Coopers & Lybrand: an Expert System for Tax Planning

Accounting decisions made before business transactions occur are major determinants of how much tax firms must pay. These decisions involve inventory and accounting methods, asset acquisition and disposition, multiple state and international activity, intercompany transactions, employee compensation and benefits, and business acquisitions. Tax planning is the process of making accounting decisions that support the firm's objectives and business plan and are consistent with the latest interpretations of the law.

Coopers & Lybrand, a leading accounting firm, developed an expert system called ExperTAXsm to help its auditors work with small- to medium-sized client firms on tax planning. Its goal is to provide senior-level expertise for 10,000 clients served mostly by junior auditors who may not be expert in all the nuances of tax planning. It replaces questionnaires up to 200 pages long that senior tax experts previously had to wade through. ExperTAX guides the auditors through a tax planning analysis to identify decisions that will affect the client's tax liability for the year. Later, a tax expert prepares a written report that makes recommendations about the issues uncovered by the auditor's tax planning work with the client. ExperTAX thereby aids in identifying issues that need clarification but leaves the final recommendations to human experts. ExperTAX contains more than 3,000 rules developed by working with senior partners. It runs on IBM-compatible personal computers.

Questions:

1. Use the WCA framework to organize your understanding of this case and to identify important topics that are not mentioned.

2. Explain how this system conforms to or differs from the idealized model of an expert system.

3. Explain whether you believe an equally good system could have been developed using neural networks or case-based reasoning and, if so, how the system might be developed.

Sources: Kneale, Dennis. "How Coopers & Lybrand Put Expertise into its Computers." Wall Street Journal, Nov. 14, 1986;
Shpilberg, David, and Lynford E. Graham. "Developing ExperTAX: An Expert System for Corporate Tax Accrual and Planning." Auditing: A Journal of Practice and Theory, Vol. 6, No. 1, Fall 1986, pp. 75-94.

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