Big data for small accounting firms
Accounting firms often hear about the promise of data analytics and leveraging “big data” to drill down for insights to help their business clients.
However, many smaller accounting firms don’t have access to such technology, not to mention data scientists, analysts and researchers, to help their small business clients analyze vast databases to find ways to increase revenue, streamline operations, forecast more accurately, and better manage inventory to hold down costs.
Hitendra Patil, director of practice development at AccountantsWorld, sees ways that data analytics and other advanced technology such as artificial intelligence can be leveraged by even the smallest accounting firms.
“Audit technology seems to be the faster-moving one towards the future,” he said. “One of the reasons is that audit is done on the existing data and information. Everything is already in various systems, so it’s all a defined data set. It’s easier to implement analytics and AI on audit data rather than future transactional data for accounting. Audit will definitely move faster. That’s my personal take on where the technology is going to make a massive impact in the next 12 months or so.”
He sees the larger firms enjoying advantages over the smaller accounting firms, although the American Institute of CPAs has been working on developing audit technology that can be used by smaller firms.
“There are different segmentations in terms of the accounting profession,” said Patil. “People who benefit from these kinds of future technologies tend to be larger firms. The top 20 firms are capable of really applying and experimenting with them. Even the Top 100 firms will rely on technology service providers or solution providers to implement things for them. Some of the Top 100 Firms have their own programming capabilities, so they might develop some internal software to take care of or implement these newer technologies. But I personally believe that compared to a year ago, the total combination of machine learning, artificial intelligence, automation, cloud and blockchain have definitely matured more because there’s a lot of investment that’s going into these technologies by the larger tech companies.”
One of the hurdles for smaller firms is the proprietary data formats used by many software applications.
“The larger firms manage their own data,” said Patil. “They don’t use public software. They have their own accounting software and audit software, but they can always utilize all of that in the back end to analyze certain things, to do credit analysis and advisory. But what happens to the smaller accountants? Even if the smaller accountants were able to use big data in some way, what would their clients pay for? Would it really wow the clients? That’s something that’s hard to guess. As it is now, most of the accounting firms will be catering to smaller businesses. The majority of their clients are small businesses. Let’s say at $350 a month for basic accounting, how does one use big data analytics, which requires a lot of computing power? Big data, to that extent, is a little restricted in its application to the mass of the accounting profession. I look at big data in terms of an accountant using his own client’s data to derive insights by comparing the data with one another or across the clients.”
That kind of application might even be called “small data,” he noted. “Within the company database, from an accounting standpoint, you can do your standard analytics for whatever the software permits — export the data, do something in Excel — but that’s not big data at all,” said Patil. “If the small data is not being used, how can accountants use big data? That’s one question that I always had. For example, what we do at AccountantsWorld is within accounting software, we compute the financial ratios for each business automatically in real-time. Whenever somebody goes in the back end and opens up that module, you will see the latest financial ratios in terms of the latest information they already keyed in or brought in.”
Some accounting firms are also starting to leverage blockchain technology. Patil recently attended a blockchain technology conference and talked with one consortium that has invested in 79 different startups in the blockchain industry, which relies on the kind of distributed ledger technology that was originally developed for the cryptocurrency Bitcoin. Several of them are developing blockchain accounting applications.
“People are already buying and trading in cryptocurrencies and Bitcoins and things like that,” said Patil. “Let’s say I’m selling something worth $100 in hard dollars. When I sell that in cryptocurrency or I buy cryptocurrency and it falls 30 percent, what happened to my business? Those kinds of things I don’t think a lot of accountants and businesses are ready to deal with. One reason for that is there is no legal clarity in terms of whether the federal government or the SEC or ultimately the IRS for that matter would allow it 100 percent or not, so everybody is on the fence. Those are the things that are impacting the smaller accountants.”
He believes there needs to be more standardization of accounting data similar to the kind of standards used in the banking industry before the promise of big data will filter down to the smaller firms.