As much as it will change the profession, the new technology offers tremendous opportunities for accountants. Ron Quaranta of the Wall Street Blockchain Alliance and Erik Asgeirsson of CPA.com discuss why it’s exciting, not terrifying.
As much as it will change the profession, the new technology offers tremendous opportunities for accountants. Ron Quaranta of the Wall Street Blockchain Alliance and Erik Asgeirsson of CPA.com discuss why it’s exciting, not terrifying.
At first glance, the threats seem clear: One type of software will learn how to perform all manner of business functions, particularly in finance and accounting, while another will continuously validate any set of data or information.
Between them, artificial intelligence and blockchain seem poised to disrupt — or even destroy — many of the core businesses of the accounting profession, automating or rendering irrelevant important traditional services like the audit. But while there can be little doubt that they will eliminate the need for human beings to perform many of the individual functions traditionally associated with accountants, both in public practice and in industry, they will certainly not eliminate the profession’s overall role, or its importance.
In fact, both AI and blockchain have the potential to help accountants actually boost their revenue, their relevance and their value — provided they’re willing to develop the necessary skills, and change their mindsets.
Understanding why each of these two emerging technologies is less of a threat and more of an opportunity than they might seem requires a separate, deeper dive into each, as they’re going to have different impacts on the profession, over different time horizons.
It’s only partially accurate to describe AI as an emerging technology; it has already emerged in some forms and some applications. It’s at the core of IBM’s Watson, for instance, which Big Four firm KPMG is applying to its professional services offerings, with a focus on auditing. H&R Block is adding Watson’s artificial intelligence to its tax prep process, while the Maryland Association of CPAs is working with IBM to train accountants in technology skills like AI and cognitive computing.
All this begs the question: What, exactly, is AI? Pop culture gives us HAL from “2001” as one example, Skynet from the “Terminator” movies as another, and Scarlett Johansson’s disembodied voice in “Her” as another, friendlier one, but those are fictional characters, not models for AI. “A computer that thinks like a human being” comes close to the overall goal of the field, but that’s an idea that’s both nebulous and fairly far off (to say nothing of not necessarily worth pursuing, given the quality of most human thinking).
A more useful definition, and certainly one more in keeping with the current state of the field, is that AI is software that can draw conclusions from large quantities of data, and adjust its activities based on those conclusions — that can, in effect, learn. Leon Katsnelson, director and chief technology officer for strategic partnerships for data science at IBM, cites the example of an elevator company having AI go through reams of data from all of the sensors on its individual cars, identifying from that data the characteristics of an elevator car that is about to have problems. The AI can then keep an eye on all the company’s elevators going forward, and dispatch maintenance crews as soon as they exhibit any of the pre-problem characteristics.
Essentially, AI is about software that can learn and adapt, which is why one subset of it is called machine learning. “Machine learning is like a rocket engine and data is the rocket fuel,” Katsnelson explained. “In traditional programming, we’re teaching the machine how we do the job — we’re telling it, ‘Repeat what I do.’ AI is about teaching the machine to learn how we learn — to learn from data.”
That means that it can learn without human input, and that it can act without human direction. It can also analyze far, far greater amounts of data than a human being ever could — and make useful decisions and recommendations based on that data. Given all that, it’s not hard to see why it’s considered the next big thing. IBM, Google and the government of China have all made significant investments in it, according to Katsnelson, who also quoted a famous tweet from Wired founder Kevin Kelly: “The business plans of the next 10,000 startups are easy to forecast: Take X and add AI.”
Some of those startups will no doubt be in the accounting space, attempting to realize the potential in software that knows the entire Tax Code by heart and can see trends across literally millions of tax returns, or that can learn how to characterize and treat new financial transactions based on how millions of similar transactions have been characterized and treated before.
“What can AI do?” Katsnelson asked. “Just about anything. Where can you apply it? Just about anywhere.”
“Most people think audit is the first field in accounting that will benefit from AI,” he continued. “It allows auditors to dig deeper into the data by processing much larger volumes of data. Machines are much better than auditors at processing huge amounts of data.” AI can also process, analyze and incorporate all sorts of structured and unstructured data and information that auditors can’t — and it will be able to consider all the available data, without the need for sampling. “With AI and machines, you won’t need to sample — the machine can check all the transactions, which human auditors couldn’t,” Katsnelson explained. “That’s where the power of the machine is.”
Nonetheless, Katsnelson still sees a critical role for accountants. “I don’t believe for a second that the auditors will be replaced by machines — the human touch, and human thinking, are critical,” he said. “Human judgment is still paramount.” To operate at its best, though, that judgment will need to be paired with data science skills, and accountants will want to make sure that they’re ready and able to leverage the opportunities that artificial intelligence, cognitive computing and machine learning offer.
Erik Asgeirsson, the president and CEO of CPA.com, the technology subsidiary of the American Institute of CPAs, is bullish on the implications of artificial intelligence for those who are ready to leverage it. “Auditors are going to become better with AI. They’re going to provide more value,” he said. “The firms that are leveraging technologies like AI are going to win in the end.”
The idea of machines that think goes back at least a century, so it’s no surprise that AI is fairly well advanced. Blockchain, on the other hand, is still in its relative infancy, with few applications. It’s not likely to have more than a theoretical impact on the profession for at least a year or two, but its eventual impact will be significant, which is why Ron Quaranta, the chairman of the nonprofit industry group the Wall Street Blockchain Alliance, says it’s important to make 2018 “the year of education” about the young technology.
That can start with a clear definition of what blockchain is: a technology that creates a database that’s distributed across the Internet but can only be accessed by users with heavily encrypted, highly secure keys. Those users can post individual transactions, or “blocks,” to the database, and when those transactions are accepted, they become part of the “chain” — and are both completely unchangeable, and irrevocably associated with their creator. A later block in the chain may record a change to the status of the assets or the information in the original block, but that original block remains permanently in the chain.
Before exploring what the means for information — essentially, that the structure in which the information is kept automatically audits and validates the information — it’s worth defining what blockchain is not:
It is not bitcoin. Though it is often associated with the famous crypto-asset, blockchain is an entirely separate technology, with applications that go far beyond alternative digital currencies.
It is not a single database. There are already multiple blockchains, and if it lives up to its promise as a self-validating, self-auditing form of database, there will be many, many, many more in the future. There will be public blockchains (for real estate records, for instance, or the provenance of different types of collectibles), but the vast majority are expected to be private, maintained by individuals or companies for their own purposes. Your bank account might be a blockchain, and you might have an individual blockchain for your interactions with the IRS; a company might keep its books in one blockchain, interact with suppliers through another, and manage its sales tax obligations in another (and that one might be accessible to various levels of state or local tax authorities).
Once you have a clearer picture of what blockchain is, multiple implications for the accounting profession begin to present themselves — and it’s only fair to note that many of the first ones are negative.
For instance, by creating pools of instantly verifiable data, it can transform assurance functions. “We may not need audits if we can access automatically validated information,” explained Jon Baron, the managing director of the professional segment for Thomson Reuters’ Tax & Accounting business. “The Big Four firms are hiring fewer accounting grads — we won’t need these armies of auditors.”
There may be fewer auditors, but that doesn’t necessarily mean fewer audits.
“Blockchain does not mean that the audit will go away,” said CPA.com’s Asgeirsson. “There are going to be huge opportunities in private blockchains for audits. There are going to be assurance needs. Over the next couple of years, you’re going to see some really interesting assurance opportunities arising around blockchain.”
It will be a different kind of audit — the auditors won’t be sampling and waiting by fax machines; instead, they’ll be checking on the security of keys, and pursuing fraud much more aggressively, since they’ll be able to review every single transaction (with a little help from artificial intelligence) — but it will still be an audit, and as the number of individual blockchains climbs, the number of potential audits will, too, creating a large pool of work for future-enabled firms.
Some of this opportunity is already rising from an unexpected source: “The creators of crypto-assets actually want regulators and auditors to show up,” said Asgeirsson: They want trusted CPAs and accountants to put their seal of approval on their innovations, confirming their value for the public.
“The auditing role is not going to go away, and in the near future, it’s going to be more important than ever to help demonstrate the value in these areas,” said Quaranta.
Blockchain’s impact won’t be limited to changing the audit, though. “Internal procedures will become streamlined as blockchain-enabled ‘smart contracts’ execute automatically,” explained Greg LaFollette, a strategic advisor at CPA.com. “Both internal and external processes will be impacted as transpositions, coding errors and misclassifications fade into distant memories.”
And over the long term, he predicts both ubiquity and enormous value for the profession: “By 2027 the ‘trust protocol’ (enabled by blockchain) will be an integral part of everyday life. It will be as deeply ingrained in our personal and business lives as the Internet is today. CPAs in public practice will see huge time savings as the necessity of testing, authentication, verification and substantiation procedures are virtually eliminated. That time will allow the profession to center more on becoming the ‘trusted advisor’ that our clients want and need.”
By this point, it should be clear that both AI and blockchain could radically change what the accounting profession does and how it does it, but if past technological innovations are any guide, they’re more likely to shift jobs than to eliminate them.
“Even when machines do take over an activity, that doesn’t mean that jobs don’t remain in those areas. In fact, sometimes they grow,” Baron said. “And new methods of doing traditional accounting work can bring us explosive growth.”
To participate in that growth, however, accountants will need to readjust their skill sets somewhat, and be open to new ideas, approaches and methods. Among other things, they’ll want to work on their data science skills, Katsnelson suggested.
LaFollette had some simple, valuable advice for those who want to prepare for the advent of AI and blockchain: “Read. Avoid getting caught up in minutia — remember to focus on the tool, rather than the code that powers the tool. Most of us do not understand the computer code that makes spreadsheets work — nor should we. However, we do understand how to use the tool!”
He also warned against diving in without adequate preparation. “Shy away from the ‘bright, shiny object’ syndrome. Don’t chase after every new product or service that claims to be ‘blockchain’ or ‘artificial intelligence,’” he said. “Work carefully with your culture leaders and influencers to make sure your staff are fully informed that the firm is aware, studying and planning. And encourage each and every staff member to do the same.”
For now, education may be the profession’s first order of business, if a recent Accounting Today poll is any guide. When asked how well they understand blockchain, 16 percent of the responding CPAs and accountants claimed that they were experts or knew as much as they needed to, 34 percent acknowledged that they had more to learn — and 50 percent answered, “What’s blockchain?”
Blockchain was in the air at the Digital CPA conference in Las Vegas this year, the fifth iteration of CPA.com’s annual conference on accounting technology – and for good reason.
The technology, first proliferated by the digital currency Bitcoin, is at the “top of the hype cycle” of technology, CPA.com’s president and CEO Erik Asgeirsson explained during his keynote. After it takes the traditional dip in popularity following the peak of hype (the “trough of disillusionment,”) blockchain will undoubtedly reach the “plateau of productivity” and change the accounting world like the cloud did.
“At CPA.com, we are trying to take these technologies, work with you, and enable the profession to increase productivity and client relationships,” Asgeirsson said. “We’re moving into the world of digital business – combining services and technology, blurring the digital and physical worlds.”
Having set the stage already with its encouragement of the profession to adopt cloud and keep pace with the rapidly advancing technology world, CPA.com aims to be at the forefront of the rise of technologies like blockchain for the accounting profession. Because the main attraction of blockchain is security and reliability, it’s critical for the profession to start thinking about its potential implications for financial reporting and auditing.
Next up: AI. Artificial intelligence will play a major role in changing the way accountants do audits, Asgeirsson said. CPA.com is working towards a dynamic audit solution that leverages all client data, including unstructured data such as blocks of text that may be found in e-mails or leases, not just structured data such as in formatted ledgers or spreadsheets.
“Leases are a classic example of unstructured data,” Asgeirsson said, and automatically mining the data from such sources and putting it in an organized format can be difficult with unsophisticated software.
This audit solution, Asgeirsson said, will be able to automate smart grouping of trial balance accounts for financial statements; eliminate lead sheets with a ledger account window; reveal all account transactional detail in a transactional detail window; and pull industry and company information from external sources to populate a risk assessment dashboard.
Finally, Asgeirsson announced from the stage that CPA.com and the and its parent, the American Institute of CPAs, have collaborated to introduce a new client accounting advisory certificate in January. Those who complete the course, which includes up to 33 hours of CPE, will receive a digital badge -- a visual “certificate” that is displayable across social media platforms, including LinkedIn. This open credential mechanism allows badge holders to show potential clients or employers that they are proficient in whatever area is denoted by that badge.
Some of the hottest fields in business call for exactly the skills that the accounting profession offers, according to IBM’s Leon Katsnelson.
In a keynote address on artificial intelligence at CPA.com’s 2017 Digital CPA conference, held in San Francisco in early December, Katsnelson, who is director and chief technology officer for strategic partnership for data science at IBM, introduced the accountants in attendance to two of the newest professionals on the block: data scientists and data engineers. Both of those jobs are only about five years old, he said, but are already in the top ranks in terms of compensation.
“To be a data scientist, you need three things,” explained Katsnelson. First are programming skills – not necessarily full coding capabilities, but a familiarity with the field. Then comes a certain facility with statistics and math. “And you need domain experience – a deep knowledge of a business.”
it’s the last part that speaks most to the accounting profession, he explained: “Domain experience is the hardest thing to find – and that’s what accountants bring to the table. Without your skill and your knowledge, there is no data science.”
He reported that he’s seeing larger accounting firms build data science teams from the ground up, and while smaller firms may not be building their own teams, he suggested that they do need to start deepening their comprehension of the field. “You need to understand the technology to be able to select the right tools and to advise clients, because they’re struggling just like you are.”
Why information matters
One of the top reasons why data, data-related tools and the ability to work with them will matter in the future is that they all surround and relate to machine learning and artificial intelligence.
“Machine learning is like a rocket engine and data is the rocket fuel,” Katsnelson explained. “In traditional programming, we’re teaching the machine how we do the job – we’re telling it, ‘Repeat what I do.’ AI is about teaching the machine to learn how we learn – to learn from data.”
The development of AI will cause major shifts in how companies process and report information - it will move from data that comes in periodically, with occasional errors, to data that flows continuously and is more trustworthy - and accountants are in a position to facilitate that transition.
The shift isn’t limited to financial information, either, Katsnelson noted. All kinds of information and processes are open to artificial intelligence, from smart electric meters that can learn usage patterns to elevators that can recognize when they’re about to need repairs.
He went on to cite a host of examples of major investments in artificial intelligence and cognitive computing, from the Big Four accounting firms to IBM and the government of China. “Google is now saying it’s an AI company, not a search company,” he explained, and quoted Kevin Kelly, founder of Wired magazine: “The business plans of the next 10,000 startups are easy to forecast: Take X and add AI.”
AI and accounting
The importance of data and AI to client businesses alone would be enough to recommend it to accountants, but it also promises to revolutionize much of what they do themselves - starting with their core services.
“Most people think audit is the first field in accounting that will benefit from AI,” Katsnelson said. “It allows auditors to dig deeper into the data by processing much larger volumes of data. Machines are much better than auditors at processing huge amounts of data.”
AI can also process, analyze and incorporate all sorts of structured and unstructured data and information that auditors can’t - and it will be able to consider all the available data, without the need for sampling. “With AI and machines, you won’t need to sample – the machine can check all the transactions, which human auditors couldn’t,” Katsnelson explained. “That’s where the power of the machine is.”
With that said, Katsnelson still sees a critical role for accountants. “I don’t believe for a second that the auditors will be replaced by machines – the human touch, and human thinking, are critical,” he said. “Human judgment is still paramount.”
To operate at its best, though, that judgment will need the sort of data science skills Katsnelson described, and accountants will want to make sure that they’re ready and able to leverage the opportunities that artificial intelligence, cognitive computing and machine learning offer.
“What can AI do? Just about anything. Where can you apply it? Just about anywhere,” he explained. “You want to be on the right side of the waves of change – the side where the innovation takes place.”
For all the disruption that technology is bringing to the accounting profession -- and the economy in general -- it’s also going to be crucial to their success, according to CPA.com president and CEO Erik Asgeirsson.
“The firms that are leveraging technologies like artificial intelligence are going to win in the end,” he told an audience of accountants during his keynote at the 2017 Digital CPA conference, held in San Francisco in early December. “You can’t fear the technology and circle the wagons -- you need to see it as an opportunity.”
Technology will disrupt and commoditize many of the profession’s traditional services, Asgeirsson acknowledged, but at the same time it will help accountants move up the value chain. “Automation is going to win on the low end,” he said, “and that’s OK because that frees you up to bring the services clients really value.”
As an example of the sort of opportunity created by new technologies, he offered client accounting services powered by cloud-based software. “If you want to see what lies ahead for tax and audit, look at what we’ve seen in client accounting services over the past decade – with the cloud, virtual CFO services are now an increasingly important driver of CPA firm revenue growth,” Asgeirsson said, noting that CAS offerings average growth of around 20 percent across the profession, while more traditional services are in the 8-10 percent range.
CAS currently accounts for approximately 10 percent of firm revenues, so there’s room for expansion. “There’s clearly a need for more planning,” Asgeirsson said. “We need to put in place more structure, and more language around describing the CAS service.”
With that in mind, CPA.com is planning a survey with the PCPS Section of the American Institute of CPAs to develop metrics and benchmarks around pricing and best practices; setting up a series of roundtable groups with firms of all sizes to share best practices; and creating advocacy and support materials to help sell the idea of CAS within accounting firms.
Looking to the future
CAS may be an area where the profession is currently learning to leverage technology, but there are other areas coming up where the impact may be even more significant.
Auditing is one area in particular where Asgeirsson and other leaders of the profession expect significant change.
“The heart of the evolution in the audit is about the advancement of new methodology with the development of new technologies,” he said. “CPA.com is working toward a vision of a dynamic audit solution methodology, leveraging big data to automate inputs and drive value-add around the financial audit.”
During the Digital CPA conference, CPA.com, the AICPA and audit and analytic software developer CaseWare announced the impending release of a dynamic preparation, compilation and review solution, with the long-term goal of creating a broad, automated audit solution.
Asgeirsson also pointed to coming changes in the tax area, where technology is allowing nontraditional providers to compete with accountants in tax prep and planning, while also allowing CPAs to change how they interact with clients.
“2018 is going to be a massive change potentially for tax. Nontraditional providers are thinking about the space, and client demands are changing,” he said, predicting, “You’re going to see a sea change in how firms have tax planning conversations with clients.”
Finally, he noted the potential for blockchain, which offers the prospect of “a new, very sophisticated database” of information that’s secure, unchangeable and validated at every step.
“Blockchain is about validated information, and when you look at it that way, it’s easy to see why accountants are interested,” he said, explaining how it may change audits significantly -- but not destroy them.
“Blockchain does not mean that the audit will go away,” he said. “There are going to be huge opportunities in private blockchains for audits. There are going to be assurance needs.”
For instance, the creators of the crypto-assets like bitcoin that are currently blockchain’s major application will need impartial assessments of the value they claim to be creating, according to Asgeirsson.
“They actually want regulators and auditors to show up,” he said. “Over the next couple of years, you’re going to see some really interesting assurance opportunities arising around blockchain.”