Your Ask Joey ™ Answer

What is a neural network in accounting and finance?

A neural network is a type of artificial intelligence that acts similarly to how humans process information. A neural network uses nodes that recognize inputs and process data to derive a desired output. What makes a neural network unique is that it can respond to changes in the data inputted and automatically adjust to still achieve the desired output. Typical statistical models rely on input data to be in a consistent format. So again, similar to how humans can process different information and react appropriately, that is what a neural network aims to accomplish.

What are the use cases for neural networks in accounting and finance?

Statistical models have been used for decades in accounting and finance to predict future outcomes or performance. However, those models always required adjustment if the inputted data changed. With neural networks, companies can use the data collected to plug into the neural network and not have to rework the entire model just because the data changed. Some example use cases for neural networks include:

Pattern recognition – Neural networks help finance and accounting professional identify patterns in the data they have collected, which allows the professional to make more informed business decisions. For example, sales data by customer could be processed through a neural network and could be used to identify customer purchasing behavior.

Forecasting data – Forecasting is critical for any company. A neural network brings another level of sophistication to forecasting.

Credit worthiness – Neural networks have been used to forecast bankruptcy, which helps banks assess a company’s credit worthiness when applying for a loan.

Valuation – Valuation models for every industry can be more accurate and sophisticated with the use of neural networks.

Back To All Questions

You might also be interested in...

  • Discontinued Operations on the FAR CPA Exam

    Overview of Discontinued Operations In financial reporting, discontinued operations refer to a component of a company’s core business or product line that have been divested or shut down. Discontinued operations will be reported (net of tax) separately from continuing operations on the income statement. The reason that discontinued operations are reported separately is so that...

  • Equity Method Excel Workbook

    If you would like to use the Excel workbook that was used to create the Universal CPA lecture on the equity method, please click the link below to download the Excel workbook: Equity Method Lecture Example

  • How Hard is the CPA Exam?

    So you’re thinking about taking the CPA exam? Whether you have a dream of becoming a tax advisor, feel as though you need public accounting experience, or just want to solidify your business acumen, the CPA license is one of the most prestigious and well respected licenses in the business world. The exam itself is...