A prediction agent analyzes large amounts of data to give probabilistic forecasts and insights on future events. One application could be to assist accountants in recording contingent economic events.
As an example, prediction agents can help determine the appropriate accounting treatment for contingent liabilities like pending lawsuits. A prediction agent can analyze historical legal data, defense strength, and claim merits to estimate the probability of an unfavorable outcome. This helps the accountant assess whether to disclose the contingency, accrue a liability, or take no action based on GAAP (ASC 450) probability thresholds.
Prediction agents can also improve decision-making in several other accounting scenarios:
Allowance for doubtful accounts: By analyzing payment patterns, credit scores, and economic conditions, prediction agents can estimate the likelihood of non-collection for each customer, enabling more precise allowances.
Warranty provisions: Prediction agents can forecast the likelihood and cost of future claims by examining past warranty claims, product failure rates, and usage patterns, helping accountants record accurate warranty provisions.
Impairment of long-lived assets: By analyzing market trends, industry data, and historical performance, prediction agents can assess the probability of impairment, helping companies make informed decisions about recording impairment losses.
