Five Accounting Functions That Will Be Impacted by Digitization
In my prior blog post I described the imminent threat that the “digital revolution” will have impacting the work and jobs of accountants and how they can mitigate the risks. In this post I describe the accounting functions most likely to be impacted.
As automation displaces a traditional accountant’s work it is important for those affected to have a positive and an optimistic attitude and consider the newly created upside potential for them to perform fulfilling work and higher cognitive tasks. Despite science fiction movies that present an apocalyptic view of robots the future should not be feared. This is because robotic software can, for now, only handle low-cognitive tasks and does not have a sense of self-preservation like humans. Regardless, we need to clearly identify where they will impact work the most. Here are 5 accounting functions that we believe will be highly impacted:
1. Transactional accounting processes
Clerical accountants are the most vulnerable to digitalization and automation because their roles involve routine tasks like bookkeeping and data entry. These tasks are easy to replicate with software rules because they are not complex. Even if the transactions become complex, cognitive computing software can often apply increasingly more powerful algorithms to complete the work.
Primary examples are customer order processing, invoicing, credit, accounts receivable, payment collection, vendor purchase order processing and accounts payable, payroll processing, and travel and expense processing.
For example, the segregation of duties with the three way document match in the vendor procurement process prevents organizations from paying incorrect or fraudulent vendor invoices. The purchase order, the vendor invoice, and a confirmation receipt can be processed by these different employees who approve each item with a keystroke. Another example is insurance claims processing improved fraud detection. An additional example is receipt reconciliation software that converts receipts into machine-readable data and automatically reconciles them with transaction data.
2. Fiscal period-end accounting closes
An organization’s period-end accounting tasks will also be impacted by digitalization and automation. Many companies use outdated systems and cumbersome manual accounting entries. The risk of digitalization for accountants is due to the increasing application of affordable commercial software that automates the workflow processes of the monthly, quarterly, and fiscal year-end accounting close.
Current period accounting close tasks often include consolidating two or more divisions comprising a corporation. Some may be in foreign locations and currencies. With software automation, tasks that would typically be left until the end of an accounting period are also executed much earlier. Reconciliations of general ledger income and balance sheet statements and of bank and credit card account balances lend to standardization and automation. Intercompany netting and settlement journal entries are also automatable. Tax statement processing and preparation involves following many rules making these tasks obvious candidates for automation.
Software can quickly access source data and apply tax calculation rules. Small businesses, similar to individual households, can now use commercial tax preparation software instead of hiring tax professionals from a third-party service.
The purpose of an audit is to obtain reasonable assurance about whether financial statements are free of material misstatements and irregularities due to error or fraud. Digitalization improves the quality of an audit in many different ways. For example, using an AI-expert system capable of scanning through 100% of the data and applying advanced analytics and anomaly detection in the audit can lead to better-informed risk assessments. It leads to a far more focused and relevant (higher quality based on risk) sample of transactions which increases the speed of engagements and decreases liability.
Computer-assisted audit tools and techniques (CATTS) are also increasingly applied to improve auditing. Traditional audits build conclusions based upon a limited sample of a population, rather than an examination of all available or a large sample of data. CATTS analyzes all the data searching for anomalies, such as post-dated transactions, and hidden patterns. Eventually sampling may be replaced with 100% data access to detect anomalies.
4. Business process outsourcing (BPO) of accounting tasks
The general term for third parties who perform outsourced accounting tasks is business process outsourcing (BPO). The BPO business model is typically based on fee-for-service pricing. With centralization and economies of scale from having multiple customers, a BPO provider can often perform both front and back office accounting tasks more efficiently.
5. Regulatory filings
Automation and technology have already begun to revolutionize regulatory compliance reporting. The implications are that rather than accountants requiring only mathematical acumen, mastery of tax laws, or bookkeeping proficiency, accountants can devote more time with increased skill to interpreting and analyzing financial information.
For example, eXtensible Business Reporting Language (XBRL) is based on a standardized programming language designed to communicate and exchange business information between business systems of different organizations. Using XBRL, a company can now digitally transmit its financial statement filings to government regulatory agencies. In the past, company accountants prepared and mailed the statements, and then accountants with the regulatory agency entered the data into their software system. As XBRL software automation increases, the regulatory filing tasks and analysis that are typically performed by company accountants will be automated, along with the reports generated from the analysis.
The impact on the jobs of accountants
As one begins to more fully understand the impact of software automation and the speed at which it will affect accounting jobs, accountants have two broad choices on how to react. The first is fearfully, wondering if they chose the wrong profession and should pursue a different career. The second is to seize the opportunity for change and embrace the positive and imminent impacts from automation. This includes preparing themselves for less tedious and more fulfilling work that will bring increasing value to their organizations, their clients as well as themselves.
The choice will be their own. No one has a crystal ball but my bet is they will make the latter choice.
ABOUT THE AUTHOR
Gary Cokins, CPIM
(firstname.lastname@example.org; phone 919 720 2718)
Gary Cokins is an internationally recognized expert, speaker, and author in enterprise and corporate performance management improvement methods and business analytics. He is the founder of Analytics-Based Performance Management, an advisory firm located in Cary, North Carolina at www.garycokins.com . Gary received a BS degree with honors in Industrial Engineering/Operations Research from Cornell University in 1971. He received his MBA with honors from Northwestern University’s Kellogg School of Management in 1974.
Gary began his career as a strategic planner with FMC’s Link-Belt Division and then served as Financial Controller and Operations Manager. In 1981 Gary began his management consulting career first with Deloitte consulting, and then in 1988 with KPMG consulting. In 1992 Gary headed the National Cost Management Consulting Services for Electronic Data Systems (EDS) now part of HP. From 1997 until 2013 Gary was a Principal Consultant with SAS, a leading provider of business analytics software.
His two most recent books are Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics, and Predictive Business Analytics. His books are published by John Wiley & Sons.