This article is composed by Rashad M., currently working as a Data Analyst Intern at ALIF Technologies under the supervision of Syed Asif Zaman, Specialist- Fintech & Emerging Technologies. He is a student of Monash University, Malaysia Campus. Rashad is Pursuing a Bachelor of Business and Commerce with a double major in Applied Economics and Banking and Financial Management. His main interests include Digital Transformation, Data Science, and Fintech. Rashad aspires to pursue a career as a Digital Transformation Consultant, helping businesses efficiently scale.
An Overview of Digital Transformation in the Industry
The accounting and auditing industry is critical in helping businesses track and report financial performance, make informed decisions, and ensure compliance with regulations. Recently, these industries have seen a shift toward digital transformation. This shift is supported by a growing global market for virtual accounting and auditing services, which is expected to reach $55.7 billion by 2025. Blockchain, Big Data, Data Analytics, AI, and Cloud-based Accounting software are key technologies driving this transformation. These technologies allow for the automation of tasks such as data entry and analysis, improving the efficiency and accuracy of accounting and auditing processes. Furthermore, it enables organizations to access and share financial data more transparently and swiftly.
As these technologies continue to evolve, it’s foreseeable that multiple digital methods will be integrated into the accounting and auditing process, thus, radically changing the industry. This article will explore how adopting Blockchain Technology, Big Data, Data Analytics, AI, and Cloud-based Accounting will impact the accounting and auditing industry and the challenges the sector will face due to these changes.
The Impact of Blockchain Technology
Blockchain technology offers numerous benefits for the accounting and auditing industry. Its decentralized and distributed ledger allows for secure and transparent recording of financial transactions, making it nearly impossible to alter or delete transactions without the network’s consensus. In addition, smart contracts, which are self-executing contracts with the terms written into their programming code such that the agreement is automatically executed only when those terms are met, streamline the contract management process and reduce the risk of errors, disputes, and fraud.
Several key industry players are already exploring the use of blockchain, with a recent Deloitte survey finding that 74% of accounting and auditing firms currently use or plan to use it in their processes. KPMG, for instance, implemented a blockchain solution called “KPMG Chain Fusion” to enhance the transparency of the audit process by providing a permanent, tamper-proof audit record. The adoption of this technology significantly improved the veracity of KPMG’s audit services. Overall, the potential impact of blockchain on the accounting and auditing industry is significant and worth considering.
The Impact of Big Data
Big data refers to enormous datasets that are too complex for traditional data processing software to handle. In the accounting and auditing industry, the ability to effectively use big data offers immense benefits. By providing accountants and auditors with larger datasets, they gain a more comprehensive view of a company’s financial health beyond the traditional financial statements and transaction records. With access to a broader range of data, such as social media, web traffic, and other sources, auditors can identify trends and patterns that may not be evident from traditional financial data alone. Additionally, big data enhances risk management by analyzing data from various sources and reconciling it with financial statements. This helps ensure the integrity and reliability of financial information, protecting stakeholders’ interests.
Several organizations in the industry presently utilize big data to improve their audit processes, such as the auditing firm Deloitte with their “Advanced Analytics” platform, which employs data mining techniques to extract useful information from large data sets, giving auditors a more manageable collection of high-priority data to assess, thus enhancing both the audit quality and the value of business insights provided. Overall, access to big data is becoming increasingly crucial for the competitiveness of accounting and auditing firms.
The Impact of Artificial Intelligence (AI)
Artificial intelligence (AI) is revolutionizing the accounting and auditing industry by allowing computers and machines to perform tasks that typically require human intelligence. AI algorithms can be used to analyze financial records, identify patterns and anomalies, and flag potential issues for review, which reduces time and monetary costs risk of errors and allows accountants to focus on higher-level tasks that require more expertise. Furthermore, AI also provides real-time, continuous auditing capabilities, which is impossible through traditional audits carried out periodically. With AI, it’s possible to monitor transactions and identify potential issues as they occur, thus providing a more accurate and up-to-date view of a company’s financial health.
Some companies have already started implementing AI in their auditing process, such as KPMG, which has developed an AI platform called “Intelligent Automation,” which uses machine learning and natural language processing to automate specific audit tasks. The use of AI in the accounting industry is expected to grow at a CAGR of 21.5% between 2020 and 2025. Therefore, employing AI within the accounting and auditing industry is crucial for a firm’s performance, not just from a product standpoint but also from an operational perspective.
The Impact of Cloud-based Accounting
Cloud-based accounting uses cloud technology to access and manage financial records and accounting information over the internet. Instead of storing financial data on a local computer or server, it is stored on remote servers accessed through the internet. This has dramatically impacted the accounting and auditing process by providing increased accessibility and security. Accountants and auditors can easily access financial information remotely and collaborate with clients. Additionally, cloud-based accounting platforms have robust security measures to protect financial data from unauthorized access. This instills confidence in clients that their financial information is safe from data breaches and cyber threats. Moreover, cloud-based accounting reduces business costs by eliminating the need for software and hardware purchases and maintenance.
Several cloud-based accounting platforms currently on the market, such as QuickBooks Online, Xero, and Zoho Books, offer a range of features to support the accounting and auditing process. A survey by the American Institute of CPAs (AICPA) shows that cloud-based accounting platforms have increased from 28% in 2015 to 61% in 2020. Thus, as the cloud-based accounting sector grows, accounting and auditing firms benefit from developing in-house cloud-based platforms to increase accessibility and transparency with their clients.
Digital transformation in the accounting and auditing industries has brought numerous benefits but poses some challenges. One primary concern is the potential for job displacement due to automation. While technology can automate specific tasks and improve efficiency, it also has the potential to eliminate the need for particular roles. Additionally, professionals in these industries must be proficient in technology to stay relevant and competitive. This requires significant investment in training, development, and upskilling. Another challenge is the increased risk of cyber-attacks, which can result in data breaches and privacy violations.
To address these challenges, it is crucial for accounting and auditing firms to invest early and consistently in the training and development of their staff. This will ensure that professionals have the necessary skills to adapt to the changing landscape. Furthermore, universities and learning institutions must frequently update their curricula to reflect industry standards and produce more qualified graduates. Companies must also consider the ethical implications of digital transformation, such as data privacy, implement appropriate safeguards and comply with relevant regulations.