AITB No. 22 Accounting for AI-Powered Sentiment Analysis Tools in Financial Markets
Issue: How should entities account for costs and benefits associated with the use of AI-powered sentiment analysis tools designed to predict financial market movements?
Background: Financial entities increasingly rely on AI to analyze vast amounts of news, social media, and other data sources to gauge market sentiment. These AI-driven tools can provide insights into potential market reactions, aiding in investment decisions.
Guidance:
- Capitalization of Sentiment Analysis Tool Costs: Costs related to the development or acquisition of AI-powered sentiment analysis tools intended for long-term investment strategy formulation should be capitalized as an intangible asset.
- Expensing of Data Subscription and Continuous Training: Costs associated with data subscription services or continuous AI model training to refine prediction accuracy should be expensed as they are incurred.
- Amortization of Capitalized Tool Costs: The capitalized costs should be amortized over the tool's expected useful life, considering technological advancements and evolving financial market dynamics.
- Benefit Recognition: Financial benefits resulting from improved investment returns, reduced exposure to market downturns, and enhanced trading strategies due to the AI tool's insights should be recognized in the income statement in the respective period.
Examples:
- Company V invests $3.5M in an AI-powered sentiment analysis tool projected to be beneficial for 8 years. They would capitalize the $3.5M and amortize it over the 8-year period.
Note: This is a fictional representation and does not represent any real-world standard for AI. The development of such standards would involve extensive consultations with experts, stakeholders, and the public. Fictional representations simplify complex AI concepts, stimulate discussion, envision future scenarios, highlight ethical considerations, encourage creativity, bridge knowledge gaps, and set benchmarks for debate in fields like accounting.