The rate of technological change within accounting firms over the past three decades has been astounding. Each new wave of hardware and applications was initially met with skepticism until pioneering firms proved those tools were more effective and made their firms more profitable, raising the bar to new standards in optimizing CPA firm production. While many firms are still transitioning to today’s standard of integrated tax and audit suites running securely in the cloud, the next waves of technology disruption are already in play. Along with the influx of foreign applications, new methods of data ingestion and big data analytics, the concepts of artificial intelligence, cognitive computing and blockchain/distributed ledgers are already proving successful in commercial business, meaning that CPAs need to explore them not only to service clients, but to understand how they can be used to improve their own productivity. Below we discuss a handful of technology disrupters that accountants should be aware of today.
Blockchain/Distributed Ledgers: Most CPAs don’t know what blockchain is beyond the handful that heard of it as the technology behind Bitcoin (a digital cryptocurrency). However, it is likely to be the most significant disrupter of accounting firm status quo as it is today’s most effective technology for making financial and similarly protected transactions unimpeachable. Blockchain uses distributed ledgers for somewhat of a “triple entry” accounting system capturing and validating entries in real time. Traditionally, a client made a transaction in their books and the recipient of that transaction made an entry in theirs (i.e. Bank or inventory supplier) which could then be under the scrutiny of auditors for verification. Distributed or “shared replicated” ledgers allow any such entry to be recorded simultaneously in a number of secure public ledgers, with the information verified as part of the chain of entries in that transaction block, making it virtually impossible to fraudulently change that information without breaking the chain. Banks, who have the most to gain immediately from this technology (as well as the most to lose if they are disintermediated) have spent hundreds of millions of dollars evaluating and testing how distributed ledger tools can further secure their transactions so as to protect their hold on financial dealings. This disruption will apply not only to the accounting systems that banks use to record such transactions, but to the clients that use these banks, and to the CPAs that can now audit such transactions more effectively and in real time. The first blockchain audit was actually completed earlier this year by Deloitte, which now has over 8,000 personnel assigned to their global blockchain team, yet most CPAs have only a vague awareness of the concept.
AI/Cognitive Computing: AI (Artificial Intelligence) is a type of computer science that directs technology to accomplish human tasks in a way that mimics human behavior or appear to be “smart.” When you add the ability to understand spoken inquiries and simulate human thought patterns you have cognitive computing such as IBM’s Watson made famous to accountants this past busy season by HR Block advertisements. While Watson is somewhat expensive and out of reach for the average CPA to consider using in their own practice, just about every one of us already uses some form of AI and cognitive computing in our daily lives without giving it a second thought. Whether asking Apple Siri to set up an appointment on your calendar, asking Amazon Alexa on an Echo Dot for a weather update, or having NetFlix/Pandora recommend a movie/song that you may like; you are using AI. The disruption will come to CPA firms when these skills are integrated into the accounting applications we currently use. Imagine asking your computer to securely log you into the tax applications/data that you were working on when you left the office the night before. Think of the benefits of having AI notify you of unusual accounting transactions or asking your audit program about assessing risk. These types of scenarios are already being discussed by the major accounting vendors who have all inked deals with the major AI players.
Automated Data Ingestion: The capturing of client accounting data usually goes through a process whereby the client must identify and deliver to the firm what they believe the accountant needs - which in turn must be perused by firm personnel for completeness and determination if that is what was actually needed to complete the work. The first phase of data ingestion which imports data from scanned images of client source documents into tax returns is already here and should be utilized by firms today. Significant resources are used in this process, with the client often acting as the middleman with their external providers (payroll, financial institutions, etc.) to get the data to their CPA. What if the client authorized their external providers to deliver their information directly to the CPAs so it could be automatically imported into their tax software? What if the government REQUIRED it for simpler, standardized returns and did a preliminary calculation of taxes, in effect disintermediating the accountant? This would significantly disrupt the less complicated compliance returns that many firms produce but could also greatly enhance the quality of tax preparation at the front end.
Big Data Analytics: The majority of business transactions are digitally captured in a variety of applications, many of which don’t interact with each other. The volume of digital data captured by companies has increased exponentially in the past decade making it increasingly difficult for personnel to analyze and interpret it with traditional applications. This is where data scientists and big data analytic software comes in to identify trends and connections between different types of data to be predictive and direct decisions for the organization. While analyzing financial information has traditionally been the domain of CPAs, external consulting groups focusing on big data are beginning to target this market and compete with accountants. This has prompted a number of the larger accounting firms to acquire Big Data Analytics companies as part of their consulting services giving them a competitive advantage in the marketplace.
Non-traditional Application Influx: Innovation within the three major US accounting application vendors has continued to be cautious and somewhat reactive; at times in response to the fear of losing market share or looking antiquated. Some would attribute the significant improvement in QuickBooks Online capabilities over the past few years directly to competition presented from Xero, which had created a successful cloud-based accounting and business partner ecosystem in New Zealand and Australia. These two countries, along with the UK, have developed a reputation of being more advanced in accounting automation and they are eyeing the US market to expand their presence. Consider the influx of advanced practice management solutions such as STAR, APS, and Practice Engine, data analysis provider Validis, and even Canadian providers such as Caseware and InformationActive as they fill the gaps not being met by the traditional Big Three accounting vendors. While we don’t anticipate foreign applications to compete with any of the US-based tax programs in the near future (unless there is a SIGNIFICANT tax code change), everything else in accounting, auditing, and firm management will be challenged in the next few years from robust applications utilized in other non-accounting US industries and from foreign application providers who’s products have already been proven successful in their respective countries.
Adoption of disruptive technologies has traditionally been slower within the CPA profession than other industries, but accountants have benefitted immensely once those tools and technologies were proven and implemented. The reality today is that the rate of technological change is increasing geometrically, making it more important than ever that we make a proactive effort to understand how they will impact our profession and our businesses so that we can take advantage of them in the future. Take note when you hear buzz words around the disrupters listed above; they will be in your firm before you know it.
Roman H. Kepczyk, CPA.CITP, CGMA, LSS BB is the Director of Consulting for Xcentric, LLC and works exclusively with CPA firms to implement today’s leading best practices and technologies incorporating Lean Six Sigma methodologies to optimize firm production workflows. Roman is also the author of the 2017 Edition of “Quantum of Paperless: A Partner’s Guide to Accounting Firm Optimization” which is available to members of the PCPS section.