AITB No. 33 Accounting for AI-Driven E-commerce Recommendation Engines
Issue: How should entities account for costs and benefits associated with the deployment of AI-driven recommendation engines for e-commerce platforms?
Background: AI-powered recommendation engines analyze user behavior, past purchases, and browsing patterns to suggest products, enhancing sales and user experience on e-commerce platforms.
Guidance:
- Capitalization of Recommendation Engine Costs: Expenses related to the development or acquisition of AI-driven e-commerce recommendation engines intended for long-term sales optimization should be capitalized as an intangible asset.
- Expensing of Data Analytics and Personalization Tools: Costs associated with tools used to analyze user behavior data and personalize product recommendations should be expensed as incurred.
- Amortization of Capitalized Engine Costs: The capitalized costs should be amortized over the engine's expected useful life, considering technological advancements and evolving e-commerce trends.
- Benefit Recognition: Financial benefits derived from increased sales, enhanced customer retention, and improved average order value due to the AI engine's personalized recommendations should be recognized in the income statement in the corresponding period.
Examples:
- E-commerce platform G1 invests $2.5M in an AI-driven recommendation engine projected to be beneficial for 6 years. They would capitalize the $2.5M and amortize it over the 6-year duration.
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.