USC's Matt Shaffer on AI Earnings Analysis

INTERVIEW

Regular readers know that I wrote about white collar crime for a number of years for Bloomberg News in New York. And I learned that one of the most challenging types of cases to prove was accounting fraud — in part because there are so many judgement calls required.

Tax fraud cases are (generally) more straightforward: ‘You reported earning X dollars last year, but you actually earned Y dollars.’

Prior to ChatGPT, accounting judgement calls had to be done by human analysts. It’s hard to create deterministic rules for that task.

That’s what makes a recent academic paper about using GPT-4o, the current state of the art model provided by ChatGPT, to measure “core earnings” so interesting. The research, written by Matthew Shaffer at the University of Southern California and Charles C.Y. Wang at Harvard Business School, showed that ChatGPT could be used to estimate a company’s recurring profitability better than standard measures.

I spoke with Professor Shaffer for this week’s Five Mi…