New Technologies in The Accounting Profession

Introduction

The emergence of new technology in the accounting profession is changing the way accountants perform their work. Instead of carrying out tedious, mundane bookkeeping tasks throughout the day, future accountants will be able to focus on tasks that bring value to their firm or clients that derives from the repetitive tasks of recordkeeping. The data recorded by accountants is used by others, such as company officers and investors, to make important business decisions. This new technology will allow future accountants to take ownership of supporting analysis and performance management, a core competency of accounting, that is normally performed by those in upper-level management, and provide more in-depth services to their firm and clients.

For over 250 years, economic growth has been spurred by advances in technology. Economists refer to these more important advances as “general-purpose” technologies (Brynjolfsson & McAfee, 2017).

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These technologies have transformed how people communicate, transport, and live their lives. The engine revolutionized transportation with the rise of cars and trucks, which led to “big-box retailers, shopping centers, cross-docking warehouses, and new supply chains” (Brynjolfsson & McAfee, 2017). Accounting has been revolutionized in the past by the development of simple spreadsheets; the emergence of Visicalc in 1979, a software which automatically updated cell calculations (Brandt, 1998); the release of Quickbooks in 1998 for small businesses, an accounting software finally available for small businesses (Intuit, n.d.); and now artificial intelligence, robotics, and cloud computing. These “general-purpose” technologies to affect accounting can now perform decision-based tasks previously done only by humans.

Artificial Intelligence

The reason artificial intelligence is transformational is due to its ability to learn on its own without the need of human intervention.

We humans are incredible good at understanding how something works but have difficulty articulating our understanding. In other words, human knowledge is tacit, meaning that we cannot clearly express it, and automation requires clear articulation. Artificial intelligence receives supervised guidance by humans while it learns on its own. Although artificial intelligence learns from examples rather than coding, they are often exceptional learners. This will lead to the best professionals being outperformed at specific tasks, which has already happened, beating humans at chess and just recently the Asian strategy game, Go (Brynjolfsson & McAfee, 2017).

AI can assist auditors in enhancing audit quality by allowing auditors to quickly examine vast amounts of client data. Take Ernst & Young (EY) for example, where AI has been helping EY auditors convert intelligence into digital form. This information is then used to examine contracts and extract data from it with the use of statistical and basic text analysis. AI helps EY auditors analyze enormous volumes of data which they use to verify accounting compliance standards, such as lease accounting requirements that involves analyzing thousands of lease contracts (Sidhu & Persico, 2017).

Similarly, at Deloitte, their team of auditors have utilized AI to sort through thousands of contracts to perform risk assessments over the analysis extracted from the documents by AI. These population datasets can be assessed much quicker than an accountant. Deloitte does this by using natural language generation (NLG), which provides a detailed description of its analysis over documents. Deloitte incorporates this into its tax practice as well to present a detailed description of tax returns and uses the analysis to offer better defined guidance (Zhou, 2017).

EY has also been using AI to calculate the likelihood of accounting fraud by developing an accounting fraud prediction model, further enhancing audit quality. The model predicts the likelihood of misstated financial statements, “which can occur in 1 to 2 percent of a company’s financials statements each year” (Sidhu & Persico, 2017). Another way EY uses AI to identify fraud is by detecting fraudulent invoices for its clients. The system is operated by one of EY’s global clients who processes millions of invoices. This system is incredibly effective, having a 97% accuracy and it now operated by more than 50 companies (Zhou, 2017).

Crowe Horwath has begun troubleshooting complex billing problems related to the health care industry with the use of AI. The technology analyzes vast amounts of data from different billing systems of its health care clients and alerts the user of time-consuming and expensive complexities from claims and reimbursements. This allows the client to begin finding solutions associated to those complexities as opposed to waiting for them to make themselves known. This analysis saves Crowe Horwath’s health care clients hundreds of man-hours (Ovaska-Few, 2017).

Robotics

Robotics is another technology that is changing the accounting landscape. Robotics process automation (RPA) uses robots to automate actions performed by humans and execute them throughout various computer systems. According to Deloitte, the amount of work a RPA bot can perform in one minute takes an accountant fifteen minutes to do the same (Norfleet, 2017). This frees up more time for the accountant who can then focus on higher-level tasks. A RPA bot can be programmed to “scan an invoice in a PDF document attached to an e-mail, save the data into an Excel spreadsheet, log into a web system and enter the data to generate a report, all before e-mailing an employee to say the work is done” (Norfleet, 2017).

EY has heavily invested in the use of robotics. According to an analysis by EY, robotic process automation can give firms a competitive edge in two of the following ways: 1) reducing business costs, and 2) maintaining business controls (EY, 2016). RPA reduces business costs by taking over high-frequency tasks previously assigned to humans. At the same time, this increases the number of tasks completed by accomplishing more tasks in less time. The cost savings can be anywhere from 50% to 70% for certain automated tasks (EY, 2016). One of the benefits of implementing RPA software is that it is relatively quick to put into operation and relatively inexpensive since it can operate with existing applications. Moreover, RPA relies less on IT function and promptness, which allows for more governance over the implementation and adaptation process to a specific task.

RPA also allows a business to keep control of business functions normally done by external parties. Outsourcing specific functions allows companies to focus on core business processes. Tedious tasks can easily be passed on to a third-party, saving the company costs associated with labor while simultaneously increasing efficiency. However, this can cause sensitive data to leave the company, exposing it to possible intellectual property leaks from out-sourced companies with less stringent regulations. With RPA, business data stays within the company, further strengthening the company’s regulatory standards. This is an advantage to the company as IT will not need to cater to new regulatory requirements.

RPA has already proven to increase efficiency at various companies. According to EY, at an international general and life insurer, the use of RPA has increased the timeliness of reports by over 86% (2016). Reports that used to take 90 minutes to run now take 12 minutes. RPA has produced more accurate reports by reducing errors resulting from mistyping and formatting, and made it convenient for users to adjust the robot’s programming since it is installed locally. EY alone has implemented into its tax practice approximately 200 bots that they have built in-house. As a result, this has reduced process time by several hundred thousand hours (Norfleet, 2017). EY has already began assisting clients implement RPA into their business functions, which includes finance, procurement, and human resources (Norfleet, 2017).

Cloud Computing

Cloud computing has dramatically changed the platform accounting is performed on. Before the cloud, businesses were required to purchase a license fee, pay for annual maintenance, hardware, storage space and IT personnel. These fees are very costly for companies and difficult to afford for small and medium-sized enterprises (SME). Now with cloud computing, companies have lower upfront costs and have little to no hardware and maintenance fees.

Alexandra DeFelice (2010), senior editor at the Journal of Accountancy, describes cloud computing as “doing business on the Web.” This allows the user to access accounting information on-demand from anywhere and at any time. The National Institute of Standards and Technology (NIST), which provides technical leadership to U.S. companies on measurement and standards infrastructure, defines cloud computing as a “a model for enabling ubiquitous, convenient, on-demand access to a shared pool of computing resources” (NIST, 2015, p.1). Computer resources include storage space, software, or both hardware and software. As the definition states, computer resources are shared by various users and, since it is web-based, can be accessed by end-users via laptop, tablet, or smartphone. This an advantage for management accountants and managers since the ubiquitous ease of access of accounting information allows them to retrieve decision-making information in new ways, such as from a smartphone.

One of the primary, and unsurprising, concern businesses have when considering adopting cloud computing is regarding data security, as this chart from a study by the Chartered Institute of Management Accountants (CIMA) shows (CIMA, 2015, p.5). This concern is expected given the various media reports on leaks and cyber-security breaches in the past. What is even more surprising is that cloud computing is a lot safer than what most people believe it to be. Cloud technology providers offer security services that are often beyond what SMEs can afford regarding human capital and financial resources. There are big differences between how businesses and technology experts view cloud systems and this mostly results from a lack of understanding or communication between these parties. This misunderstanding can be cleared by educating management accountants on cloud based systems. One way businesses can feel safer when switching is by verifying that a provider has received an AICPA Service Organization Controls Report, which evaluates the effectiveness of controls over the provider’s system (DeFelice, 2010).

Conclusion

The accounting field is going to transform significantly in the future, especially with the exponential growth rate of technology. Artificial intelligence, robotics, and cloud computing are already transforming the way accountants perform tasks and make decisions. Accenture (as cited in Morehouse, 2017) predicts that 80% of finance services will be delivered by automation as early as 2020. Unsurprisingly, this has left many professionals wondering how they will adjust to this new change. However, the accounting profession is not becoming completely automated. What is becoming automated are the tedious, redundant, time consuming recordkeeping tasks. This will free up the accountant’s time to provide more valuable insights that stems from the recording process. The accountant that adjusts to this new change is the one that will thrive in this new environment. The way an accountant can start preparing for the new change is by embracing specialized projects at work, attending seminars, or taking classes.

Technology is excellent at performing specific tasks at nearly perfect quality and free from error. It is also great at answering questions, however, not at creating them. This is where the human element presents itself. Humans have the ability of noticing inconsistencies and exceptions. A human accountant has a warmth and personality that technology lacks. Technology helps humans become better at delivering value to the market. This new technology will not replace accountants, but those who use this technology will replace those that do not.