11 Sep

Creative destruction and how blockchain ushers in the next phase of future growth

Since the dawn of the industrial revolution, new technologies and systems have created opportunities, employment and productivity growth that has driven wealth creation and ever higher living standards.

Inevitably these changes created dislocations for existing systems of production that threatened people’s livelihoods and means to earn a living. The eighteenth century Luddites were the most famous collective expression of the fears that accompanied industrialisation as the angry textile workers of nineteenth century England tore up weaving machinery. Extreme though this may seem now, echoes of those Luddite fears are heard with each successive generation as new technologies are introduced.

The rise of blockchain technology and potential application of digital currencies as a decentralised means of exchange has led many to question the current position of blue-chip banks, governments, clearing houses and Central Bankers in our current financial system.

Although some high profile establishment figures have been quick to denounce blockchain technology and its potential worth, many are beginning to question if the current status quo is sustainable and if the high street bank in its current format will become a distant memory. Employees, particularly in the retail banking sector are wondering if they should fear the onset of blockchain technology.

As with their predecessors, some functions will become irrelevant as distributed ledger technology reduces intermediaries and other verification processes so jobs will be lost. Research from ComputerWorld has however found that new technologies destroying old technologies creates new opportunities and jobs for the agile worker. It estimates that there are approximately 18.2 million software developers in the world and this number should rise to more than 26 million in 2019. These jobs didn’t exist prior to the early 1980’s when computers began to enter the mainstream consumer conscious.

As with previous IT revolutions, home computers in the 1980’s and the internet in the 1990’s, AI and blockchain is slowly beginning to be adopted and disrupting existing technological services and how we as a society work. Most secretarial, PA and administrative tasks will become automated as blockchain and AI technology enter the mainstream. Inevitably people will lose their jobs, however newer higher value jobs will be created such as blockchain software developers and data scientists, the direction is overwhelmingly weighted towards the better educated and skilled. 

The onset of blockchain has seen different industries react in different ways, with some discrediting it as a fraud or Ponzi scheme and others such as accountancy taking the first steps towards adopting this technology and accelerate its application to the remedial everyday time-consuming tasks that need to be completed.

At EZYcount we are enabling new technology to be applied to existing accounting services aimed at SMEs. By using token-as-a-license (TaaL), small business owners let an AI input the data for them without human intermediaries so that they take their time evaluating the financials and not creating the reports.

Invoices and expenses verification and audit is streamlined because human interaction is removed from the process. It’s a small step in the blockchain revolution, however by enabling new technology to accelerate this change and support the workforce in adapting to new technology, people will begin to move out of less productive tasks such as data input and into more skilled and higher paid work such as analysis and advisory.

EZYcount’s endeavours are supported by progressive industry bodies. AICMA and CPA.org, the major financial expert associations, both have launched a joined accelerator programme to support start-ups disrupting their industry. By supporting startups that automate manual repetitive work, these associations of chartered accountants are investing in the future of their profession and ensuring that their members are up-to-date and ahead of the masses to embrace and accept any future disruptive changes to their industries.

Schumpeter described creative destruction in the 1950’s as being “the process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one”. It describes the need for break-through innovation (vs incremental innovation) to tear apart the old way of doing things in order to progress.

Blockchain technology has in just under a decade gone from being a concept to an ever expanding industry sector with fully functioning systems and platforms that have the potential to disrupt any number of incumbent companies in a wide variety of sectors. How these companies adapt their processing systems, supply chains, inventories and data management will determine their future success, while those that cling to the old ways of doing things and fail to adapt to innovation, will be condemned to the past.

09 Sep

Accountancy needs to wake up to cyber threat

by Randhir Shinde, Galaxkey CEO

Cyber-attacks are a greater threat than ever before. The National Cyber Security Centre (NCSC) has found that, in the last year alone, 40% of UK businesses have been hacked. This is concerning for any business, but more so for those in accountancy.

At Galaxkey, a cyber-security consultancy, we find that accountancy is targeted more than nearly any other industry. Worryingly, smaller firms are being increasingly attacked, with hackers viewing them as ill defended against cyber-attacks.

Why? Accountancy firms hold what hackers want: money and juicy personal information. Despite this, far too many firms still make basic cybersecurity errors. Errors that are akin to leaving your front door unlocked and a “burglars welcome” sign on the front lawn.  

As a start, look around your office. Seemingly harmless, everyday objects are an easy opening for hackers. Printers and scanners look more outdated than threatening, however they are rarely encrypted and therefore present a danger. These pieces of poorly defended hardware enable cyber attackers to access sensitive information that has been printed or scanned. More damagingly, hackers often also use printers and scanners to gain access to the wider company systems.

Next, have a look around your home – or any coffee shop, shared workspace or hotel lobby. You’ll see phones, tablets and laptops used for working remotely. The NCSC’s research found that 60% of financial services firms enable their employees to work using their own personal devices.  

This flexible working is fashionable, but it needs to be protected. I meet too many accountants who work on unprotected devices at home. An employee who accesses a company database on their own, unsecured laptop is leaving that data acutely vulnerable. 

In addition to devices, digital signatures present a growing risk. These are used regularly by accountants to authenticate documents, but many are not secured. Digital signatures can be easily replicated, meaning that hackers can fake signatures to commit serious fraud. Thankfully, new technology exists that means that these signatures can be authenticated and encrypted.  

Of course, cyber security threats are always evolving and it’s tough to stay ahead of the attackers. Technical solutions are important, but education is the real key. 

Staff need to know best practice, since they themselves are the greatest everyday risk. It’s troubling, therefore, that 40% of financial services employees have not been trained in the past year. The accountants I meet tend to say that any training they do receive is a box ticking exercise, a boring process which means that lessons are soon forgotten. Instead, training should be engaging and challenging. Cybersecurity can be an exciting subject, so long as it is taught in the right way. 

Far too few accountancy firms have really woken up to the threat of cybersecurity. Most, especially smaller firms, see it as an inconvenience that is far from business critical. This is wrong. One effective attack can devastate a business’ reputation and drive clients away. The risk of this is only getting more severe. It’s time for accountancy to wake up.

26 Jul

Technology and values are essential to future business model innovation, says ACCA

In today’s ever changing world, organisations are using business model design to build unique approaches to creating value that have the potential to radically disrupt industries.

A new report published by ACCA, Business models of the future: systems, convergence and characteristics, identifies 12 characteristics behind business model design, that are being combined by organisations in different ways to create new sources of value.

Jimmy Greer, head of sustainability research and policy at ACCA and author of the report said:

New tools mean that business model innovation is easier to achieve than ever and organisations are using multiple models in different ways for value creation. But the challenges of today’s world demand a wider, more systemic view.

Organisational design disruptions do not occur in a vacuum. They play out across the complex landscape of economies and societies. While there have always been challenges throughout the course of modern economic development, as long waves of technology ebb and flow, social institutions under-perform and environmental limits are tested, today these challenges are now emerging in new spaces

This report identifies 12 characteristics that organisations are combining as they build new business models. They are:

  • Multi-layered
  • Participatory
  • Platform-ready
  • Multi-capitalist
  • Purposeful
  • Data sensible
  • Boundary-testers
  • Open
  • Potential enhancing
  • Fair players
  • Convening
  • Restorative

Greer continued:

These characteristics lie behind the models creating organisations that are ready for the future. The accountancy profession is well placed to support the growth of business models of the future that help build resilient, inclusive and prosperous societies.  The unique contribution that professional accountants can make to how a business model proposes, creates and captures value, means that they can play a meaningful, strategic role in building organisations that are ready for the future

The report attempts to answer fundamental questions; why does business model innovation matter? What is the shape of the world in which models need to operate and how do they come together to build future value? The full Business models of the future: systems, convergence and characteristics can be read here.

06 Jun

How Can Blockchain Disrupt the UK Accounting Industry?

(image credit: Pixabay)

Blockchain will completely overhaul the UK’s accounting industry. The ICAEW described blockchain as “fundamentally an accounting technology”, due to the secure and transparent type of transactions. Blockchain can effectively streamline bookkeeping procedures and keep much more accurate records. With blockchain slowly being introduced into different financial markets, we look at how it will disrupt accountancy in the UK.

Streamlining accounting operations

UK head of audit at Ernst & Young Hywel Ball notes the possible disruptions that blockchain will have on internal finance functions.

“Accountants do a lot of transaction processing, reconciliation and control, and that could change significantly if this technology gets adopted on a widespread basis,” said Ball. “The cost savings that the banks are looking at are huge, and most of that saving is people who do the back office, so whether you view those as accountants or ledgers, there’s a degree of challenge to those in the accounting profession who work in finance functions.”

The most obvious place that blockchain will improve is auditing. Internal blockchain systems can effectively log transactions and disseminate the information to different parties. Transactions will be error free because both parties will be able to check them before agreeing to sign anything.

Blockchain in disrupting the status quo of accounting processes

Blockchain is a timely technology that can help accounting firms become more transparent and reduce the chance of errors. This could potentially reduce cases like the Carillion Scandal from happening again. With the Shadow Chancellor John McDonnell stating that his party will be commissioning a review into the entire auditing and accounting scheme in the UK, it is likely that blockchain will be looked at as a way to provide more transparency. Using blockchain accounting firms wouldn’t be able find loopholes in a “regulatory maze [that] allows obfuscation and buck-passing”.

Limitations in disruption

While blockchains will provide more secure and transparent transactions, it is not a full proof system. FXCM in their feature on the limitations of blockchain argues that the technology can come with costs. One limitation that particularly applies to accountancy is the throughput challenges. While secure, blockchain is much slower at processing transactions. FXCM point to the fact that in 2016, blockchain required 45 minutes to process transactions compared to Visa’s network which could process more than 50,000 per second.

Another limitation is the “51% attack” that is yet to be addressed by blockchain developers. Simply put, the 51% attack is a problem for accountancy firms because it can mess up their customers’ data if an outside influence decides to spread lies on a network. If the majority of data (ergo, the term 51%) states that the false information stored within the blockchain is correct, then, that eventually becomes the truth. Regulatory bodies need to be careful with this attack as it can prevent the positive disruptions of blockchain.

Blockchain adoption

Blockchain is extremely efficient in the fintech industry. Computerworld states that more banks and financial tech companies are embracing the technology’s native capabilities in cross-border payment networks. J.P. Morgan recently launched the Interbank Information Network (IIN), which has the potential to reduce the number of workers needed to respond to data-related inquiries.

The Bank of England, on the other hand, is already planning to create its own Bitcoin-style virtual currency. What will power the virtual currency is blockchain, which means the bank’s accounting department will be relying on the technology soon. If successful, the Bank of England can set the ball rolling and entice other financial institutions and accountancy firms to adapt blockchain into their systems.

11 Apr

UK ACCOUNTING FIRMS USING THE CLOUD OUTPACING TRADITIONAL PRACTICES

Despite the commonly perceived threat of technology taking jobs away from accountants, new research from Xero has shown that in reality, the opposite is true. 

Xero’s Accounting and Bookkeeping Industry Performance Report which surveyed 939 practices revealed that when serving more clients online, practices are experiencing a greater demand for new staff as well as a dramatic increase in year on year revenue.

The report found that 81% of small firms serving more than 100 cloud clients are actively looking to employ more staff, compared with just 49% of firms with fewer than five small business clients using online accounting. The trend continues for mid-sized firms – nine in 10 firms with more than 300 online accounting clients are looking for new staff compared with 59% for firms with fewer than five.

The demand for tech-savvy online accountants has also resulted in increased revenue per employee for cloud-based firms, as well as higher compensation packages for employees within firms that are adept at using technology to serve their clients. Practices with 6-35 online clients achieve an average revenue contribution of £65,000, while firms with between 100-299 achieved an average of £115,000.

Furthermore, technology is enabling the transformation of the role of the accountant to that of the connected business advisor. The report found that practices providing advisory services earn considerably more revenue per client than firms purely offering compliance (£6,990 vs £4,200).

By offering expertise in solving challenging business problems, these specialist services are generating a significant annual revenue per client. The accountants that take the role of personal trainer/coach, tech-loving expert and holistic coach are seeing the highest revenue per client.

Damon Anderson, Director of Partner at Xero commented:

We’re seeing an increasing number of practices embracing cloud technology, particularly in the lead up to Making Tax Digital. Our research shows that rather than putting an accountant’s job on the line, cloud technology is enabling significant growth and as a result, revenue is increasing, teams are expanding and roles are evolving.
What it means to be an accountant today is a far cry from what it was before online accounting. Practices are diversifying their offering beyond just compliance into the realm of business advisory and seeing real growth. The cloud has been instrumental in this journey, freeing up time for accountants to develop their skills further as they do more to help small businesses prosper

Xero Partner, Olly Evans, Evans & Partners commented:

Since becoming a Xero Partner we’re doing a lot of our work more cost-effectively. We’re making better recovery on our jobs, we’re not carrying so much work in progress, we’re doing the jobs faster. All those good things are happening. We’re in double figures for growth, percentage-wise

Jonathan Bareham, Raedan commented:

This year we’re hoping to hit about 75% growth. But we’re getting that out of what’s still a really small team. Xero has allowed us, in a way, to punch above our weight from day one because we’ve been able to streamline so much. We can focus on doing more interesting things that make us look like a bigger firm than we are

To coincide with the report, Xero has launched an online benchmarking tool which allows practices in the UK to compare their firm with similar businesses across the nation. More than 900 accounting and bookkeeping practices told Xero about how their practice is performing, resulting in an interactive tool to compare performance based on revenue per client and clients served by employee.

For more information and to read the full report please click here.

22 Nov

EY and Concur to collaborate on the first fully integrated tax and immigration solution for business travellers

Concur, an SAP company and provider of travel, expense and invoice management solutions, is working together with business partners to offer  clients a better experience in global business travel and manage tax and immigration compliance risks via the Concur App Centre. 

The Concur Fusion Exchange event in London provided a great opportunity for current and prospective clients to speak to Concur partners such as AMEX, Acquis, BusinessVisaHQ, ATPI, Oversight, HRS Global Solutions, Realisable and many others, all of which are established and highly knowledgeable suppliers in the travel and expense industry to understand how their corporate travel can be improved.

Simon Mathews, Business Development Manager at AMEX said:

American Express is widely known for its credit card business. However, we are also a market leader in fraud detection and virtual payment solutions. We support our card users in being at the forefront of tackling fraud. One of many ways in which we do this is to offer clients one time payment mediums to be used at say, a hotel, and not to be used thereafter. This is by default a one time use card which eliminates fraud as no one else will be able to use the card again.
Furthermore, AMEX has full integration with Concur to make the travel and expense management data collection a seamless operation; Monitoring and tracking expenses from initiation to finance department with ease.

Matt Fryar, Vice President of Sales of Oversight said:

The travelling industry is an area highly underestimated in respect of deliberate fraud and error. Our solution offers users the ability to wholly integrate into Concur and detect corporate policy violations and reveal an array of risks from the smallest intentional fraud attempts to more larger scale transaction manipulation by travellers.

Real-time immigration and tax assessments to business travellers through the integrated offering by EY and SAP will capture relevant travel and business activity data within Concur. Using EY tax and immigration technology, the integration analyses the data to make a real-time assessment of a business traveller’s tax and immigration obligations before they travel.

By linking directly to real-time data within the Concur Travel and Expense platform, EY clients will be able to receive robust, real-time analytics into their domestic and international cross-border tax obligations. This seamless integration will give organisations increased visibility into potential risks before they occur, with no additional effort required from their travellers.

Michael Bertolino, EY Global People Advisory Services Leader, says:

Business travel is vital for EY clients around the world, and workforce mobility is an important driver of competitive advantage, as well as an operational necessity. The new offering helps us ensure that tax and immigration issues don’t impede employees from doing business when they are on the move. By harnessing the collective power of 10,000 EY professionals providing EY People Advisory Services, we will work together with Concur to support clients with a unique experience when it comes to managing business traveller risks

Mike Eberhard, President, Concur, says:

We want to make it easy for companies to adjust and adapt to the increasingly complex demands associated with global business travel-related tax and immigration. As Concur’s customers currently operate and expand globally, it’s important that we not only continue to innovate, but also work closely with industry leaders like EY to meet our clients’ current and future needs

The integrated solution will be available globally in the Concur App Centre for EY clients as well as Concur’s.

With more than 160 pre-built integrations with Concur Travel, Expense and Invoice products, as well as connections to popular apps, the Concur App Centre delivers innovative functionality in key categories such as finance, regulatory compliance, enterprise identity, traveller productivity, travel management and much more.

For more information, visit: https://www.concur.co.uk/app-centre.

16 Nov

THIRD OF FINANCE DEPARTMENTS ARE ALREADY USING AI

Research results released by BlackLine, provider of finance controls and automation software, revealed although still an emerging technology, AI is already playing a significant role in the finance function, with nearly a third of finance departments (32%) using AI software. The prominence of AI in finance is only predicted to increase, with 88% of CFOs agreeing it would hold a significant role in finance over the next 10 years.

The survey, conducted with CFOs, Finance Directors and accountants in the UK, US, France, Germany and Australia, revealed that there is almost unanimous support for AI’s future role in the finance department. Only 6% of respondents felt AI should not have a role to play in their finance department in the next 10 years. German respondents are the most enthusiastic about the significance of the role AI will play in in the next decade, with almost nine in ten (89%) expecting it to be significant or very significant, whilst UK respondents are the most sceptical (71%).

Andy Bottrill, regional vice president at BlackLine said:

This research reveals that, although AI technology is still nascent, a significant portion of finance departments are already beginning to make it a central aspect of their financial processes. Whether the technology will advance to the point that the more enthusiastic companies hope is still uncertain, but we’re seeing that organisations are beginning to build for an AI future regardless

When asked about the more immediate future, when it came to companies yet to utilise AI, the research also highlights a distinct divide in attitudes to upcoming AI implementation. For instance, 20% of respondents in the UK, and 18% in the US have no plans to implement AI in their organisation in the next year. This number falls significantly in Germany (10%) and France (6%), suggesting a generally more optimistic view on the maturity of AI technology from businesses in these two nations.

This trend continues when respondents shared their views on which finance tasks AI would be responsible for in 10 years’ time. Whilst, broadly speaking, respondents from all markets surveyed agree to the same extent that AI would be responsible for the automation of process-heavy and time-consuming tasks (67% in the UK, 65% in the UK, 63% in France, 60% in Germany, 57% in Australia), it’s a different story when it comes to higher-level strategic tasks.

When asked whether they saw AI advancing to the point where it will make strategic financial decisions in the next 10 years, there was a clear divide between countries:

  • 46% of French respondents agree
  • This falls to 35% in Germany
  • Only 31% of respondents in the UK agree
  • US respondents are most cynical with only 24% agreeing
  • Overall, almost a third (32%) of respondents feel AI should be making strategic financial decisions looking forward 10 years

As well as regional differences in attitudes towards AI’s significance and possible future responsibilities, there is a stark variance from different members of the finance department. CFOs are by far the most confident in the future role of AI in their department, with 42% deeming it one of the most significant technology for finance in the next five years (42% agreeing), ranking it above blockchain (18%), cyber security solutions (28%) and data analytics (40%).

Accountants’ and Finance Directors/controllers are far less convinced, with only 23% and 19% respectively agreeing with their CFOs that AI is among the technologies having the greatest impact on accounting in the next five years.

The enthusiasm shown by CFOs towards AI should not be taken as technological naivety, however. The research also reveals that CFOs are keenly aware that a failing AI could put them in the firing line.

43% of CFOs believe that CFOs or Financial Controllers should be most liable if an AI were to make a decision that resulted in regulatory non-compliance, a fine or a fall in stock price, whilst accountants and Financial Directors are less sure. Overall, 23% of all respondents thought the CFO or Financial Controller should be liable, 19% said the CEO and 14% said the AI’s developer. Australia is the only market where the CFO was not the person deemed who should be most liable. Australian respondents said that blame should be shared across the accounting department (19%) mostly.

Bottrill said:

CFOs’ inclination to consider themselves responsible should an accounting AI fail and damage their organisation’s financial standing or reputation suggests that the new technology may not have an equal impact across the F&A function. While AI may bring considerable efficiency for the daily work of accountants and Finance Directors, allowing them to concentrate on different tasks, it could add a new responsibility and added complexity for the role of the CFO
14 Nov

Employees are getting smarter with committing expense fraud

84% of UK office workers have never had their expense claims challenged or declined. New global research carried out by Webexpenses has put expenses under the microscope and uncovered a staggering insight into the sophistication of methods that employees worldwide are using to submit fraudulent claims.

In many instances businesses may not be aware of the complex nature of expense fraud and the multitude of ways it could be hitting their organisation. However, 2017 research found that, 42% out of UK office workers surveyed, agreed that if they are sensible with fraudulent claims they are unlikely to be challenged.

With mileage being the most commonly claimed back form of transport (57%) it wasn’t a surprise to learn that nearly half of employees (47%) admitted to increasing the number of miles they travelled, with many respondents confessing to “only ever adding a couple of miles on”. The justification seemed to come from the 71% agreeing that ‘most people increase the miles they’ve travelled’ and a further 43% who agreed with the statement ‘everyone over claims so they don’t see an issue with it’.

What’s more, it appears fraud has become further excusable by over half (51%) of UK respondents thinking if they travel for work they deserve a treat. This is further supported by the 16% that confessed to treating themselves, a partner or child to a present while away on a business trip. The results indicate that an increasing amount of employees think that if they put the hours in they deserve a reward, a concept that if ignored could cumulatively have a detrimental impact on company finances.

The results as a whole indicate a growing endemic in today’s business culture where employees have learnt how to play the system moving to more surreptitious techniques of falsifying and exaggerating already existing claims to ensure it goes unnoticed. 26% of UK employees admitted to requesting a blank receipt for taxi travel to enable them to exaggerate the cost. This further increases prevalence that finance teams are falling victim to the manipulation of claims that essentially abide by the policy but are dishonest.

Although the research suggests that the tactic of little and often seems to be the most common and safest form of fraud, there are still employees trying their luck with more brazen expenses. This was seen in those respondents who confessed to claiming a digital SLR camera or a gas cooker.

Commenting on the findings, Adam Reynolds, CEO at Webexpenses stated:

The results bring to light the changing patterns of expense fraud, the shift to more subtle methods to efficiently enable claims to fall through the cracks and raise no red flags. The most prominent area being exaggerating mileage claims, this could be down to employees feeling it’s completely innocent just rounding up and with a manual process it’s a lot harder to identify.
42% of employees surveyed said there were a lack of adequate checks to keep fraud under control at their current place of work, this ultimately allows fraud to continue ticking on and the longer employees get away with it the more accepting it becomes and the less guilty they feel. We hope these results are the push businesses need to explore and evaluate the effectiveness of their expense management system

With the average number of times per year that those polled had falsely claimed being 11, and on average UK businesses, losing around £100 million each year to falsified and exaggerated claims it’s time businesses look to tighten and improve their processes.

06 Oct

WORKING IN THE ‘DARK AGES’: FIFTH OF ACCOUNTANTS STILL USING 13TH CENTURY METHODS

A new report has found that despite six in ten (61%) accountants saying that the finance and accounting profession is at a technological tipping point, six in ten (64%) still know someone who is using desktop spreadsheets as their primary accounting tools.

The research from cloud accounting software company Xero finds there is a high expectation that accountants should be up-to-date with the latest accounting technology, with only a small number (6%) of SMB owners citing that it’s not important. Despite this, eight in ten (78%) accountants who work in accounting and bookkeeping firms still work off computer spreadsheets and a fifth (18%) still use a paper ledger, used as far back as the 13th century, to manage accounts.

To encourage accountants and small businesses to ‘keep up’ and get their accounting systems online, Xero has launched its Digital or Die report and commissioned renowned renaissance artist China Jordan to recreate the Portrait of Luca Pacioli; the man known as the ‘Father of Accounting and Bookkeeping’. The update brings Pacioli, who was the first to publish a detailed description of the double entry system, into the modern age by updating his ledger with modern-day technology.

The Digital or Die report finds half (48%) are worried about the speed of change impacting the accounting industry and being left behind – rising from 22 per cent in 2016. This is amplified by the fact that more than a third (35%) do not think there is enough education or training available to ensure that UK accountants will be able to keep up with the pace of digital change and upcoming legislation.

With change on the horizon, only 17 per cent of accountants say they are very prepared for upcoming legislation, such as Making Tax Digital, the government’s plan to make tax returns digital and quarterly. A further quarter (25%) of accountants were not aware of Making Tax Digital at all – a concern, as a quarter of SMB owners (25%) believe that it’s their accountant’s responsibility to keep them updated with the latest legislation.

Shaun Robertson, Director, Qualifications from The Institute of Chartered Accountants in England and Wales (ICAEW) adds:

Some accountancy professionals fear being ‘left behind’ by the speed of change, which is why it’s so important to learn about the benefits, opportunities and challenges of new technologies. In some cases, technology such as AI may supersede human efforts, however, it does not replicate human skills and intelligence. We need to recognise the strengths and limitations of different forms of technology, and build better understanding of the best ways for humans to benefit from computers.

When asked about the perceived benefits of going online, Xero’s Digital or Die Report finds:

  • Cloud based accounting could save accountants 117.5 hours a year on average (15 days) by eliminating the time spent on administrative tasks – approximately £3,153.70 per year, per staff member.
  • A quarter (23%) say it could save them more than half a day per week (4 hours).

To find out more and to download the Digital or Die Report, click here.

22 Aug

Disintermediation, and the role of humans in providing assurance

Innovation, both in technology and business model, has given both enterprises and individuals the ability to perform many tasks that previously required a third-party expert.  Shopping for insurance,  sending money overseas and most recently, raising venture capital.  It is worth asking whether this can happen to the auditing profession, or to the function of assurance in general.

In one sense, the answer has to be no. Machine learning may evolve to the point where it is better at spotting compliance gaps than human auditors, but cannot make the final judgement and opinion required of an auditor.  But there is still a huge change coming. Humans may continue to have a key role in providing assurance, but the tasks a human needs to perform in fulfilment of that role are likely to undergo their most significant change since the invention of double entry accounting in the mid 1300’s.

Fundamental change in the assurance process

We tend to think of assurance as a deterministic process.  When performing an audit, you follow a well-defined process, and at the end of the process you make a yes-or-no decision about whether a company’s books are a good representation of the company’s true financial position.  Standards and compliance checks follow a similar pattern.  The advent of cloud computing, blockchain, and peer-to-peer business models make this harder: they are not only blurring the lines of data ownership, but much more fundamental concepts, such as what defines an employee or who owns a company.

There is an upside. However, data may be becoming much more disperse, but it is also becoming more granular, and there is a lot more of it.  While it becomes much harder to provide assurance via a deterministic process, it also becomes much easier to provide assurance via a stochastic process. In other words, it is harder to provide a categorical statement of compliance, but easier to quantify a level of confidence that compliance has been met.

This change poses both threat and opportunity.  The threat is that a good portion of the tasks that auditors perform today will become automated.  The opportunity is that there is a huge unmet demand for guidance and thought leadership that accountants are uniquely well qualified to provide.

Huge unmet demand for leadership

For all the benefit they provide, disruptive forces also generate friction (not to mention considerable publicity) by skirting regulatory frameworks. In time, they are almost always called back to account, as we see happening now with such disruptors as Uber, Airbnb and Bitcoin. Investors react to this with uncertainty, and capital that could be used to spur innovation is held back.

If assurance professionals could provide reliable principles and guidance on how new solutions could secure approval, the world would beat a path to their door.  Regulation might be seen to stimulate business rather than stymying it. This is more than just philosophical musing; there are opportunities are available here and now.  Here are a couple concrete examples:

Blockchain

Blockchain solutions are easier to implement than the solutions they replace.  But modern architectural best practice is to protect sensitive customer data by keeping it inside a firewall; blockchain solutions fundamentally and radically defy this principle by distributing a copy of this data to every other participant in the trading network, typically the enterprise’s direct competitors.  Architects therefore have no sound basis for approving blockchain solutions for production use, even if the solution would actually improve the safety of the customer data.  Assurance professionals who could give architects a fundamental set of business principles upon which to approve blockchain solutions would find themselves in great demand.

ICO’s

Initial Coin Offerings have raised more money this year than all traditional venture funding sources combined.  Unfortunately, the characteristics of this investment boom resemble pretty much every investment bubble in history, and the utter lack of due diligence with which people are throwing money into ICO’s is appalling.  If assurance professionals were to provide a framework of proper due diligence, both companies and investors would welcome such a framework now; Once the bubble does burst, regulators will be actively looking for a set of principles to adopt in order to protect people going forward.

Assurance professionals, like many other financial services providers, run a significant risk of being disintermediated. But they also have a huge opportunity to make themselves incredibly relevant to current and future waves of innovation.  The difference is getting involved.

Areiel Wolanow is the managing director of Finserv Experts, an independent consulting firm offering advisory and solution delivery services in blockchain, machine learning, and innovation adoption.