With a dynamic industry environment, it is now a mandate for organizations to invest time, money, and effort in adapting to the future way of doing things, at present. A cloud system is part of the basic infrastructure now. When the entire business model changes so does change the way of accounting and auditing. Robotics is being used to do the accounting free of manual intervention whereas machine learning and artificial intelligence help identify patterns and generate exception reports which leaves the auditor with specific grey areas.
Disruption is the new buzzword today and FinTech essentially, is the outcome of the disruption. FinTech is a combination of Finance and Technology which entails the use of technology like big data analytics, artificial intelligence, machine learning, virtual reality, and robotics for doing finance. Fintech is an example of the positive impact of competition and technology which gives opportunities for the new entrants who have a unique idea for doing things in a better manner. As a result, the whole financial services industry, from funding to insurance, from accounting to consultancy, from consumer finance to investment banking, is witnessing a rapid technological intervention.
The inputs, the processes, and the outputs are the same with increased intervention of robotics in handling the same. Hence, financial services are gradually turning into technology services where a person is required to know the technology used to execute the financial regime. With a dynamic industry environment, it is now a mandate for organisations to invest time, money, and effort in adapting to the future way of doing things, at present. A cloud system is part of the basic infrastructure now. When the entire business model changes so does change the way of accounting and auditing. Must Check Periodicity Concept.
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Financial Technology and the Accounting
Although a computer as intelligent as a human being has not been invented yet, the limited intelligence is increasing rapidly with time. This limited intelligence includes gaining from experience, recognizing what is important, tackling complex situations, understanding and working on visual images, being creative, and such other things.
Accounting is no longer a tedious and monotonous job with a significant time contribution to the repetitive work. The repetitive work is being done with the help of algorithms with a few clicks of the computer mouse and that too with great accuracy, reduced operating costs, and increased efficiency. The calculation of profits and taxes is now being done by the software. Now, the accountant is working on the next level. Must Read Accounting for Rectification of Errors.
Since accounting is being done in tandem with the happening of business transactions, the results are available on a real-time basis. He is now contributing more time towards deciding on the economic use of the accounting data. Accounting is contributing more towards analyzing various numbers to identify the areas of business improvement and do financial planning with the help of accounting data. The role of an accountant is more strategic now.
Prediction is not an art but a science, which is essentially based on critical observation of the past and a reasonable understanding of the future. The future outcomes can be numerous with different amounts of probabilities and cognitive technologies like machine learning and artificial intelligence can refine it further.
The language of accounting is also transformed into the language of the business. A businessman need not understand the accounting language as the latest financial technology is going to provide him with the required data in the shape and form of his will and that too in no time.
Regulatory compliance is another area where financial technology has changed and rather eased things. Financial technology has transformed compliance from a huge regulatory team to a subscription to high-end software that helps report the stuff at regular intervals and as per the rapidly changing demand of the regulators. On the other hand, software companies have a huge staff led by technology professionals who are helped by the accounting, tax, and compliance people to understand the changes and their implications.
Consulting is another area where accountants work a lot. This area has also been completely changed by financial technologies. The problem is discussed over video conferences, the data is available to the consultant with sharing of credentials whereby the consultant accesses the data kept on the cloud, the issue is understood and analyzed online, a solution is derived on the spot, discussed, and implemented. The post-implementation monitoring is also not a difficult thing with the latest financial technology.
From a software company’s perspective, financial technology has mandated it to use the best practices for accounting and to adapt to rapid technological advancements. Financial technology is enabling smart data input techniques. For example, the document can be scanned and the accounting entry is done with the help of identifying key information like date of transaction, amount, number of items, commodity type, tax paid, supplier name, and nature of expense from the document automatically by the system. There are certain limitations which demand the uniformity of the document format or uniformity of data typology
But there are certain limitations too. When a system is down, the operations are stuck. The reason is that either there is no manual workaround in place or the manual workaround fails in the hour of need. The manual workaround fails as either the people do not have any idea of its execution or it is so tedious that the manpower is unable to execute it manually.
The accountants, like any other profession, are made by imparting education and training. The training focus has also changed because of the invention of new products and differing methods of execution. The need for strategic training has outweighed the need for basic and conceptual training. The core skill set of an accountant now also includes strong IT skills. Must Read GST on Google Adsense Earnings.
Financial Technology and the Auditing
Whether it is a question of investigation by the regulators or auditing by the organizations’ internal and external auditors, financial technology has changed everything for good. The hiring of technology guys on one side and increased dependency of auditing firms on the technology companies on the other are strong signals of the extensive and ever-increasing use of IT in performing the audit. As per the findings of the Forbes Insights/ KPMG report “Audit 2025”, 80% of the respondents expect auditors to use more sophisticated technologies for data collection and analysis in their day-to-day work.
Cognitive technologies, which include artificial intelligence, machine learning, speech recognition, natural language processing, and robotics, help in the digital analysis of a big chunk of data that cannot be performed by several audit teams.
Data gathering from non-financial sources such as social media, radio, internet browsing, and TV watch lists and tallying it back with the financial data of the client is the next step. This will enable the collection of audit evidence from diverse sources and enable the expression of a strong and clear audit opinion about the true and fair view of the financial numbers
The data classification also needs to be changed – One is structured and the other is unstructured. The robotics can easily analyze the structured data to filter the inconsistencies, which can then be made part of audit samples.
Auditors are then left with looking at the reason for the exceptions, whether the same was as per the risk appetite or breach was as per the bylaws. They have to use their judgment based on correct and in-depth facts produced with the help of technology use.
The trends can be formed using past data and future predictions. The deviation of actual data from the expected data is going to be another indicator to investigate further. With big data being the most valuable asset, auditing firms are also paying to get reliable industry players’ data which is compared with the organization’s data to see whether it is going with the flow or not. It also gives an insight into the validity of the going concern assumption. Of course, there are limitations in the use and disclosure of such use of data, given the increasing application of stringent data protection guidelines worldwide.
The audit conducted on the back of extensive big data churning will be able to identify more pitfalls, will be able to fix more risks, and reveal more about the company.
The days are not far when the auditees will be penalized for data inconsistencies. The need for sampling whether it is based on judgment, is done on a random basis, or through any other process, will not be there. The churning of complete data will be done and the exceptions will be the result, which will be as good as audit observations because all the known reasonable exceptions would have been part of the available data. The companies with more anomalies found after data churning will be charged more on the back of a need to investigate more number of exception items. The impact will be analyzed and the report will be made based on % deviation from the reported numbers. An audit classification or grading might be assigned based on deviation %.
Conclusion
When technological disruption has changed every industry, accounting, and auditing are no exception. Robotics is being used to do the accounting free of manual intervention whereas machine learning and artificial intelligence help identify patterns and generate the exception reports which leaves the auditor with specific grey areas, where an investigation is sought, removing the need for sampling either randomly or by judgment.
