What is the Future of the accounting industry?
We won’t recognise traditional accounting firms in 10 years because of the merging of humans and technology that will have taken place. Like most innovations, the changes will occur first at the Big 4 and the larger regionals, but it will eventually trickle down to medium and small local firms. It’s not a question of if, but when.
The rise of the machine
Two current buzzwords for accountants are artificial intelligence and data analytics. Today, most of us are familiar with these terms but are not so certain as to how they will affect our practices in the long term. Tomorrow, they will be as familiar to us as debits and credits.
Artificial Intelligence (AI)
AI is well known to most of us as being the theory and development of computer systems able to perform tasks normally requiring human intelligence, such as visual perception, speech recognition, decision-making, and translation between languages.
For us, at its most simple level, this means a businesses’ bookkeeping system automatically allocates transactions, receipts and payments to the right part of the profit and loss account or balance sheet without the need for human involvement.
This is the term used to describe the process of inspecting, cleansing and analysing data with a goal of discovering useful information such as trends, patterns and fluctuations, to suggest conclusions and support future decision making.
Data analysis has multiple facets and approaches depending on which domain it is used in. For the accountant here are three examples of what it means:
- Auditors will test entire populations of data rather than sampling, and in a fraction of the time;
- HMRC could send a bill or refund to a proportion of tax payers without the need for a tax return to be filed; and
- Businesses could know the result of a decision before they have committed to it (“What if” scenarios).
The first scenario already exists, see any of the Big 4 websites.
Data analytics is not just the domain of the Big 4, other providers have entered the market to help auditors and accountants interrogate, verify and review business data.
How will these changes affect staffing levels and the way we currently organise our firms?
For several decades now, one of the biggest issues traditional firms faced was finding and training staff. Can any- one Remember when this was not the case?
If we look at the rise in the Cloud Accounting providers (for example, Intuit, Sage and Xero) driving changes in the way businesses use technology to record and process transactions and their subsequent development of practice management systems to enable firms to manage and produce accounts and tax returns, then the staff issue will eventually go away. Processing transactions on behalf of a business will become an error checking function, figures for the final accounts and tax returns will be automatically extracted.
As technology advances staffing levels for processing will reduce but not eliminate the need for staff. Someone will need to train business owners on how to use and input data, somebody will need to check the data for errors and there will always be a need for skilled people to exercise professional judgement when preparing final accounts and tax returns.
Analysing data for planning and reporting on audits will again require human professional judgement, machines might be able to provide the figures but they cannot factor in external influences.
The Big 4 are already investing heavily in the new technology. One fear is that the cost to acquire this new technology will further widen the gap between the way the large and smaller firms operate and thus further segment the market.
The rise in Cloud Accounting software has increased the number of book keeping practices (now approximately a third of the UK market for Accountancy services, by number of firms) and will continue will drive these changes.
We cannot see smaller firms being able to afford to train “traditional” Chartered and Certified accountants, this will be the domain of the larger firms, unless the Institutes and Association reorganise their qualifications into specialist (such as Audit, Tax, Advisory, Cloud) modules and qualify individuals on what functions they can and cannot be authorised to advise and perform. The Financial Conduct Authority already does this for their advisers and a similar model appears inevitable with the changes occurring in our industry.
Firms have traditionally organised their business model on leverage or a triangle, with partners at the top of the triangle and new recruits at the foot. These recruits used to come from University and into the profession. We hear firms report that entry level recruits are not prepared for the Cloud environment and the new technologies that are out pacing University curriculums.
Some firms we work with have adopted a new model of recruiting younger or A- Level students and training them immediately in Cloud software and then allocating them to “client facing” (training and support) or “error checking” client entries role. Once experienced, training on business advisory skills follows.
The firm of the future will not be a triangle but more of a diamond with some administrators, trainers, error checkers, specialists (tax, wealth management, finance, audit) and general business advisers.
Firms will offer a wider variety of services and use outsourcers or third parties to provide them.
So what do these advances in technology mean for traditional accountants and what should you be doing to protect your firm’s income and take advantage of the changing landscape?
What you just read is so “different” that it will likely cause the conservative and sceptical in our profession to either deny the reality of these changes or adopt the view that Like all changes in our profession it won’t affect them.
“We’ll wait until it gets to us”.
“We survived “RTI” and what can be worse than that!”
“All these things are for the Big 4.”
“It will be decades before it trickles down to our firm and by then, the partners will be retired.”
Our biggest fear at 2020 is “denial” by traditional partners.
But…. If you have read this far, your biggest opportunity is to accept the industry is changing and take advantage of the fact that some firms won’t change and thus won’t survive, technology is your friend and you if you can embrace the changes you will succeed!
So how do we maximise opportunities in this changing digital industry?
First, look inwards at your practice, your partners and staff.
It seems Perpetual change is the only thing we can predict. Sense how you, your partners and staff feel about this. Do you see it as a negative? Are you willing to be brave and experiment? Understand this and then you can better how to embrace change in an opportunistic way.
Ask yourself what business you are truly in, are you bookkeepers tax return and accounts preparers or are you advisers to business owners. What do your clients value, the past or their future?
Model other innovative practices, some have already embraced the new technologies and are making the most of the changing landscape. Learn how they do it. Modelling parts of their approach means you can gain advantage without having to reinvent anything.
Look beyond the tech, work out what digital technology actually gives you –for example, Cloud accounting software can give you real time accounting data! Tech needs to achieve something powerful for it to matter, otherwise it does not have any real purpose. What can we use this data for and how can we make a difference to our client’s businesses and their lives?
Be productively paranoid and retain a sense of curiosity about what could potentially disrupt your practice. Start by investigating what you may have discounted as being threatening, then identify what might be harmful to your practice and integrate your thinking into an ongoing strategy.
Second, write down a Strategic vision of what your practice would look like when you have embraced these changes. For example, in 2 years, turnover, overhead, profit, staff roles, type of clients, services offered, management information required.
Third, write an action plan to bridge your practice from where it is now to where you want to be.
Monitor the changes monthly and ask the question “What have we done this month to move our practice towards our strategic vision?”
At The 2020 Group we provide the resources to help you make the changes and to optimise your opportunities. Talk to us about how we can help your practice
Visit – www.the2020group.com
24 January, 2018.
Speaker and Writer, 2020 Innovation
- T: +44 (0) 121 314 2020
- Email Ian Fletcher
Ian Fletcher is a Chartered Accountant having trained at the London office of a “Big 4” international practice.
Ian is a well known lecturer and business consultant and has gained a reputation for his entertaining style and practical approach to practice management. Ian majors in management issues, specifically dealing with the systemisation of accounting practices. He is the co-author of the ICAEW’s book “Building the Value Added Practice”, and together with Gordon Gilchrist, is co-author of the Croner.CCH book “SME Consulting”. Ian is also a holder of the Chartered Insurance Institute’s Financial Planning Certificate.
Ian once demolished his own house with a JCB but has difficulty driving his tractor!
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