Technology is impacting nearly every industry, and accounting is no exception. Three technologies – data analytics, machine learning, and cloud computing – are changing the role of the accountant and providing greater benefits to businesses. Are you ready?
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Chapter 1: Data Analytics
Four types of data analytics are making inroads into accounting: descriptive analytics, diagnostic analytics, predictive analytics, and prescriptive analytics. Collectively data is big business – by 2027, global big data market revenue is projected to hit $103 billion.
The 4 A’s in Analytics
According to an article by the Journal of Accountancy, descriptive analytics describe what is happening by providing insight based on historical data, information that can be used for financial and monetary calculations. The journal also states that diagnostic analytics explains why something happened by examining the causes of past results, which could be applied to variance analysis and analytics dashboards. Additionally, the article says predictive analytics provides foresight by identifying patterns in past information, which could have applications in predicting an accounts receivable balance. Finally, the journal states that prescriptive analytics answers the question of what should be done in order to achieve the desired outcome. This could reduce the collection period, which could then optimize the use of payables discounts.
Data Analytics Skills
Accounting pros will need to develop skills in order to provide actionable insights. Data analytics skills can fall into the category of data exploration, data visualization, or predictive modeling. An employee skilled in data analytics must possess a keen sense of business context, an analytical mind, and technical expertise.
Data analytics skills will be applied in several scenarios. Some of these include the use of statistics, key business decisions, the use of relational and nonrelational databases, research and identification of anomalies and potential risks, the use of vendor risk dashboards, and data process mapping.
Chapter 2: Machine Learning
Machine learning is taking AI to the next level – along with accounting and auditing. It’s posed to be big business – worldwide spending on machine learning and AI is expected to reach $57.6 billion in 2021.
Categories of Artificial Intelligence
Machine learning is generally defined as the computer’s ability to recognize and apply patterns, create its own algorithms, and adjust those algorithms based on feedback. There’s also machine reasoning, which is the computer’s ability to apply its knowledge to processing data implications and then provides an interpretation or analysis. Additionally, deep learning is defined by a computer’s capacity to recognize relationships and associations and apply those to similar situations. Finally, there’s natural language processing (NLP), which describes a computer’s ability to comprehend human speech.
Auditors can use machine learning as part of their arsenal of Computer Assisted Auditing Tools and Techniques (CAATs). For instance, after an entity’s ledger is automatically analyzed, the auditor can either confirm or invalidate any exceptions, and then the machine learns from the auditor’s conclusions in order to apply its new knowledge to future scenarios. Additionally, an AI tool would identify patterns in transactions and conclude what “normal” transactions look like in order to identify exceptions. Machine learning can also be used in data analysis in order to refine or define data models.
Roles in auditing may change because of machine learning. For instance, internal and external auditors will be responsible for designing the procedures, interpreting the results, and monitoring the interpretation’s effectiveness. Machine learning may also cause change to accounting roles. According to an article published by the International Federation of Accountants, accounting roles will change to “providing better decision support rather than [focusing] on data gathering and manual analyses.” Accountants will also be responsible for addressing risks associated with AI by supporting effective governance and implementing internal controls.
Chapter 3: Cloud Accounting
Accounting is steadily moving toward the cloud; the numbers are clearly showing this transition. For example, the cloud computing market is projected to reach $411 billion by 2020.
Stages of Migrating to the Cloud
The first stage of migration is Stage 0, where no financial application exists in the cloud. In Stage 1, either one financial application or multiple applications without integration are added. Stage 2 sees multiple applications in the cloud with some integration. Finally, Stage 3 is achieved when multiple applications are in the cloud with full integration.
According to the results of a survey conducted by Dimensional Research, 11 percent of teams have integrated all their cloud-based financial applications, and 68 percent are close to full integration. Additionally, 97 percent of teams at Stage 3 consider technology to be positive, while 92 percent agree that cloud integration has improved work satisfaction, compared with 66 percent of those in Stage 1.
The cloud is impacting accounting in numerous ways, including customer relationship management, analytics, email, and elements relating to cloud management like tech support and asset management. Cloud benefits include continual accessibility, scalability, improved communication, and reduced software and hardware costs.
A Risk to Keep in Mind
The risk of cyberattacks for accounting firms is particularly high, which is why firms should consider a few cybersecurity-centric measures before selecting a cloud service provider. A level of mutual trust, proof of third-party compliance audit, data integrity, change management certification, and verified references are all things that should be top-of-mind.
Accounting has changed substantially, not just over the past few decades but also during the past few years. A profession that once relied on a pencil, paper, and a calculator is now being transformed by tech that can learn faster than humans. But as impressive as the tech may be, the human touch is something that can never be replaced. In the coming years, accounting professionals will play a greater role by providing decision support and guiding the application of technology across various business functions. An accounting education strongly rooted in technology will be the foundation for success in this field.