Save The Blue Frog

Tag: technology

  • The Emergence Of Catalytic Capital

    Are you a general impact investor or a catalytic capital investor?

    Have you noticed the new labels that are being attached to established sectors of the sustainability field? Resilience, for instance, now refers to risk management operations in the environmental sustainability sector. And Inclusion and Diversity (ID) is now a streamlined term for what was previously a major portion of Diversity, Equity, and Inclusion (DEI) programs.

    In the capital investment space, many are now utilizing the phrase catalytic capital to refer to a branch of the market. The word catalytic refers to the goal of employing investment capital to “catalyze” (or initiate) meaningful change. 

    But isn’t meaningful change the goal of all impact investments? Yes, and to a certain extent, catalytic capital simply refers to a rebranding of a longstanding branch of impact capital. While relatively risk-cautious impact investors tend to seek market-level returns that are commensurate with market-level risks, catalytic capital investors tend to accept below-market returns and greater levels of risk.

    Why would any one be attracted to lower returns and higher risk? It’s because catalytic capital investors tend to be more interested in jump-starting significant improvements in our environment, our society, and our economy. For instance, whereas a general impact investor may be content to allocate funds to a well-established utility company that offers generic renewable energy contracts, a catalytic capital investor may be more willing to invest in new transportation technologies that rely on miniaturized solar panels.

    Investors who require technical information about the catalytic capital market may wish to begin their research activities by perusing the general guidance of the Catalytic Capital Consortium (CCC). Interestingly, the CCC defines the mission of catalytic capital investors as the achievement of the United Nations Sustainable Development Goals (SDGs). Many traditional impact investors, of course, adopt precisely the same mission.

    For more advanced technical information, investors may need to review white papers and other specialized guidance. The Impact Finance Research Consortium of The Wharton School of the University of Pennsylvania, Harvard Business School, and the Booth School of Business of the University of Chicago, for example, has published a concise set of guidance titled Catalytic Capital in Impact Investing: Forms, Features, and Functions.

    Investors who fit the profile of today’s catalytic capital community have always existed within the impact investment market. Now that a new label is being attached to this community, financial professionals must become familiar with its evolving terms, definitions, standards, and other professional guidance.

  • Concerned That A.I. Will Destroy Your Accounting Career? Establish Your Future In The Profession’s One (Obvious) Area Of Job Growth

    Last week, at TXCPA Houston’s annual Fall Accounting Conference & Technology Symposium (F.A.C.T.S.), speaker after speaker addressed the future prospects of A.I. Although much of the content was optimistic in tone, an undercurrent of concern permeated the presentations.

    Why? It’s likely that A.I. applications will soon be capable of performing many current human functions in accounting and finance. Thus, if you’re a staff auditor who “traces and agrees” numbers that appear on different computer screens, or if you copy numbers from accounting documents to income tax forms, your activities are particularly vulnerable to automation via A.I. systems.

    There is a specific career path within the accounting sector, though, that will likely experience explosive growth because of A.I.’s increasing use. The Symposium speakers referred to it as A.I. Governance and Risk Management.

    Why is that a growth sector? Any new technology that performs an important activity inevitably malfunctions from time to time. Audit assurance activities must thus be applied to it, and measurements must be devised to manage the risk of technical failure. And over time, as any technology grows more proficient at lower-level tasks, it is inevitably applied to higher-level tasks, thereby generating the need for higher-level assurance activities.

    It may seem ironic that this projected job growth is expected to arise within the assurance function, a traditional service on which the entire public accounting profession was founded in the late 1800s. Nevertheless, if you’re concerned about establishing an accounting career path that is vulnerable to being rendered obsolete by A.I. applications, you may wish to consider a role that addresses the risks of implementing such activities.

    Information about the A.I. Governance and Risk Management functions can be found on the web sites of the Big Four accounting firms and many other assurance practices. Consulting firms outside of the accounting sector publish helpful information too, including those owned by firms in the human resources sector. And more technical information can be found on the web sites of publications that focus on data security and process management.

    Furthermore, to communicate directly with the authors, speakers, and thought leaders of the profession, you might consider attending future conferences of TXCPA Houston. The organization, for instance, has already begun to develop its 2026 Spring Technology & Accounting Resources Summit (S.T.A.R.S.). A.I. topics are sure to play a prominent role in the agenda of that event.

  • For Sustainability Accountants, New Entities Step Forward As The Federal Government Steps Back

    Sustainability accountants may have been worried when the U.S. Securities & Exchange Commission (SEC) permanently withdrew its climate change (carbon emissions) reporting requirements. What would they do? Were their jobs in jeopardy?

    Apparently, their employment prospects weren’t bleak after all. Last month, the private sector stepped into the void with the launch of the Task Force for Corporate Action Transparency (TCAT). The entity published new corporate standards regarding the reporting of climate change information, emphasizing the need for third party assurance (i.e. independent audit) activities on the data. The Wall Street Journal noted that Netflix, PepsiCo, and eleven other companies were already pilot testing the guidance.

    Likewise, accountants in the medical sector may have been concerned when the U.S. Department of Health & Human Services ceased the collection and reporting of various health metrics. Once again, though, a new entity emerged to assume this function.

    Which entity? Fifteen U.S. states announced the launch of the Governors Public Health Alliance. The group pledged to “share best practices, exchange data and collaborate on emergency response, vaccine policy and other technical issues,” activities that were once performed by federal government agencies. Two other alliances of U.S. states, one located in the Northeastern United States and the other on the Pacific Coast, previously announced similar pledges.

    Professionals across the political spectrum may be well-advised to review the output of these new entities. Those who believe in the federal government’s efforts to limit public reporting may need to understand how these new initiatives are attempting to replace the data. Conversely, those who support the principle of public reporting may need to implement the new guidance.

    Interestingly, it appears that sustainability accountants will continue to be “in demand,” regardless of the federal government’s role in defining relevant metrics and standards. As the federal government steps back and eliminates its requirements, other parties are stepping forward and establishing new expectations.

  • Worried About AI Hallucinations? You May Need To Add AI Sycophancy To Your List Of Concerns

    Many AI users are now familiar with hallucination risk. A recent article, appearing on the web site of the U.S. National Institutes of Health, explained that:

    “AI hallucination is a phenomenon where AI generates a convincing, contextually coherent but entirely fabricated response that is independent of the user’s input or previous context. Therefore, although the responses generated by generative AI may seem plausible, they can be meaningless or incorrect.”

    Such hallucinations create legal liability. Thomson Reuters Legal, for instance, recently discussed a well known case in the field:

    “An example of failure to follow (rules regarding false statements) when using general-use generative AI in practice can be found in Avianca vs. Mata, more widely known as the ChatGPT lawyer incident. In short, the defense counsel filed a brief in federal court (that was) filled with citations to non-existent case law. When confronted by the judge, the lawyer explained he’d used ChatGPT to draft the brief, and claimed he was unaware the AI could hallucinate cases …

    The judge didn’t take kindly to the lawyer’s laying blame on ChatGPT. It’s clear from the court’s decision that misunderstanding technology isn’t a defense for misusing technology, and that the lawyer was still obligated to verify the cases cited in documents he filed with the court.”

    In a different Thomson Reuters Legal article, the author wrote that:

    “In 2023, a judge famously fined two New York lawyers and their law firm for submitting a brief with GenAI generated fictitious citations. This was the first in a series of cases involving GenAI hallucinations in court documents, including a Texas lawyer sanctioned for similar reasons in 2024.”

    Fortunately, hallucinations can be individually checked for truth or falsity. AI sycophancy, though, may pose a much greater risk.

    What is sycophancy? An article that was recently published by Georgetown Law School defined sycophancy as:

    ” … a term used to describe a pattern where an AI model single-mindedly pursues human approval … by tailoring responses to exploit quirks in the human evaluators … especially by producing overly flattering or agreeable responses.”

    In other words, AI systems possess a tendency to tell users what they want to hear. As these systems learn more about the personal preferences and interests of their users, they may become much more skillful (and thus potentially more dangerous) in this practice.

    Sycophancy risk may be harder to manage than hallucination risk because sycophancy doesn’t necessarily produce discrete statements that can be individually confirmed or refuted. Instead, sycophancy can create a form of pernicious bias that subtly infects an entire AI response.

    Many organizations are now performing internal control and review activities to address hallucination risk. They may need to expand their efforts to address sycophancy risk.

  • Public Accounting Firms: The Impact Of Alternative Practice Structures On The Career Paths Of Young Professionals

    Many sources are reporting that the Graduating Class of 2025 is confronting an uncertain employment outlook in the public accounting sector. Some sources are noting, for instance, that firms are expanding their use of AI to complete tasks that were previously assigned to entry level staff accountants.

    There are other explanatory factors, though, that may be contributing to the challenging nature of the current employment outlook. One such factor may be the continuing growth of private capital investments in public accounting firms. Many of these firms are adopting alternative (dual) practice structures, with one business entity focusing on traditional attestation (audit) work, and the other focusing on newer and more profitable advisory (consulting) work. The bulk of the private capital is often invested in the latter entity.

    That may create a potential misalignment between the firms and their newly hired staff accountants. On the one hand, staff auditing and tax positions have traditionally served as the basic training positions for recent accounting graduates to enter the profession. But on the other hand, because the new investment capital is focused on consulting activities, these traditional entry points do not necessarily prepare new hires for long term career paths in advisory services.

    What approach can address this concern? One solution may involve the development of career paths that initially place recent accounting graduates in attestation and tax positions, and that later rotate the young professionals into advisory positions. This policy would maintain the traditional role of staff audit and tax work as the primary entry point into the profession, while providing a subsequent career path into the growth areas of the sector.

    This rotational approach should also prove attractive to young professionals who are inclined to agree with the sentiment that “I only have to prepare a tax return 15 times to know how to do it. I don’t need to do it 15,000 times.” Indeed, an acknowledgement of the need for basic training is embedded in this sentiment. Nevertheless, an acknowledgement of the need for a more value-focused long term career path is embedded therein too.

    Are there concerns about this approach? Certainly, given that firms would be tasked with the burdensome responsibility of developing such employment programs. Likewise, student applicants who seek career paths in the profession would be expected to develop resumes that contain (both) assurance and advisory service expertise.

    Nevertheless, the approach does eliminate the potential misalignment between potential employers and prospective employees. As long as public accounting firms and young professionals can look beyond their short term employment needs, it should be possible to create such long term solutions to these career development challenges.

  • A.I. Queries, Implicit Variation, and the Practice of Due Professional Care

    Are you aware that your A.I. queries provide documentary evidence of your practice of “due professional care” in researching business information? If you utilize an electronic platform with A.I. technology to search for business data, you could be held legally responsible for relying on inappropriate information that is generated by flawed queries.

    Let’s review an example or two of a flawed query. On June 19, 2025, I submitted the following query to Google Gemini: Please create an image of a person who is conducting his banking business at a very well managed community bank with strong internal controls. Gemini replied: Here is an image of a person conducting banking business at a well-managed community bank: 

    Then I initiated a new chat and submitted the following query: Please create an image of a person who is conducting his banking business at a very poorly managed community bank with weak internal controls. Gemini replied: Here is the image you requested: 

    Can you see the implicit variation? It’s not an easy task. Indeed, at first glance, both images appear to present a community bank that is serving a customer’s needs. And neither is employing a clearly visible set of particularly strong (or weak) internal controls.

    But look more closely. In comparison to the well-managed bank, the poorly managed institution uses far more paper to process transactions. The customer is informed of business procedures via a cluttered array of temporary signs. Even the technology in the poorly managed bank is inferior, as evidenced by the obsolete “chunkiness” of the computer screens.

    Those factors do not, however, represent terribly weak internal controls in community banks. After all, it is certainly feasible to effectively manage a paper-based business with temporary signs and relatively old technology. And the common factors that normally differentiate strong control environments from weak control environments, such as a visible security presence and enclosures that protect the privacy of shared financial information, do not exist in either image.

    There’s also a subtle bias that is embedded in the images. The well managed bank features younger individuals with friendly facial expressions who wear more stylish clothes. The poorly managed bank features older individuals with neutral facial expressions who are less stylish in appearance.

    Those are not distinctions involving internal controls. They are marketing images that pervade the internet. And yet Gemini offers them as differential factors that illustrate relatively strong or weak management conditions.

    These are two visual examples of the types of queries that may produce undesirable implicit variation in A.I. output. Because they lack specific information, the queries can be “red flagged” as deficient by auditors as falling short of the minimum standards of “due professional care.”

    What specific information? Co-founder and current President of OpenAI (the firm that owns ChatGPT) Greg Brockman uses layperson’s language to define what Inc. called the basic structure of the perfect AI prompt. To exercise an appropriate degree of “due professional care,” all firms should integrate such guidance with other supplemental material to develop their own policies and procedures for defining A.I. queries.

    End Note: Many thanks to my colleague Alan White of CU Accelerator and the Association of Credit Union Audit and Risk Professionals for their invitation to present this information at the ACUARP’s 35th Annual Insight Summit in San Antonio TX next week.