prohibit inputting client data into any AI tool, such as ChatGPT, as there will be no control over who the data is shared with and how secure it is. As it’s a public domain, inputting sensitive client data, including name, address, DOB, or financial data, on such tools will breach client confidentiality. 

This is especially dangerous considering laws like GDPR impose strict rules on personal data handling and international transfers, potentially leading to hefty fines and reputational damage.

3. Choose Trusted AI Tools

Choose only trusted AI tools that are reliable, secure, and designed for professional use. The right solution can boost productivity and improve efficiency, but it must also follow strict security and compliance standards. Always look for tools that promote responsibility and accountability in how they handle data and deliver results. 

4. Train Your Team 

Having a written policy clarifies what is permissible, sets expectations, and reduces accidental breaches. Training ensures all team members understand the risks, know which data they can safely input, and avoid mixing personal and business AI accounts, fostering a culture of compliance and vigilance.

Train your employees to use AI tools effectively, including how to craft better prompts and work with large language models (LLMs) for accurate outputs. Preparing your team with the right skills ensures a smoother and more secure integration of AI. Accountants must continuously update their knowledge to stay efficient and competitive. 

5. Maintain Human Oversight

AI can be a great tool for processes such as bank reconciliation, spotting patterns, or crunching numbers, but it does not have a moral compass. In highly regulated sectors like accounting, human oversight remains irreplaceable. Human expertise ensures that AI systems operate in a way that aligns with human judgment and ethical reasoning. 

Is Your Firm Using AI Responsibly?

The AI revolution is rapidly reshaping the accounting industry. AI offers immense promise for transforming accounting processes, but its success depends on balancing technology with human effort. Firms that combine AI innovation with human judgment will stay efficient and future-ready. 

So, it’s no longer the question of whether to implement AI in your accounting firm but about how efficiently you can use it to stay ahead of the competition. 

What are your thoughts about the future of AI in the accounting industry? Let us know in the comments below!