The structure that's common at CPA firms has benefited the accounting profession for decades.
CPA firms have been organized to provide opportunities for recent college graduates to develop their skills and advance; for seniors, managers, and supervisors to hone their leadership abilities; and for the brightest and most highly motivated people to advance to the coveted role of partner. But the emergence of new technology and new ways of doing business has the potential to upend — or at least alter — the way accounting firms are managed.
Forward-looking firm leaders are examining the effects that advances in data analytics, artificial intelligence (AI), and blockchain technology may have on the way they do business. For example, Mauldin & Jenkins, a regional firm in the Southeast, formed a Forward and Strategic Thinking Committee in the fall of 2017 to study how the new environment will affect a firm of its size and the audit services it plans to continue to provide in the coming years.
"We all agree that the audit function is not going to go away, but it is going to change dramatically," said Tommye Barie, CPA, a recently retired partner with Mauldin & Jenkins who served as chair of the AICPA board from 2014 to 2015.
Technology-driven changes in audit and tax services appear likely to lead to changes throughout firms' organizational charts. Firms may need to recruit people with new skills, provide new opportunities for them to advance, train existing staff to perform more analytical services, consider new billing models, and place increasing emphasis on providing advisory services and strategic thinking.
In numerous speeches to members of the profession over the past year, AICPA President and CEO Barry Melancon, CPA, CGMA, has said that accounting firms are likely to be profoundly different in 10 years — and perhaps in as few as five years. Leaders of the profession agree that CPAs will retain an important role in the new business environment, and the U.S. Bureau of Labor Statistics continues to predict a positive future for the profession, with a forecast job growth for accountants and auditors of 10% between 2016 and 2026.
As technology performs more compliance-related tasks and CPAs shift their focus to advisory services and value-added strategic input, the prospects for profit and growth appear to be as bright as at any point in the profession's history. However, with innovation and technological breakthroughs coming at a furious pace, this may not be a gradual evolution — nor an easy one.
Some members of the accounting profession may resist these changes, said Bill Reeb, CPA/CITP, CGMA, a consultant who is CEO of the Succession Institute and vice chair of the AICPA.
"But once our professionals shift into spending more time in this higher-valued advisory space, we're going to go kicking and screaming to a place we will love to be," he said. "It's a much more valuable, satisfying, and profitable space for our profession to occupy."
TECHNOLOGY DRIVING THE CHANGES
Technologies such as data analytics, machine learning, AI, and blockchain have generated more than their share of buzz as potential drivers of transformation in the accounting profession. But there is another technology that will literally speed the adoption of these new accounting tools.
The introduction of 5G digital technology will bring wireless data transmission speeds approaching 1,000 times faster than current 4G cellular networks, said Roman Kepczyk, CPA/CITP, CGMA, director of consulting for Xcentric LLC. This in turn will allow for stronger security protocols that don't impair performance the way many of today's virtual private networks (VPNs) do on the slower current networks. In addition, accountants will be able to connect directly to 5G networks without accessing local Wi-Fi, gaining instant access to their applications, all of which will be housed in the cloud.
"The rollout of 5G cellular will allow for untethered, always-on, superfast, and secure internet allowing CPAs to connect to firm and client information resources and do analytics in real time using AI and big data analytics tools," Kepczyk said.
The adoption of 5G technology will open an "internet of the airwaves" that offers access to significantly more information on operational activities that drive business decisions, Kepczyk said. For example, sensors could be placed on inventory to track logistics, identify volume surges, and generate other real-time information that, when combined with data already accessible through physical internet connections, accountants can monitor, analyze, and manipulate to provide actionable advice to help businesses succeed.
Kepczyk pointed to self-driving cars as a real-world example of how the huge increase in real-time data analytics may create significant change. Each autonomous car is expected to generate massive amounts of data every day. These data will be collected in real time and sent to cloud-based server farms. AI software will analyze the data in real time, making it possible to adjust traffic patterns, alter routes affected by accidents or construction projects, and correct mistakes so no other vehicle will make them.
THE FIRMS WILL BE A-CHANGIN'
As 5G networks become more prevalent, they will act as fertilizer for the fields of machine learning and AI. That's because AI requires incredible amounts of data to learn how to perform humanlike skills/tasks. For example, to have an AI system learn how to properly navigate a large city's continuously moving maze of automobile traffic, stoplights, street signs, humans, and even animals, humans will have to enter thousands of images and scenarios that the AI can "learn from." How do you teach a car to know when to stop, swerve, or speed up to avoid hitting a pedestrian or another car (or both)? You have to feed it big amounts of data and teach it how to assess those data. The more data that are fed into a machine-learning software application, the faster AI can learn.
The potential impacts on the accounting professional are enormous. For example, combinations of AI, big data, and blockchain technologies could make it possible to do real-time verification of business transactions and audits of full financial data sets, reducing and perhaps eliminating the need for sampling.
"Audits today start with structured, aggregated data," said Alan Anderson, CPA, president of the accounting and assurance advisory firm ACCOUNTability Plus LLC, and founder of Leadership Leagues, which are collaborative learning exchanges designed to drive firm excellence and guide audit leaders into the future. "The future is disaggregated, unstructured data at the transactional level — invoices, contracts, even email."
Auditing in the future will involve accessing unstructured data, cleaning them up, aggregating them from myriad sources, analyzing them, and presenting financial insights in a visual format, such as a dashboard — all virtually in real time. The access to full data sets will turn the auditing process upside down. Instead of starting with aggregated data such as the trial balance or accounts receivable and then testing samples of transactions to form an opinion on the validity of the entire data set, auditing in the future will include continuous monitoring of transactional information. Algorithms will scan the data in real time and provide alerts when questionable transactions occur. Auditors will then investigate those alerts.
"Auditing is moving to systems, process, and people, rather than an exclusive focus on the numbers," said Anderson, who serves as an adviser to the AICPA's audit of the future initiatives and also leads the AICPA/Rutgers Data Analytics Initiative, which is conducting research to determine the best ways to facilitate the integration of data analytics in the audit process.
Anderson foresees accountants initially delivering nonfinancial audit results in a format similar to a System and Organization Controls (SOC) report before ultimately progressing to delivering the results via a real-time dashboard.
While auditing paints perhaps the most dramatic picture of how technology will transform traditional accounting services, it is far from alone. Many areas will undergo radical reshaping, among them tax preparation and planning as well as virtually all aspects of financial reporting, including the month-end close.
A common theme in the coming evolution of accounting services is that accountants will need to shift from preparing historical financial and business documents based on past transactions to providing insights and advice for financial and business decisions based on real-time data — a process that has already begun at many firms.
The dominance of data in the new business landscape will require accounting firms to acquire new skill sets. Chief among those are skills held by data engineers and data scientists, said Leon Katsnelson, director and chief technology officer for IBM's Analytic Platform Emerging Technologies group, during a speech at the 2017 AICPA/CPA.com Digital CPA Conference.
Data engineers design, develop, and deploy databases and systems for processing big data. They would handle automating the data aggregation mentioned earlier in this article. Data scientists specialize in designing ways to scrub, standardize, and organize the data so insights can be quickly and accurately gleaned by AI.
For AI to function properly, it must learn the structure and nature of data as well as the context and meaning of the data. In a business setting, that requires what Katsnelson calls domain experts, who provide deep knowledge of the business whose data are being automatically processed and analyzed by AI.
"Accountants are domain experts," he said. "That's the hardest skill to find."
Accountants in the future will need to effectively communicate business information to the technologists designing the AI-powered financial (and other) systems. To perform this role effectively, accountants won't need to become software coders or database designers, but they will need to understand enough about how those systems work to collaborate with the data scientists and data engineers.
ACCOMMODATING MORE TECHNOLOGISTS
Accounting firms already are adding more technology skills to their teams in a number of ways. Large accounting firms have dramatically increased their purchases of technology companies, and accounting firms of all sizes are hiring nonaccountant employees at an annual growth rate of nearly 20%.
What does this influx of technologies do to the structures and operations of accounting firms? Consider the following:
Staffing of a typical audit engagement for a not-for-profit client at Mauldin & Jenkins currently includes an engagement partner, an in-charge manager and supervisor, and two or three staff auditors. Although a computer expert with the firm participates in planning the audit and inspecting controls, he or she does not have a prominent position on the audit team.
In the future, former Mauldin & Jenkins partner Barie predicts, technology will handle many of the duties that staff auditors perform now. Each engagement team may have a dedicated IT person, and perhaps a staff auditor would review the exceptions and anomalies that the technology discovers as it audits all transactions rather than just the samples that engagement teams are able to audit now. To recruit and retain talented IT specialists, firms will need to figure out career path and compensation arrangements that will satisfy them.
Kepczyk of Xcentric LLC sees the staffing model of accounting firms changing in fundamental ways. He predicts that firms will buy or hire data sciences companies that can provide employees with the programming and technology skills to properly implement big data and AI tools. Accountants will need to provide the "auditor intelligence" to ask the right questions and have staff run data queries. As AI tools gain insights from the data and questions, accounting firms may move closer to a tiered consulting model in which they may have fewer entry-level staff and bring in specialists with industry experience at a senior or manager level.
"I also see firms using more 'gig'-type workers with specific technical skills for part-time/seasonal projects," Kepczyk said. "This converts the traditional pyramid structure to more of a 'Monopoly house' shape consisting of a small leadership/owner pyramid on top with a square underneath that is staffed to annual work requirements and has revolving doors for specialists and gig workers to come and go as needed (including remote workers and busy season surges)."
Amy Vetter, CPA/CITP, CGMA, author of the book Integrative Advisory Services: Expanding Your Accounting Services Beyond the Cloud, proposes a new staffing model for accounting firms. In the traditional structure, which Vetter calls the 1:1 approach, each person in the firm is assigned a certain client workload, and each client works primarily with one accountant. Her proposal calls for firms to organize their staff into teams focused on vertical niche industries. For example, one team might work exclusively with retail clients, another with software startups.
"In a team approach, you first divide your staff by vertical niche industries," said Vetter. "You choose the technology in each of those industries that will best serve those client needs. Then you create a team or pod around that vertical where each person serves a different function to deliver services for those specific clients."
The members of each team would have different roles in delivering outsourced accounting services for clients. (These services would not be performed for audit clients, due to independence concerns.) For instance, a staff accountant might handle most of the computational work, ensuring the technology and data integrations are working, and entering or correcting any data that were not input correctly into the accounting application from other cloud-based systems. A CPA would review the accounting records, complete month-end entry work, and do any applicable tax work, while a CFO or analyst would review the financials and provide analysis on client key performance indicators. Finally, instead of each team member speaking with the client, a customer-success or project manager would oversee the engagements and meet with clients to communicate the analysis, answer questions, and ask about any other work the client might require or request. (See "Technology May Push Firms Beyond the Billable Hour" for more about the changing model for accounting firms.)
WHAT SHOULD FIRMS AND ACCOUNTANTS BE DOING NOW?
The transformation of the accounting profession will take years, but it's hard to say exactly how many. To prepare, firms that have yet to start planning for an AI-powered, data-dominated future need to start moving in that direction. Of special concern is making sure that midcareer CPAs are learning the skills necessary to make the transition to being data- and technology-savvy business advisers (see "4 Skills Accountants Need to Succeed in a Tech-Enabled Future"). Accountants can choose from numerous free educational sources. Examples cited by Rick Richardson, CPA/CITP, CGMA, of Richardson Media & Technologies, include Coursera's free course from PwC on data-driven decision-making, and Harvard professor Jelani Nelson's 25-lecture course on algorithms for big data, available on YouTube (access the first lesson at youtu.be/s9xSfIw83tk). (For more on the technology changes that members of the profession need to know about, see "Paving the Way to a New Digital World.")
Training is just one of myriad factors firms must consider as they plan for the future. Some in the profession, for example, foresee the staffing structure of firms evolving from the current pyramid shape to one with a narrow top, a fat middle, and a narrow bottom. In other words, automation will reduce the need for lower-level accountants, but client demand for expert data analysis will increase the need for experienced CPAs with the skills to mine data for strategic business advice they can communicate to clients. So, how are CPAs going to get the training they need if firms don't need as many lower-level accountants? AICPA President and CEO Melancon has suggested that firms might need to provide training using computer simulations the way pilots are trained via flight simulators.
What will the final answer be? It's hard to say right now, but firms and accountants need to start making significant inroads to prepare for the accounting profession of the future.
Richardson said he recommends that CPAs invest 160 hours in CPE every two years, with 80 of those hours related to new technology. This may seem extreme to some, but Richardson believes technological training is absolutely necessary to remain competent and competitive.
"It's a matter of survival," he said. "If we don't set almost unreachable goals, we will never catch up, let alone move ahead of the change curve."
As for firms, Anderson advised them to impose internal requirements to not only learn new skills but also to start implementing them into their practice. For example, many firms have started to implement continuous, transaction-based audit approaches and move away from the traditional year-end, balance-driven audit approaches.
If all of this change seems rushed, consider that a global survey of 1,000 accountants released in March by Sage found that 83% said that clients are already asking for more services and 42% of clients expect their accountant to provide business advisory services, over and above accounting, compliance, and tax services. The future is now, and the time to start preparing and implementing is here.
"Audit leaders and influencers are embracing auditing in the future," Anderson said. "Firm culture is changing, teams are evolving and inclusive, and new technology is being understood as a tool in providing critical insights. Either you're a leader embracing this change, or you're watching it all happen."
About the authors
Ken Tysiac is a JofA editorial director. Jeff Drew is a JofA senior editor.
To comment on this article or to suggest an idea for another article, contact Jeff Drew, a JofA senior editor, at Jeff.Drew@aicpa-cima.com or 919-402-4056.
- Analytical Procedures — AICPA Audit Guide (#AUDANP17HI, paperback; #AAGANP17E, ebook; #WAN-XX, online access)
- Guide to Audit Data Analytics (#ADATA17P, paperback; #ADATA17E, ebook; #ADATAO, online access)
- Practitioners Symposium and Tech+ Conference at AICPA Engage, June 11—14, Las Vegas
For more information or to make a purchase or register, go to aicpastore.com or call the Institute at 888-777-7077.
Private Companies Practice Section and Succession Planning Resource Center
The Private Companies Practice Section (PCPS) is a voluntary firm membership section for CPAs that provides member firms with targeted practice management tools and resources, including the Succession Planning Resource Center, as well as a strong, collective voice within the CPA profession. Visit the PCPS Firm Practice Center at aicpa.org/PCPS.
IMTA section and CITP credential
The Information Management and Technology Assurance (IMTA) section supports AICPA members who provide services in the areas of information security and cyber risk, privacy and IT risk management, business intelligence, and emerging technologies. CPAs may also pursue the Certified Information Technology Professional (CITP) credential, which demonstrates an individual has the expertise to advise organizations on how to maximize information technology to manage their business. Access to IMTA's tools and resources will be included with AICPA membership beginning Aug. 1, 2018. To learn more, visit aicpa.org/IMTA and aicpa.org/CITP.