The accounting profession is heading into the greatest period of change and disruption it has ever seen.
That's the view of Rick Richardson, CPA/CITP, CGMA, founder and CEO of Richardson Media & Technologies. And the technologies driving that change are the focus of discussion for Richardson and his fellow participants in the 2018 JofA accounting technology roundtable.
The JofA has been convening the virtual roundtable annually since 2011, but this year's version, recorded in late January, comes with a couple of twists. First, the panel of accounting experts gathered for the conference call was a complete refresh from the panel of the past two years, bringing different perspectives and experiences to the conversation. Second, the discussion took more of a forward focus than it has in the past, concentrating on the technologies fueling the change and disruption that Richardson — and many others — predict.
As has become tradition, the JofA is publishing an edited transcript of the conference call in two parts. Short profiles of the panelists — Alan Anderson, Richardson, and Amanda Wilkie — are below. This issue's segment covers the effects technologies including blockchain, big data, data analytics, and artificial intelligence may have on the accounting profession. The second part, which will run in the July issue, will continue that discussion and also touch on what CPAs should be doing now to prepare for the accounting world of the future.
Rick, how do you see technology transforming the accounting profession over the next five to 10 years?
Richardson: The top 100 firms, over the next five to eight years, are going to see much more consolidation than we have seen in the past. The top four are certainly going to be acquiring some of those in the next 20. It's clear that auditing, just because of the impact of blockchain, is going to be done by firms with far more technology capabilities than we have seen in the past. I think a large number of smaller firms unfortunately are going to disband. They are either going to cease holding themselves out as CPAs, or they are going to generalize their business to more general advisory services.
The ones that I am most excited about are the small firms that are going to start collaborating with each other, creating small networks where they can share a niche expertise with each other and call on each other when their client needs a skill that they don't have. So, if I had to look five to 10 years out, I think the biggest single issues are going to be consolidation in the upper end of the profession and a lot of dropout in the small end, but a lot of very successful collaboration as well.
Alan, how do you see technology advances transforming the audit?
Anderson: The technology advances are going to come in two phases. In the first phase, technology will certainly enhance and enable much greater leveraging of data. Auditing will become data-driven, and the use of data analytics and artificial intelligence will change how historical financial statements are audited.
In the second phase, the next question we will begin to ask is, "How valuable is the historical financial statement audit as technology continues to advance?" I fully believe that the assurance model for our profession — through the advances of technology — will ultimately transform to focus on the people, processes, and systems they are using. It's going to be an interesting transformation.
Amanda, could you briefly explain what blockchain is and how it works?
Wilkie: Blockchain started as a distributed ledger for bitcoin. It gets its name because it processes the transactions in a group known as the block, and it adds each new block to the end of the ledger — or at the end of the chain. It was really attractive for use because it was transparent, resilient, immutable — all without a third party. It actually achieves all these traits using techniques and technologies that have been around for quite some time. It uses cryptography to be transparent. It uses public/private keys to allow access to specific data by specific people who have those proper keys. It's resilient by distributing a copy of the ledger to each computer on the network. It's immutable by using what's called hashing algorithms to mathematically link each of those blocks together and to prevent them from being changed once they are on the chain. And it does this all without a third party. The settlement of those transactions is automated by the computers that are on the network using a consensus algorithm.
Now, that was the beginning. Blockchain has quickly evolved. We have got new ledgers that have been developed. We have new tools that allow us to build applications that interact with these different ledgers and write a variety of different data to these ledgers. So, it's much more than a database for just transactions. It's a new way to store and share and really search information. If you think of the internet as a network of information, blockchain is really a network of value or a network of trust.
Rick, which technologies do you see making the biggest changes to the accounting profession — and maybe a timeline for that as well?
Richardson: For three to five years out, I would certainly put blockchain right at the top, and it's blockchain-related applications that are going to be even more important as we move down the road. They are going to be vital to any professional accountant, and accountants need to understand how they work and how they might apply to their clients. One of the other interesting parts to blockchain is that in many cases both halves of a transaction are now recorded in a single source. Instead of having a set of books from the buyer and a set of books from the seller, you now have one common set of books. That trust level provides for capabilities we haven't seen before and for pretty exciting new ways to do analytics and forecasting of all sorts of future-looking stuff, which is what our clients are going to be demanding of us in the future.
Also in the three- to five-year range are two other issues. One is the expert use of analytics. We need to get closer to real-time reporting. Part of that's going to happen as a result of tools that provide us with predictive analysis, the ability to dig down deeper and not destroy the nature of the data we are working on. Second, we may not just be auditing financial data in the future. We may be auditing people's ability to handle issues. We may be handling total nonfinancial issues relative to a product's performance. So, whatever it might be, the markets are going to start looking for sources that can provide them with secure and trusted information and opinions. And if we do it right, I think the CPA profession can move five to 10 notches ahead of where we are even today. What are we going to need for that? We are going to need to look beyond the numbers. We are going to need to learn how to collaborate, and we need to think and behave more strategically.
Alan, can you talk about how you see the transformation of the audit unfolding?
Anderson: Real-time audit and monitoring has been talked about for years, and the reality of it actually happening may finally be here. The issue has always been getting access to the data to analyze it and interpret it. Without question, the data acquisition of transactional information is much easier for auditors to grasp than the required mindset change. This is more of a change management issue than a technology management issue.
When I work with firms to prepare them for the future, we start with data acquisition, analysis, and interpretation. If you look at the way an audit comes together today, it hasn't changed in 25 years. Firms have basically added technology and replicated their paper process. The time is now, if not already past, to move down the path to real-time auditing and monitoring. In an instant information society, what company or user is going to be happy with a historical financial statement that finally has the CPA firm's opinion on it 90 days after the client's year end? The old model's going to have to change, and data will be absolutely the catalyst to do this.
Firms should focus on the access to data, the analytics, and really understanding what that data means, because there is so much knowledge in the data. Data-driven audits are the foundation for auditing in the future.
Amanda, how do you see blockchain technology changing the operation and services of accounting firms?
Wilkie: Blockchain is going to really change the operation and services of our profession in many, many ways. We're actually already seeing some of these changes. Clients are coming in with cryptocurrencies that they have acquired, and now they are starting to ask their accountant about the tax implications. On the audit side, we also have potential for new services. As the audit of transactions becomes more automated, the question becomes, what will accountants be auditing? I see the potential for new types of audits and new types of IT audits. As our clients begin to store data on and leverage applications that interact with blockchain, new risks are going to be introduced into operations. The assurance that internal controls around the technology are followed so that those risks are monitored and mitigated is going to become the role of auditors.
In addition to automation, blockchain supports other technologies like artificial intelligence, robotic process automation, and things like that. Blockchain serves up that data, provides access to that data, and provides the transparency to that data that's going to fuel the analytics and the machine learning. So, blockchain pulls double duty. It's a disruptor, but it's also a supporter of the other disruptors that we've been talking about.
There are also smart contracts. Can you talk about how blockchain enables those?
Wilkie: A smart contract is just a regular old contract with terms and conditions that can be coded into a computer application, allowing it to be more automated. Where blockchain comes in, it's important to remember that it's transparent and immutable. So once a contract is signed, we can actually reduce the need for third-party verifications, and we can store the contract details on a blockchain so that the information is available to the people who need access to it. We can even automate the execution of some of these contracts based on external triggers.
Smart contracts are just another evolution in the way that the world does business. When we used to need a copy of a contract to review, we might share it through postal mail. Then we could share it through fax or via email. But with the transparency in blockchain, these contracts can be again reviewed and audited automatically, and the data in these contracts can be mined and available faster and easier than ever before. So, again, it's another evolution in the way that we do business and our clients do business, and that's something that CPAs really need to prepare for.
Richardson: I would like to add something to what Amanda said. Leveraging the cloud, in particular the internet of things, businesses can have a sensor in a warehouse that can automate the delivery of product and the verification of that delivery. That sensor can then send that data electronically back to the chain and, in essence, complete the contract. That, in essence, triggers another transaction to pay the agreed-upon amounts. So it is a combination of applications and this robust data source in the back end of an awful lot of it that helps make all that stuff happen. •
Alan Anderson, CPA, president of the accounting and assurance advisory firm ACCOUNTability Plus, leader of the AICPA Rutgers Data Analytics Initiative, and an adviser to the AICPA's future of audit initiatives.
Rick Richardson, CPA/CITP, CGMA, founder and CEO of Richardson Media & Technologies.
Amanda Wilkie, a consultant with Boomer Consulting and former chief information officer at regional firm WithumSmith+Brown.
About the author
Jeff Drew is a JofA senior editor. To comment on this article or to suggest an idea for another article, contact him at Jeff.Drew@aicpa-cima.com or 919-402-4056.
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