Emerging new technologies in the accounting profession are transforming the way accountants perform their work. Accountants of tomorrow will no longer focus their time on performing tedious, mundane, and repetitive tasks, such as bookkeeping, but will be more focused on value-driven activities that are useful to their firms. Artificial intelligence ha significantly reduced the amount of time auditors would previously spend on tasks, cutting time from weeks to hours’ worth of work. Machine learning has been completely revolutionary, learning on its own how to find hidden insights and optimize data sets. Blockchain threatens to upend entire industries with its distributed ledger that is openly available across multiple users. Cloud computing has shifted how accountants access financial information from physical hardware servers to online databases. Accountants in the future will be able to take ownership of performance management and deep analysis, normally carried out by senior management, to uncover opportunities, mitigate risk, and provide their firm and clients what they want. However, this brings all new types of challenges that will require accountants to adapt quickly or see themselves replaced by those using this new technology.
Artificial intelligence encompasses a broad set of technologies, which includes the technology that has the widest range of available applications and complements the abilities of accountants: machine learning. This technology can recognize and apply patterns which it then uses to build its own algorithms from those patterns and hone these algorithms from feedback received. It has already been employed by large companies, including Netflix, Amazon, and accounting firms. Machine learning is able to learn by using existing data sets from which it seeks to understand the rules that produces a certain result. This is how Netflix provides suggestions based on your past ratings of shows watched to predict the types of shows you’d enjoy. Amazon uses the items you’ve seen, purchases made by other shoppers, and complimentary items to make suggestions of products you may like to purchase (Shimamoto, 2018). In accounting, EY has used machine learning to detect fraudulent transactions for its clients.
Machine learning is used by one of EY’s international clients that handles millions of transactions a year and uses it to identify fraudulent transactions. This is especially important when it comes to detecting fraudulent transactions that involve international customers, helping companies avoid serious penalties resulting from violating sanctions, anti-bribery regulations, or other provisions of the Foreign Corrupt Practices Act. This technology has proven to be very reliable and practicable, evidencing a 97% accuracy in detecting fraudulent invoices for clients (Zhou, 2017). Auditing tools such as IDEA and ACL look for exceptions in a parameter that the auditor then evaluates. After the auditor evaluates the exceptions and confirms or invalidates the exceptions, machine learning can learn from evaluating the auditor’s conclusion to find new data points that it could apply to other exceptions it finds (Shimamoto, 2018). Xero, an accounting technology company, uses machine learning to assist small business owners unacquainted with accounting to correctly code transactions to the right accounts. This system learns each time the accountant corrects errors related to their clients’ information (Jackson, 2017). JPMorgan Chased deployed a machine learning system that reviews commercial loan contracts; sifting through 12,000 commercial loan contracts in, what used to take loan officers 360,000 hours, now in a few seconds (HBR, 2015).
A risk with this application is that it could result in incorrect data bias, meaning that if the wrong information is learned, such as when an auditor clears the wrong items that should not be noted as exceptions, this would result in this error repeating itself in subsequent analyses. Another risk would be if machine learning analyzes data that has high volumes of fraudulent activity, it could take this information to mean be normal activity and not identify them as fraudulent if this information is highly permeated. Currently, there are no consistent guidelines that provide for there to be audit trials of these ever-changing algorithms, which get increasingly complex as the system learns from large data sets (EY, 2018).
The implications of machine learning on accountants is that the growing use of this technology on other parts of a company, such as the finance department, will mean that the accountant must ensure proper use of this technology by others and that internal controls are employed throughout the company. Machine learning can be used as part of financial planning and analysis to develop or improve data forecasting models. Internal auditors will need to ensure that they understand the compliance requirements of new projects and ensure that controls are designed properly to reduce machine learning risks from biased data. The impact of not mitigating risks of biased data could result in millions of items being processed incorrectly instantaneously.
Blockchain is beginning to change how transactions are recorded from the frequently-used double entry bookkeeping of accounting. This technology is a shared, trusted public ledger that is openly available for everyone to inspect but is not stored at a centralized place, as are general ledgers for each individual company. All users of the blockchain system keep this ledger up to date, changed only if strict rules are followed and by general agreement. Blockchain works by simplifying information into a code, called a hash, using mathematics scrambling. Attempting to alter the blockchain is immediately known since the altered hash does not match the original one (Economist, 2015).
Blockchain is capable of enhancing the way accountants perform their work by being less costly to maintain, reducing ledger costs, and providing accurate trails of asset ownerships. This would free up time accountants would spend on bookkeeping tasks and allow accountants to focus on planning and valuation responsibilities. Eventually, if blockchain is implemented throughout the business industry, bookkeeping and reconciliation tasks will be replaced by this more accurate system, resulting in the elimination of jobs in those areas. However, this system will strengthen those areas concentrated in value-driven activities, such as accelerating mergers and acquisitions since financial data is readily and accurately available, allowing more time to be focused on areas requiring involved judgement. For auditors, this could result in requiring less confirmations, sampling and validating transactions since financial information would be fully visible on online blockchains (ICAEW, n.d.). This would allow auditors to focus more on internal controls and inspecting anomalies and expand their assurance services to other areas that include cybersecurity and sustainability.
The next step for the professions using blockchain is helping standard setters and regulators determine the appropriate regulation for this technology. Wesley Bricker, SEC Chief Accountant Wesley Bricker, CPA, J.D., announced that the Office of the Chief Accountant has initiated its efforts to understand blockchain and encourages the accounting profession to participate in these efforts to identify potential effects on financial reporting (Tysiac, 2017). However, given that blockchain is still in its early stages of development, some believe that standard setters should not be so quick to develop regulation so as to not restrict the growth of this fast-evolving technology (Economist, 2015). Accountants will first need to familiarize themselves with blockchain to be able to become advisors to their clients on how to adopt this technology and the impact it will have on their client’s business. Eventually, they will also need to be able to act as the intermediary between technologists and business stakeholders on the implementation of blockchain.
Erik Asgeirsson, president and CEO of CPA.com, the technology division of the AICPA, has stated that the cloud computing is one of the important trends in technology that accountants should continue to familiarize themselves with. Moreover, he noted that “cloud computing has helped turn client accounting services into a high-margin, high-growth line of business for many firms” (as noted by Biery, 2017). Cloud computing is the provision of computer-based services over the internet, which includes servers, software, and datacenters. A survey by the National Management of an Accounting Practice in 2016 found that CPA firms’ employment of cloud-based computing has increased since 2014; 56% of which said they use cloud-based software, an increase of 48% since 2014 (May, 2016).
The Charter Institute of Management Accountants has highlighted some of the benefits of cloud-based technology which includes: better security; reduced staff costs; reduced hardware costs; and versatile services provided, including accessibility from various devices. One of the significant reasons companies are wary on the implementation of cloud-based computing is over fear concerning data security and protection. This is of no surprise since many media reports over the years have reported companies being breached by hackers, compromising sensitive customer data which includes customer names, addresses, and social security numbers. Interestingly, experts have suggested that cloud-based computing is more reliable than small business system configurations. Cloud computing gives accountants more flexibility since it gives them the ability to perform their work from anywhere at any time with accessibility being on the internet. To alleviate fears over security breaches, companies can obtain computer-based computing services from firms that have received an AICPA Service Organization Controls Report (SOC), a comprehensive evaluation of the firm’s controls and operating effectiveness over the system. For auditors, this would mean that they be wary of clients who do not use firms that receive SOC reports since online databases are highly likely targets for hackers.
The accounting profession is in the early stages of transformation, as the way accounting is rapidly evolving into value-driven activities. Mundane process accounting tasks will in the future be replaced by technology that will be able to record transactions on its own with the use of blockchain. Computer systems such as machine learning will be able to learn on its own how to analyze data more effectively, allowing auditors to focus on properly designing audit procedures, interpreting the results, and monitoring the effectiveness of the interpretations. Cloud-based computing will allow accountants to access accounting information remotely from different devices, allowing for quicker decision-making. By embracing these technologies, accountants will forego performing menial data preparation and use these technologies as tools to draw insights derived from the analyses of these technologies.
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