DIGITAL DISRUPTION: WHAT DOES IT MEAN FOR ACCOUNTING?
There is a vague feeling of loss each time computers learn to perform a skill better than we can. Experts at the abacus no doubt felt it when calculators made their knowledge obsolete. Interestingly the first calculator, invented in 1645 by a supervisor of taxes in Rouen, was created to try to reduce tedious calculations required. That seems remarkably prescient for what we are about to discuss.
In 2017 Google’s AI subsidiary “DeepMind” was fed with 100,000 datasets of previous games. It went on to beat the human Go masters, with the world’s best Go champion at the time saying that the performance was “godlike”. Just one year later in 2018, DeepMind was given only the rules of Go – learning the game from scratch instead. After just 3-days of self-learning, the 2018 platform beat the 2017 version by 100 games to zero. In case you are wondering, the number of permutations of possible legal moves a on 19-by-19 Go board is a dizzying 2×10170. To put that into perspective there are an estimated 1080 atoms in the observable universe. Not bad at all.
The evolution of computing power means that its growth is exponential even while the price of its availability is similarly reduced. In one study featured in AI Impacts, it was estimated that “computing power available per dollar has probably increased by a factor of ten roughly every four years over the last quarter of a century”. With quantum computing just around the virtual corner, that value is likely to accelerate further. For business, this inexorable rise is taking on a more urgent character, as survival itself is at stake.
At this point, a definition of Digital Disruption is useful. It is “the change that occurs when new digital technologies and business models affect the value proposition of existing goods and services”. In other words, it has both a threat (a la the much-cited Nokia) and opportunity (a la Apple). The more entrenched and dominant one is (a la Nokia), the harder it is to give up that position by disrupting oneself and the easier it is for an upstart (a la Apple at the time) to present such significant value to the consumers that a shift rapidly occurs. The more computing power we have and more connected we are, the more rapidly those disruptions will occur. Interestingly the disrupters of these traditional services are often technology companies – Apple, Uber, Airbnb, Netflix, Amazon, Google, Facebook, and the list will carry on.
Accountants have been performing double-entry bookkeeping since a Franciscan Monk in Milan, Luca Pacioli, first described it in 1494. Is the accounting industry “entrenched, traditional and dominant”, leaving it wide open for disruption? Earlier this year Forbes Magazine stated: “We expect that by 2020, accounting tasks – but also tax, payroll, audits, banking… – will be fully automated using AI-based technologies, which will disrupt the accounting industry in a way it never was for the last 500 years.” This leaves a frighteningly short period of time for its prediction to come true.
Should accountants be frightened? No, we need simply act. Computers will be faster, more accurate, more secure and more organised than humans at every type of repetitive, predictable task, particularly those centred around mathematics and processes. They can already collect and scan receipts, verify data, organise spreadsheets, do our taxes, read contracts, make quantitative analyses, detect errors, and make predictions about a company’s performance – all cheaply and, by the way, in far less time than it took you to read this sentence.
Successful adaptation involves rethinking the role and function of the accountant. Computers can do the calculations, but this does not mean that accountants will no longer be necessary. On the contrary, the time saved by computers can instead be used to provide other, higher level value-added services. The accountant of the future can use his computer assistant to his or her advantage, using the data it produces to provide current and continuous strategic advice for their clients.
When seen through this lens, the benefits for all parties become apparent. Accountants will no longer need to spend their days on the endless stream of data entry, document verification, formal report writing or other such duties. Their new responsibilities will be far more open-ended and intellectually engaging, involving analysis of current vs alternative scenarios, real-time advisory services, management of outcomes rather than processes, investigation of new business opportunities, and creative research to discover data patterns not detected by the artificial intelligence system. What are considered premium services today will become the norm tomorrow.
Even as the accountant’s tasks become more personally satisfying, the rise in efficiency, improvement in accuracy, and extra dimension of service that artificial intelligence allows will all redound to the benefit of the client. Moreover, this new, more holistic conception of the accountant’s role will lead to greater specialisation. Future accountants will require high levels of literacy in technology and data analysis, as well as creative skills in problem solving and strategic planning.
One technology that will be crucial to the new era of business and to the future of our own industry is “Blockchain”. As with any tool, blockchain technology can be used for good or ill – but its potential in shaping the future is profound and unmistakable. Some dismiss it as nothing more than an over-hyped fad because it is the technology that underpins some of the bad-boys on the block (as it were) using crypto-currencies for ill-gotten gains. A more fitting analogy, however, is to the World Wide Web. There are certainly some silly web pages out there – particularly the ones that were created first with the technology – but the organisational foundation of the Web has proven itself to be world-changing.
So, it is with blockchain. Blockchain is an example of Distributed Ledger Technology where alterations are instantly and automatically verified by all interested parties through encrypted channels and cannot be undone. Because a shared ledger is used, blockchain encryption allows information to be bundled together and processed efficiently. Certificates and other paperwork can easily be integrated with digital inventories, streamlining transactions with reliable ‘virtual’ paper trails.
As we have read often lately, the future of Audit is in question with Blockchain. Instead of looking at financial performance for what has already past with rear-view dim red lights, Blockchain offers the possibility of 100% real-time data which is inherently correct as it was already added to the ledger. This creates an opportunity to switch on front-facing full-beams to produce useful insight and predictions for what is coming. We might call this advisory rather than audit. Again, it is rewarding work for us and very valuable for the client – a “want to do” as opposed to a “have to do”.
So soon we will find that the collection of validated financial data marks not the end of our duties, but rather the beginning. Companies will expect their financial advisers to run individualised, advanced comparative simulations for various potential business plans, relying heavily on industry knowledge and data analytics.
The speed of change will quickly separate the innovators from the companies whose only goal is not to fall too far behind. The latter will have the regrettable experience of seeing their customers migrate to the former. Digital Disruption is as much a skills-shift as it is a technology shift.
We began this article by noting that the very best human game players are, now and forever more, doomed to lose to their computer counterparts. That is certainly true, but a closer look reveals the crucial detail – humans built the AI, after all – that it is the unique partnership of humans and technology that made the difference. The way forward is neither to reject technology nor to turn our backs on human skill altogether. Rather, it is to use the talents of each world wisely and fully, with each side complementing the best of the other. Will it be the accountants armed with technology, or the technology companies armed with accounting? Timing will play a part in the answer. If we take too much time and let outside forces disrupt ourselves, it is more likely to be the latter.
Andrew McBean is CEO of PKF Holdings in Thailand. He has 26 years of experience gained in the technology industry.