As the first blush of dawn bled through the blinds, casting long, ghostly shadows across the room, I slowly awoke in an unfamiliar bed. The quiet was almost unsettling. I found myself on the outskirts of Charlottesville, VA — a stark contrast to the relentless pace of New York City.
Outside the chirping of early birds signaled a world waking up at a leisurely pace. In contrast, I opened my laptop and typed the following question to ChatGPT, an artificial intelligence (AI) tool that is taking the world by storm:
“Conduct a financial evaluation of a merger between Pfizer and Merck using financial information in their latest annual reports and go online to find their latest market cap. Do a quantitative analysis and recommend if the merger is a good or bad thing.”
A response came back immediately, reporting the key financial figures used in its calculations and citing the annual reports it pulled data from. It then calculated a post-merger value. What caught my eye in its recommendation for the merger were the synergies it found, including a “stronger oncology pipeline (especially with Pfizer’s acquisition of Seagen).” Needing something stronger to recommend the merger, I typed, “How much would it increase shareholder value?” The AI calculated the pre-merger valuation and the post-merger valuation, including “Projected Synergies Impact: $4 billion in cost savings + 10% synergy realization on combined net income = $45.9 billion + $4.59 billion = $50.49 billion,” then applied an industry price-to-earnings ratio (PE) of 15.
Total time taken: 12 seconds. Potential Outcome: significant increase in shareholder value; $276 billion.
What is truly remarkable is that this analysis came at no cost to me and was completed in mere seconds. Without the aid of AI, compiling all the necessary information, performing the calculations and arriving at the same conclusion would have demanded significantly more time and resources. In essence, AI achieved the task faster, more economically and with greater efficiency. This transformative capability of AI will extend across all industries.
AI is not just the latest technological revolution; it is poised to be the most significant, having a larger impact than either the computer or the internet revolutions. To understand this impact, it helps to use a 200-year-old theory by Adam Smith.
AI’s Impact on Factors of Production
Adam Smith identified the factors of production as land, labor and capital, which have a high correlation to the production of goods and services. In other words, to increase production, you had to increase land, labor and capital, and this was true up until the internet revolution. In the last technological revolution, the internet decoupled the relationship between land and production. Blockbuster and Netflix exemplify this transition. Before the internet, increasing production in the video rental industry required more land as a factor of production. Post-internet, Netflix showed that production could increase without additional land use. This decoupling allowed corporations to scale output without scaling land. However, they still needed to scale labor, explaining why large tech companies employ many people. AI is poised to decouple labor from production, just as the internet decoupled land from production. Early indicators of this decoupling are visible in the tech sector, where labor reductions occur alongside increasing output as measured by revenue and earnings before interest, taxes, depreciation and amortization (EBITDA).
Why This is Important to Accountants
As industries consolidate and leverage AI, the competitive landscape will change, putting some clients out of business. Accounting firms that have not implemented AI to decouple labor from production risk losing market share. Firms that only provide transactional services like bookkeeping, auditing and financial reporting — tasks AI can easily perform — will face a race to the bottom until AI takes over. To survive, accounting firms will either have to diversify or expand into higher-value services and partner with AI to offer services like strategic financial advisory and virtual CFO services. These expanded services will not only increase their margins but grant accountants greater influence as trusted advisors, influencing how businesses transform and adapt to an AI-driven world. This critical role provides accountants with a unique opportunity to shape the future. By having an aspirational vision of the future and guiding clients to build such a world, accountants can change the world for the better.
Aspirational Vision of the Future
An aspirational vision of the future with AI is a world where all of humanity is healthier, wealthier and wiser. It includes advanced healthcare where the only cause of death is old age, a fair and just economy, people working because they enjoy the work that they do rather than for just money, and a welfare system that ensures all children can achieve their dreams. Without such a vision guiding our decision-making, profit maximization for shareholders will be the only guide. As trusted advisors, accountants have significant influence over corporate growth and can use that influence to guide corporations toward building a better future.
To demonstrate this, I typed the next prompt into ChatGPT:
“If we wanted to move towards a vision for an ideal world with the following characteristics:
1. Advanced healthcare where the only cause of death is old age,
2. A fair and just economy,
3. People enjoy their work instead of working for money,
4. Every child has the opportunity to achieve their dreams,
Would this merger between Pfizer and Merck be a good thing?
A response came back immediately with a lengthy two-page report not recommending the merger. Some salient points caught my eye, including:
Total time taken: 12 seconds. Potential Outcome: the world would not be a better place; Priceless.
While finance takes a random walk of valuation down Wall Street, let us accountants chart a course for a future we all value.