Automation: Don't panic!
Research from the University of Oxford has alarmingly concluded that accountants have a 95 percent chance of losing their jobs in coming years, as computers automate routine tasks such as data entry, basic data analysis and performance of audit functions. Tax preparation, which typically involves processing large amounts of predictable data, is said to face a 99 percent chance of being automated.
But don’t panic — while a significant number of accounting positions may be lost as machines perform redundant, repeatable and time-consuming tasks, many employers also stand to benefit from the transition. Accounting firms will need to shift manpower to focus on developing more strategic, consultative and value-additive initiatives within their niche practices.
We must invest in areas of technology, process development and operations, and become leaders in providing advanced solutions for improving business results and optimizing capital.
Here are three of the most innovative technologies poised to impact midsized firms in the accounting space.
1. Big data analytics
Big data analytics, the process of consolidating large sets of data through collection and condensation, allows companies to rapidly utilize data. It creates advanced methods to identify significant trends and make valuable interpretations from massive sets of data.
In a survey by the Association of Chartered Certified Accountants and the Institute of Management Accountants, 62 percent of companies globally cited big data as immensely important, potentially giving savvy management an edge on their competitors.
Organizations collect data from customer orders, social media interactions, email inboxes and smartphone applications, just to name a few. The Internet of Things allows access to unprecedented volumes of data, representing an opportunity for professional consulting businesses. Each day data grows by 2.5 quintillion bytes, continuously creating new challenges.
Big data analytics allows for a reduction in cost for companies that are prepared to take advantage of the transformation. A task that previously took two weeks may now take as little as an hour. If midsized accounting firms do not work to incorporate big data analytics in their practices, they will be priced out of the market. On the flip side, a number of accounting, finance, and consulting professionals will likely gain a competitive edge by having the capability to provide fresh and accurate insights to their clients.
Big data analytics is an opportunity for accounting firms to improve their internal processes by identifying areas of opportunity for new process development or even new products and service offerings. Big data analysis can also highlight and predict unique financial risks to businesses so they can be addressed in a timely and adequate fashion.
In a recent “Power and Perils” report, the ACCA and IMA used the term "new professional hybrids" to the describe accounting, finance and consulting employees of the future. While the report acknowledges that currently "accountants" are neither software engineers nor data scientists, it clearly implies that they may need to act as such.
2. Blockchain technology
Transactions conducted using blockchain technology will drastically reduce the amount of time needed to verify and confirm account balances. The benefits include standardization and reduction in human error. The technology prevents a company’s management from falsifying records during the audit process, as all entries are distributed and cryptographically sealed; falsifying or destroying them to conceal activity is impossible. As such, this innovation will alter the audit process significantly.
Blockchain technology allows auditors to automatically verify a large portion of the most important data related to financial statements. Thus, blockchain technology will reduce the need for the amount of testing by an auditor.
Most small businesses cannot afford to have their financial statements audited on a regular basis because audits are time-consuming and costly endeavors. The accounting profession will benefit from fully automated audits, as they will allow accounting firms to reach previously untapped markets due to reduced time and cost. As blockchain technology becomes more reliable, audits using the technology will become more widespread.
Blockchain technology can also revolutionize bookkeeping, as double-entry method bookkeeping could be eliminated. Records of transactions between debtors and creditors would be recorded on a blockchain network and on the debtors and creditors' private accounts simultaneously. Thus, bookkeeping would become instantaneous, unchangeable, reliable and trustworthy. Auditors would be able to rely solely on the records kept in the blockchain technology, which could eliminate any conflict of interest that may arise from independent audits.
Blockchain technology’s immutability as a general ledger makes it incredibly valuable to businesses. Information is not centrally stored by any business, organization or governmental agency. The technology provides a quality audit trail as well as transparency of transactions, changes or other actions along the business path. A good example of the applicability of the technology resides in regulatory compliance, which is expensive, time-consuming and inefficient. Regulatory compliance is a daunting process requiring a tremendous amount of documentation and verification. Smart contracts, “if/then” conditions and algorithms through blockchain technology can execute significantly faster and more efficiently than manual input.
3. Artificial intelligence
Artificial intelligence enables computers to “act human” by solving complex problems. Capabilities generally classified as AI include successfully understanding human speech and interpreting complex data.
A current focus within AI is cognitive computing, i.e., the simulation of human thought processes. Accounting practices can gain enhanced insights into a client's financial and business operations using tools driven by cognitive computing. Accounting software is also getting “smarter” by learning to automatically perform analyses and draw conclusions, which previously required human intervention. Machines utilizing cognitive computing have become more much commonplace at accounting firms and have begun taking over more mundane and repetitive tasks. Firms will benefit by incorporating this technology into their offerings so they can capitalize on its capabilities. Tasks like bank reconciliations, auditing expense submissions and invoice categorization can be systematically automated. As such, accountants will be free from routine and repetitive tasks and allowed more time for analyzing and interpreting data to provide valuable and meaningful assistance to clients.
The auditing profession, however, will likely need to develop new standards to evaluate the reliability of these systems.
AI and cognitive computing systems currently pose the greatest threat to accounting firms performing tax compliance. As these systems and applications prove effective, the routine nature of tax compliance preparation may no longer need to be conducted by humans. These technologies, which are much less expensive and more efficient, will likely transform the job landscape for tax accountants.
Cognitive computing is already being used in the accounting profession. Kira Systems created a software used to analyze contracts and other documents including investigations, mergers, contract management and leasing arrangements. Another example is H&R Block's introduction of IBM's Watson AI platform into its compliance offerings, using Watson to help inform clients about their filing options. Watson will take into account factors affecting clients’ tax outcomes, such as filing status, filing dates, and ordinary income. IBM trained Watson by feeding it thousands of tax-related questions and answers. As a result, the tax preparers at H&R Block can leverage the machine’s knowledge to analyze client information to find deductions and credits that otherwise could be missed.
Accenture uses AI for fraud detection. Its AI software analyzes real-time data generated from transactions and customer communications with the company. This software can assist auditors by ensuring bank information is reliable and trustworthy. The software will allow banks to spot fraudulent behavior among networks of people, dealers and parties involved in business. These capabilities are not just for Accenture, but they will be widely available to midsized firms that perform audit services by ensuring greater regulation of bank information.
Focusing on higher-end services
Rapid technological advances have led to innovation in the accounting profession at a pace that will likely accelerate over the next five years. Today’s midsized accounting firms will need to navigate around numerous technological advances as the digital economy continues to evolve. This metamorphosis will likely require a shift to higher-end, value-added services, a working knowledge of cutting-edge technologies such as AI and blockchain and the ability to employ big data analytics in optimizing strategic business decision-making.
To mitigate the stress that technological advances pose to the future of our profession, accounting firms will be well-served by quickly capitalizing on the new opportunities born from the transformation. Any chance to automate exhausting, time-consuming and redundant work functions should be welcomed by all. Accounting firms must shift the skill sets of their employees to be more analytical and computer-science-oriented as the repetitive, redundant, low-value-added services become marginalized and eventually disappear.
With rapidly evolving requirements, it will be challenging for any firm to excel. We should aim to embrace, harness and utilize all of the powers of technology that we can and adapt in a positive way for the betterment of our profession.