Speakers: When It Comes to Disruptive Technologies, the Future Is Already Here

By:
Chris Gaetano
Published Date:
Nov 8, 2018
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While many CPAs are aware of the potential for disruptive technologies to seriously impact the accounting profession, the temptation is to think of them as far-off advances that will take a generation to fully infiltrate through the industry. Yet a pair of speakers at the Foundation for Accounting Education's Auditing Standards Conference today said that taking such a view is a mistake because many of these technologies are already in use. 

Speaking at the Society's Wall Street headquarters, Sara Freeman, an enterprise account executive at Thomson Reuters, pointed to cloud computing as one reason why firms should be paying attention to new technologies in the here and now. She asked how many people in the audience had at least one cloud-computing program in their own firms today. Most people raised their hands. She pointed to the rapid speed at which firms have adopted this new technology as an example of how quickly technology can move. 

"This is one of those disruptors that, just a few years ago, wasn't as mainstream," she said. "That's what I want you to keep in mind today. We're talking about blockchain and AI, and you think that's something years down the road, but look at where cloud computing apps have gone in just a few years." 

Freeman said that firms should now be adopting cloud computing applications not just for security purposes—noting that hiring a cloud firm is often more secure than storing data on site—but also for recruitment and retention. 

"We're very open about the security issue, but one thing not talked about is talent acquisition and retention," she said. "Talent acquisition is by far the most difficult thing a firm has to deal with because there is not enough talent out there. ... But what I see again and again is a lot of individuals with trouble working in certain environments. If you use paper, if you're not tech savvy, it's very difficult for [recent graduates] to get back to that: When they were in high school or college [they were] not using paper. The more tech-savvy a firm can be, the more someone coming out of college will feel like this is where they want to be, where they want to go with their career." 

Similarly, Steve Lindsey, senior director of product development—Auditing and Accounting at Thomson Reuters, said that artificial intelligence applications are already going in the same direction, and that firms would behoove themselves to become familiar with their use. 

"This is probably the one with the most promise for our profession," he said. "The Big Four are investing hundreds of millions over the next several years in this technology; the AICPA and Rutgers formed their initiative to figure out ways to advance analytics, and AI in particular, in the audit space; KPMG has announced an alliance with IBM's Watson. ... AI isn't new; it's been around for a long time, but we're seeing all these advances now," he said. 

Like cloud computing, this is not some far-off phenomenon. It's happening now. Auditors today use AI to capture not just structured data such as spreadsheets but unstructured data such as memos. Lindsey said that Thompson Reuters is already in talks with several potential vendors for a program to perform contract reviews. He provided the example of an advisory firm that was consulting on an M&A agreement, a document of more than 200 pages. The firm's employees spent hours reading through it but, on page 163, there had been a contingency payment agreement that no one had caught until a year later. 

"What they wanted was some kind of backstop, using AI to extract those key terms," he said, "and there are applications for that today."

Similarly, AI is also being employed to help implement the Financial Accounting Standards Board's new lease standard. Firms will need to evaluate a lot of leases—scan those agreements and extract key terms—and he said there is already software that can do it. 

What's more, the technology is not just here; it's already improving. Lindsey said that the current generation of AI that auditors use can paradoxically create even more work than if they had just done the engagement the traditional way. He said that what Thompson Reuters is hearing from audit firms is that teams will sometimes do the same audit procedures they normally do, then run the analytics on top of it, which returns more anomalies that need to be investigated, many of which turn out to be nothing. So, right now, it's not adding as much efficiency as originally thought. But he said that next-generation software is already being developed to account for this. 

"What these apps are doing now is adding more risk-based weighting to the analytics, so it can group anomalies into areas of like kind [and say,] 'These are high risk and these you want to focus on, and these 300 are low risk because they have whatever conditions, so it helps wade through other anomalies," he said. 

He added that these programs can draw from other engagements for risk-weighted data as well. If someone works mostly with construction contractors, and the AI program notices certain consistent risks and anomalies, it can apply this knowledge to other engagements of a similar sort to point out potential problem areas. 

In contrast to the already-present-and-improving AI technologies, Freeman said blockchain is still in the early stages, though she noted that it too has wide implications for the audit field. 

"We're still trying to figure out all the pieces, and we still have a long way to go before it is on the forefront," she said." But it's coming, and there are areas where it will impact you."

The primary impact point, she estimated, will be in transactions. A blockchain is essentially a record of transactions, so an audit will no longer involve verifying that those transactions happened: they're right there on the blockchain. But this advance won't remove the need for an audit, nor will it remove the need for auditors. 

"Think of accounts receivable: It may be on the blockchain so you know it's there, but is it collectible? There are functions the blockchain cannot take over," she said. 

With blockchain, as well as AI, the role of the auditor will become more specialized, she said, as computers can take out the more routine drudge work from the process, leaving the auditors themselves to become more specialized agents. 

"It's not about removing the human element; it's about changing how you interact with the audit," she said. "Think of the idea of being a brain surgeon. Sure, you can be the person who comes in and takes the blood and blood pressure, but wouldn't you rather be the specialized brain surgeon who is hired to come in? This is where [these technologies] can help you." 

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