By Michael Izza, ICAEW Chief Executive
Global forces are reshaping the accountancy profession across the world. New ways of doing business, transformed by technology and shifting regulatory environments, mean accountants in business and practise are facing tough challenges and exciting opportunities. While some of these are not new, the scale of change and speed of transformation is without precedent. The rate of technological change that is around the corner, is likely to be significantly greater than any we have experienced to date.
Market research company Forrester reported that robots will eliminate six per cent of all jobs in the US by 2021—just a few years away. With increasing adoption of new technologies such as cloud computing, artificial intelligence (AI) and blockchain, there is wide debate around the impact that these advances will have on the scope and relevance of the audit of the future.
At best the profession as we know it will become less relevant and at worst we might not remain in business at all. But if we harness the opportunities that such technological disruption creates, then we have a very exciting and integral role to play.
CLOUD COMPUTING IS CRUCIAL TO THE FUTURE
The biggest impact IT has made on accounting is the ability of companies to develop and use computerised systems to track and record financial transactions. Computerised accounting systems allow accountants to process large amounts of financial information and process it quickly. In recent years, an increasing number of businesses have been moving away from on-premises accounting software in favour of cloud computing. Unlike on-premises software, cloud computing provides a secure method for storing financial information and an easier way for multiple users to access that information quickly, safely and cost effectively.
According to one of Forrester’s 10 cloud computing predictions for 2018, the total global public cloud computing market will be worth $178 billion in 2018, up from $146 billion in 2017, and will continue to grow at a 22 per cent compound annual growth rate. Cloud accounting transforms decision-making ability, as financials can be accessed all the time at the touch of a button.
The cloud streamlines your systems, meaning less paperwork, clutter and worry about backups or system resilience. Cloud accounting is seen as the way forward for accountancy firms, creating opportunities for growth and for reaping business benefits. It’s no longer a matter of whether businesses move to the cloud, it’s about when and with whom. Those that have yet to move to the cloud are not only at a competitive disadvantage, their very survival in an increasingly digital sector is also in doubt.
AI TO REVOLUTIONISE THE PROFESSION
Another technology that is a hot topic in the accounting world is AI. It’s simply the task of getting computers and machines to do tasks that require intelligence when done by humans. Most current AI is narrow in that it is created to deliver a specific task within certain programmed parameters. This means the AI is reliant on humans providing initial instructions and algorithms. AI is considered a fundamental advance in driving efficiency and quality of output. Unsurprisingly, the audit profession is also exploring the opportunities and potential for harnessing AI within an audit approach. Emerging technologies like AI present the audit profession with many opportunities to improve the way we work, to provide better services delivered in a more efficient way and bring enhanced insight into the audit process.
Just take one example of natural language processing—using advanced machine learning techniques, auditors are now able to quickly process, highlight and extract key information from electronic documents. These cognitive capabilities enable the auditor to assess a far broader population set in its entirety and focus effort on key items of interest and insight while the repetitive or low judgement area of extraction is automated.
BLOCKCHAIN COULD TRANSFORM AUDIT
Another industry-shaking technology is blockchain—a digital ledger platform for representing and exchanging things of value. It shows some promising potential for the accounting industry; many organisations are starting to recognise its potential and some are investing heavily in it. This technology will enable entities to share a common infrastructure for database retention.
Instead of companies keeping and then reconciling records of the same transaction in their separate, privately-managed databases or ledgers, both sides of the transaction can be recorded simultaneously in a shared ledger. It’s a process that is less prone to human error and fraudulent behaviour as it makes falsifying or destroying financial records practically impossible. The benefits of this include standardisation and increased auditing efficiency. Performing confirmations of a company’s financial status would be less necessary if some or all of the transactions that underlie that status are visible on blockchain. This proposal would mean a profound change in the way that audits work. The move to a financial system with a significant blockchain element offers many opportunities for the accountancy profession.
A blockchain solution, when combined with appropriate data analytics, could help with the transactional level assertions involved in an audit, and the auditor’s skills would be better spent considering higher-level questions. To become truly an integral part of the financial system, blockchain must be developed, standardised and optimised. Accountants are already participating in the research, but there is more for the profession to do. Crafting regulation and standards to cover blockchain will be no small challenge, and leading accountancy firms and bodies can bring their expertise to that work.
REGULATIONS ARE ALSO EVOLVING FOR TODAY’S RISKS
Changes in the industry are not limited to technology. The latest accounting standard issued by the International Accounting Standards Board (IASB) will have a fundamental impact across virtually every entity in the Middle East. Called IFRS 16 – Leases, it changes accounting practices that have been accepted for many years, collectively moving trillions of dollars of assets and liabilities on to companies’ balance sheets around the world. It highlights the benefits of technological integration into the accounting world. The impact is expected to be pervasive, the need for clarity is paramount. Even for small to mediumsized businesses, the task of becoming fully compliant could be labour-intensive.
The adoption of modern technologies is a must for businesses that want to achieve compliancy. This new standard gives organisations the opportunity to reassess where they have been going wrong and put measures in place to ensure future financial reporting is organised, transparent, and most of all, compliant. Preparation, transition, and ongoing management of leases under IFRS 16 is complex—it requires in-depth analysis of portfolios that, if not done correctly, will have catastrophic consequences at some point down the line. Companies will have to trawl back through old documents, sometimes many years old, to identify the relevant lease information that is subject to scrutiny under the standard.
It’s highly likely that these documents will contain missing or incomplete information, further complicating the process. Lease management software is now intuitive enough to assure compliance throughout the entirety of an organisation’s IFRS 16 project, from identification and abstraction, to calculation and ongoing management.
THE ROLE OF ACCOUNTANTS OF THE FUTURE
No need to panic, the finance profession need not worry just yet. Yes, it is inevitable that some functions, like bookkeeping or compliance work, will be done by machines. But this is already happening. Nor is it a bad thing—with machines generating better, cheaper data and new insights, accountants will be free to refocus on problem solving, strategy, relationship building and leadership. It will, of course, mean change. The profession will have to adapt, learning new skills, such as data analytics, and sharpening current ones like communication and strategy as the nature of the value they add changes. It is likely that auditing and assurance will need to be applied to algorithms themselves, or to training models. And regulators and standard setters will need to build their understanding of AI and be comfortable with the associated risks.
Some roles will undoubtedly be eliminated, however there will always be a need for skilled, human auditors who can apply sound judgement and arguably this is even more important in an increasingly technology-enabled world. After all, who will decide what information should be fed into technology-enabled tools? Who will interpret and communicate the results? And who will ensure that end users can rely on the output from these tools and have a robust understanding as to how risks such as cyber threats have been mitigated?
For the future, the mix of skillsets is critical. The profession will need people who have accounting skills but who are also extremely IT literate. Analytical capability is coming to the fore—and also the ability to code and work with a range of new technologies. As a profession that is steeped in tradition and surrounded by frameworks and concern for regulatory challenge, it is going to take a concerted effort to embrace and proactively respond to the opportunities and challenges that the digital and technological revolution will bring. Technological disruption is not a distant future state—it is here and now. If the profession is going to remain relevant it needs to embrace these changes.