Blockchain, AI, and Accounting
Dr. Sean Stein Smith DBA, CMA, CPA, CGMA, CFE | November 20, 2017 |
It is no small secret that accounting is the midst of a radical transformation and evolution. Forces include, but certainly are not limited to, globalization, digitization, and a growing amount of technological integration into business operations continue to have ramifications for the industry and accountants. Additionally, regulatory and reporting updates related to accounting for pensions, revenue recognition, accounting for leases, and convergence of national GAAP and IFRS, especially in the US, continue to create opportunities for disruption and change in accounting. Even against this backdrop of radical, and continuous, change there are two forces standing out as potential game changers for accounting in the US and internationally.
Blockchain technology, although most well-known for cryptocurrencies such as Bitcoin, is forecasted to have wide-ranging implications for how data is secured, transmitted, and protected. In addition, the rise of artificial intelligence (AI), and the commercialization of its potential, is already reshaping the work accountants do, the role we play, and what the future holds.
Blockchain & Stakeholder Reporting
Drilling specifically into accounting implications, research, and evidence collected by Deloitte, blockchain technology is, and will continue to, revolutionizing the work performed by professional accountants. To put it simply, every transaction conducted using blockchain technology is encrypted, involved participants are identified by a string of characters, and after a certain period of time has passed (which may vary), all of these transactions become part of the block. After this block has been finalized, it is broadcasted to all parties associated with that network, or chain. If it is altered at a future date, reviewers of the block (or record) will be able to identify when the change was made due to time stamp functionality. Taking a step back from the specifics of how exactly a blockchain may work and perform, the broader ramifications for accounting professionals become evident.
The continued expectation and requirement of a broader-based approach for organizational reporting does not appear to be neither a passing fad nor a temporary phenomenon. Sustainability, corporate social responsibility, and corporate governance issues are increasingly important for both financial and non-financial stakeholders. One consistent problem, however, that consistently presents an obstacle toward a more substantive framework in this area is a lack of high-quality information. Blockchain, via its nature of securing and time stamping information as it is produced and verified by a decentralized network, can help track data and goods as they move (physically or digitally) through supply chains and organizations. Establishing a stronger foundation for this non-financial information in turn allows for a more rigorous analysis, conversation, and reporting process to take shape.
As the demands and expectations for more of this information continue to increase, accountants well versed in blockchain will be well positioned to elevate their role. Securing, protecting, and analyzing the multiple streams of information already produced by organizations represents an entirely new field of opportunity for us. Additionally, as data becomes more integral to how organizations perform and are managed, cybersecurity and attestation related to cyber measures are inextricably connected. The American Institute of CPAs has already launched a cybersecurity attestation framework to address this issue. Stakeholder reporting requires increased scrutiny of the information produced and analyzed by management professionals, and blockchain is an important tool for accountants to become full-fledged data experts.
AI and Real-time Reporting
Popularly represented by IBM’s Watson, the implications of AI are numerous for accounting are vast. Two critiques of traditional financial reporting are that commonly cite are that financial or operational reports are backward looking and only relevant for a small number of recipients, and the process of producing a comprehensive report can take months. Artificial intelligence has the potential to address these issues in a systemic and comprehensive manner if accountants are flexible enough to adopt these tools. Drilling back down to real world applications, however, provides an example of how these implications are already influencing accounting at large.
At the core of the concept, AI is simply the utilization and training of technology to help automate processes, organize large amounts of data, and assist users by responding to customized (non-programmed) queries in real time. One example of how this might assist accountants in the marketplace, starting today, is that we will be freed up to perform higher level tasks. Leveraging intelligent research systems, which are accessible and scalable in a cost-effective manner for virtually firms of every size, enables staff and senior lever accountants to find answers to research and client questions in real time. Reducing the lag time between when the information is requested and when it produced, in and of itself, will immediately be accretive to the performance of the firm.
Even more pertinent for accounting is the fact that artificial intelligence is already being used by leading firms, including the Big 4 accounting firms and major financial firms such as JP Morgan. With apps, cloud based systems, decentralized computing networks, and industrial systems increasingly integrated with technology applications, the reality is that accountants must be able to manage, analyze, and report larger amounts of information in a real-time manner. Thinking about AI and automation as powerful tools instead of existential threats allows accountants to embrace new opportunities, evolve alongside their organizations, and elevate the value delivered by professional accountants.
The Evolution of Accounting
Accounting has traditionally been a profession that, while highly regarded and respected as quantitative experts, has been focused on historical performance and only been applicable for a small subset of external users. In the midst of numerous dramatic changes within accounting, not to mention the changes in relevant regulation and reporting put forth by both the international standard-setting boards and the US Financial Accounting Standards Board, technology trends are also reshaping accounting in virtually every way. Blockchain technology and AI are disrupting, changing, and transforming accounting, and are viewed by some practitioners as a threat to the status quo, future employment, and the future of accounting. Taking a step back, analyzing and acknowledging that these trends present both opportunities and challenges, enables professional to adapt, evolve, and elevate accounting to the role of strategic business partner.