Director of Practice Development AccountantsWorld
Share this content

The Future of Accounting is Not Defined by Technology

Sep 13th 2016
people working on mobile devices
Rawpixel_iStock_futureaccounting

The fact about technology today as it relates to accounting is that it is just the tool, the medium to give shape to what the fundamental purpose of accounting is and nothing more.

Ask yourself, “What does the client do after you deliver accounting work?” Better yet, imagine that you are the client and that some other accountant does your accounting.

Imagine receiving the financial statements from your accountant. What do you do when you see those statements? This depends on what the business results are. Imagine you posted a loss last month.

Now, looking at the financial statements, you’d be looking for reasons “why” you made the loss. Moreover, in the back of your mind, you are trying to correlate the “decisions” you took and their impact on the results.

Your accountant (most likely) does “after the fact” accounting and maybe also ensuring compliance with regulatory requirements. But, more likely than not, your accountant does not seek to understand your decision-making and may help you evaluate the past. And to do so, your accountant first creates an accurate, reconciled record of the past.

Why is Technology NOT Defining the Future of Accounting?

Technology is doing that “after the fact” creation now; more efficiently, faster, and at a lesser cost. This is due to automations, integrations, and using “connectable” databases available in the cloud. In effect, technology is actually just replacing “after the fact” records creation.

Once things are done, the data turns into a finite record. It has happened, there is no longer a decision to be made about what has already happened.

But business owners are actually faced with plenty of uncertainty, ambiguous situations where all the parameters of the future are not known. Unlike accurate data of the past, they are actually dealing with unknowns. They are making business decisions about the future.

“After the fact” accounting is like life itself – it teaches a lesson after giving the exam. And business owners try to learn from their lessons – positive and negative – to help them make decisions about the future by avoiding pitfalls they learned and by leveraging the positives from the past.

The Real Purpose of Accounting

It is not uncommon for a new entrepreneur with no formal financial education to wonder “why do I need accounting?” A Google search for “Definition of Accounting” gives a ton of search results and almost all definitions tell you the “what,” but not the “why.

For instance:

“Accounting is the systematic and comprehensive recording of financial transactions pertaining to a business, and it also refers to the process of summarizing, analyzing and reporting these transactions to oversight agencies and tax collection entities.

…… Investopedia

“Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions, in making reasoned choices among alternative courses of action.”

…….. (Purported to be the Statement of the Accounting Principles Board No. 4, p. 8.)

Irrespective of the definitions, the real test of the “why” of accounting is when economic entities consume the accounting information. What do they do when they see their accounting information?

Nobody wastes precious time on dwelling too much on the past. All that people want is to learn from the past to make the future better.

Arguably undoubtedly, in essence, the real purpose of accounting is to help clients make better economic decisions about the future, and technology is just making it easier for accountants and business owners to do so.

Instead of rationalizing the decisions already taken, accountants should focus on providing decision-support intelligence, providing proactive insights on consequences of managerial decisions.

The Future of Accounting

It was always what it was meant to be. It was never about after the fact; it was always about the future.

Accountants were, are, and will be meant to help their clients navigate the future better, and technology is just making the “after the fact” work more efficient, faster, automated, and cost-effective.

In short, technology is not defining the future of accounting. It is just helping accountants move into the future that was always meant for them.

The real clue: Think how, as an accountant, you can help people understand future consequences of their decisions – make that your “work.”

Replies (4)

Please login or register to join the discussion.

avatar
By thetimmyc
Sep 13th 2016 21:01

Interesting point. At the same time, technology is getting better at determining things it was previously unable to determine (the finite data you describe). For instance, Google's machine learning algorithms in Google Photos can take a photo and tell us what's in it--chairs, cakes, people--all unimaginable ten years ago.

I wonder more and more if accounting software data will be similar; while for now, it just allows us to see what's there--will it in the future be able to look at the full picture the way only a trained accountant can do now?

Thanks (3)
Hitendra R. Patil | Author: Accountaneur: The Entrepreneurial Accountant
By Hitendra
Sep 14th 2016 01:36

Thanks for sharing your thoughts, Tim! Accounting is "data" driven. A lot of new software is already performing data based analytics that is based on highly complex rules-based algorithms now. Example: Panalitix.com. Many tax softwares now take input data directly from the accounting softwares. Blockchain based accounting can obviate the need for machine learning technologies as transactions can get exchanged and authenticated real time. Internet of Things (IoT) can get integrated in the accounting softwares e.g. IoT can identify a part needing repairs, log the request to the provider and at the same time, create a purchase order in the accounting system (for approval). The possibilities are endless as data gets liberated from desktops and the "connectable" databases on the cloud. Anything that is "rules based" and "repetitive", even if it is complex, will get taken care of by technology.

Thanks (4)
avatar
By [email protected]
Sep 21st 2016 15:29

What about AI and Watson? I think more and more the skills that accountants bring to the table will be replaced by AI. It is just a matter of time.

Thanks (1)
Replying to [email protected]:
Hitendra R. Patil | Author: Accountaneur: The Entrepreneurial Accountant
By Hitendra
Sep 21st 2016 16:55

Precisely the point, Jackie! AI and Watson are ways technology can intensely connect a lot of dots on what has happened. "Predictive" use of technology is yet to bloom in a true sense. What technology (yet) can't figure out is the "context", which is where human interactions come in. For example, AI can learn to do "analytics", even complex ones, but to put the intelligence from that analytics in the context of the business of the client is not easy for technology to deliver in a way the business owner will truly comprehend. If accountants have focused only on numbers and compliance, AI and other technologies can and will replace such work sooner or later. But the ability the accountants can bring to table is the context about which business decisions could have produced the current numbers and how the same numbers can give input to better future decision-making - provided the accountants truly understand client's business and industry.

Thanks (1)