What is ISO 42001? Breaking Down the Ethical AI Standard

Key Takeaways:

• ISO 42001 Explained: ISO 42001 is the first global standard designed to ensure ethical and responsible AI use. It addresses unique AI challenges like hallucinations, algorithmic bias, and data privacy risks.
• Why It Matters: This certification builds trust by showing a commitment to ethical AI practices, mitigates AI-specific risks, and streamlines compliance with regulations like GDPR and SOX.
• FloQast's Advantage: FloQast is among the few companies with ISO 42001 certification, demonstrating our dedication to safeguarding sensitive data through transparent, auditable, and secure AI processes.
• Future-Proofing Businesses: ISO 42001 positions organizations as forward-thinking leaders in AI innovation, protecting against evolving regulatory and operational risks.
• Trusted AI Agents: FloQast’s AI Agents follow ISO 42001 standards, automating workflows while ensuring the highest levels of security and ethical accountability.

Let’s face it: we like to do things a little bit differently—especially when it comes to our users’ data and privacy. 

By now, you might have heard that FloQast is one of the few companies with ISO 42001 certification. But what exactly does that mean? Let’s take a look at the origins of ISO 42001, what it means, and more specifically, what it means for FloQast users. 

In the words of FloQast’s Senior Director of Compliance Risk & InfoSec, Vicky Levay, “AI comes with its own unique set of considerations. We think about things like hallucinations and ghosts in the machine…they’re not security risks, they’re not privacy risks—they’re very unique AI risks.” ISO 42001 certification proves that we have the tools necessary to prevent these risks. Hear more here:

What is ISO 42001?

ISO 42001 is the first global standard specifically developed to ensure ethical and responsible use of AI. Created by the International Organization for Standardization (ISO), this framework outlines how organizations across all industries should design, deploy, and manage their AI systems. By following these guidelines, businesses can ensure their AI is ethical, transparent, and auditable.

Think of it as a globally recognized baseline for handling AI risks. AI comes with its own challenges—none of which are anything like the risks of past technology. ISO 42001 provides guidance on mitigating AI-specific issues like hallucinations (when AI confidently offers inaccurate information) and how to protect private data during interactions with AI.

Key Highlights of ISO 42001:

• Focus on ethical AI: There are quite a few traditional data privacy or security standards out there. However, ISO 42001 zeroes in on the unique risks posed by AI, such as algorithmic bias and misuse of sensitive data. These are new, hard-to-prevent issues. However, ISO 42001 has created the framework to protect sensitive data that the AI tool has access to.
• Auditable framework: Organizations can achieve ISO 42001 certification by having their AI processes audited by accredited third parties to ensure compliance. These audits are rigorous and ensure organizations can repeat their processes without issue.
• Global trust: With ISO being the “gold standard” in compliance, attaining this certification shows both customers and stakeholders alike that your AI operations adhere to the highest ethical practices. We believe in building (and maintaining) that trust with our customers.

For those familiar with certifications like ISO 27001 (information security) or SOC 2 (security and availability for SaaS), ISO 42001 builds on that structure, but tailors it specifically for AI.

Why Does ISO 42001 Matter?

AI’s growing dominance across industries has brought in many new opportunities—but also heightened scrutiny and concerns. Here’s why ISO 42001 matters for enterprises:

1. Mitigates Unique AI Risks

As mentioned before, AI presents risks not typically encountered with traditional technologies. These can include:

• Hallucinations: AI might present incorrect information in a convincing way, leading to potentially damaging decisions (or fraud).
• Prompt Injection Attacks: Cleverly crafted inputs can successfully trick an AI into sharing sensitive or unauthorized data. One of the best ways to prevent a prompt injection attack is by keeping data separate. As Vicky LeVay says in our latest episode of Blood, Sweat, and Balance Sheets: “We built our runners in isolated environments, and not every company can say that, but no, we do not commingle data."
• Algorithmic Bias: AI systems might produce results that unfairly favor or disadvantage certain groups if biases exist in training data.

ISO 42001 helps organizations identify these risks and implement strict controls to mitigate them.

2. Builds Trust with Customers and Stakeholders

Using an ISO 42001-certified AI provides a clear signal to your customers, investors, and partners that your organization is prioritizing ethical AI practices. For anyone concerned about data privacy or legal compliance, this certification ensures their confidence in your technology.

For FloQast, we know that many of our customers handle sensitive financial data day in and day out. We are committed to offering only useful tools and features that won’t jeopardize your organization’s data. As a result, we put in the work and time to earn our ISO 42001 certification. Working with us means you can claim your AI has been certified to mitigate risks and ensure privacy.

In Vicky LeVay’s words, "We just know what we need to deliver to our customers. It’s really easy to think the way they think because we are them." FloQast is comprised of accountants, auditors, and compliance specialists who know the importance of these protections. 

3. Future-Proofs Your Organization

AI is integrating into many industries. Using a system with ISO 42001 now positions your organization as a forward-thinking leader, ready to handle what’s next in AI innovation, while ensuring resilience against any potential regulatory changes.

4. Streamlines Audits and Compliance

Whether it's Sarbanes-Oxley (SOX), GDPR, or your industry-specific requirements, ISO 42001 ensures that the AI systems your organization uses meet high compliance standards. This can help streamline audits by saving time and reducing risk.

Why Choosing ISO 42001-Compliant Partners Matters 

If your business intends to use AI to handle sensitive data (as many industries are), the stakes couldn’t be higher. With data breaches and privacy scandals dominating headlines, the real question isn’t whether your business can afford to adopt cutting-edge AI—it’s whether you can afford to adopt it irresponsibly. That’s where the importance of ISO 42001 comes into play. 

ISO 42001 isn’t just another checkbox in a long list of compliance requirements. It’s the gold standard for ethical AI practices, providing a thorough and robust framework to ensure transparency, accountability, and security in how artificial intelligence systems manage and process data. But here’s the catch—most businesses implementing AI have not prioritized ISO 42001. That’s why partnering with companies that have achieved this certification is the smartest move you can make to protect your organization and its reputation. 

By selecting an ISO 42001-compliant partner like FloQast, you’re not just opting for innovative AI solutions—you’re committing to the highest trust and transparency standards that exist around AI. This means ensuring your sensitive data is safeguarded against misuse while also aligning with stringent ethical practices that gain the confidence of clients, regulators, and stakeholders. It’s a win-win approach for businesses serious about positioning themselves as leaders in a fiercely competitive, AI-driven world. 

AI Agents and ISO 42001

ISO 42001 certification is particularly critical when it comes to AI agents, as they are becoming more and more popular to streamline business operations. These agents, designed to automate tasks and enhance decision-making processes, often rely on vast amounts of sensitive data. Without the right guidelines in place, AI agents use can introduce massive risks, including breaches of data privacy, biased algorithms, and misuse of information.  

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That’s why we created FloQast AI Agents. We’ve developed AI Agents that automate complex workflows across accounting, compliance, and reporting, freeing accountants to focus on strategic decision-making and business insights. Of course, the agents do so with the security and auditability of ISO 42001. Our agents were created with the highest ethical standards, allowing businesses to confidently implement them to increase efficiency and maintain trust.

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For organizations considering AI agents, ISO 42001 certification should not be overlooked. It’s a proactive measure that not only protects your business but also builds confidence among stakeholders, knowing you prioritize ethical and secure AI practices. 

Why FloQast’s Achievement Sets Us Apart 

At FloQast, we’re proud to be among the few companies that have achieved ISO 42001 certification. For our clients, this translates to more than just peace of mind—it’s a tangible assurance that their data is in the safest hands possible. From automated workflows that streamline accounting processes to our AI-driven solutions, everything we do is underpinned by a commitment to ethical, secure AI practices. 

If your organization values data security as much as innovation, it’s time to consider who you trust with your AI needs. Finding a partner that prioritizes ISO 42001 isn’t just a nice-to-have—it’s an investment in your future. 

Reach out to schedule a demo and learn more about FloQast’s commitment to ethical, auditable AI.

Listen to the ISO 42001 episode of Blood, Sweat, and Balance Sheets here.

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