by Rohit Gupta, Forbes Councils Member
May 24, 2022, 07:15am ET
In a world where technology is advancing at lightning speed, finance departments are struggling to keep up. With the availability of artificial intelligence (AI), machine learning, and other time and resource-saving technologies, the finance industry, and particularly accounting, is falling behind.
The Future Of Finance Reporting
Month-end closing is not the only inefficiency in accrual-based accounting, the more widely used form of accounting for many businesses. Numerous repetitive tasks and processes required to perform the close make it an ideal candidate for a facelift. With many different stakeholders to report to and a significant amount of data sprawl handled manually, the likelihood of errors and omissions is high. Accounting would greatly benefit from enterprise technology that collects information from spreadsheets and data points and centralizes them. This eliminates the spread of information and shrinks the margin of error. Integrating artificial intelligence technology eradicates the manual labor previously needed for repetitive tasks such as emailing invoices, sending reminders and continuously following up with stakeholders.
To remain relevant and keep a competitive advantage, the future of financial reporting will need to deploy advanced technology. Accrual-based accounting, a necessary aspect in the finance back office, needs an upgrade with technology to make the process faster and more efficient.
Technological advancements lend themselves well to automating accounting processes. The advent of AI and machine learning allow for routine tasks to be streamlined and optimized. Various software technologies have evolved to the next generation, including cognitive robotic process automation (RPA), AI and machine learning, developed specifically for the business and finance world.
RPA. The two main advantages of RPA are that it can be programmed to handle routine tasks through automation, and it can be taught more complex tasks without the risk of human error. RPA can teach software to become more accurate at predicting outcomes, such as estimating accruals. Using RPA for more monotonous tasks such as outreach to suppliers and vendors can save time. Integrating RPA into the accounting process could not only reduce labor costs but also eliminate the human error component and allow staff to concentrate on more value-added work.
AI. Using AI technology in your accounting practice could help find anomalies or otherwise unusual or erroneous activity, including backdating. AI can be taught to identify fraudulent transactions. Artificial intelligence is an objective employee with nothing to gain from the job and without the ability to make or hide mistakes.
Machine learning. Accounting departments can use machine learning daily to engage with systems of record, shared inboxes and key stakeholders to capture actions and then relay the information and tasks to the human point person through workflows. Machine learning can grow to understand when to escalate requests that need intervention.
One technology currently gaining traction in the finance world is blockchain. Blockchain enables real-time, automatic processing, which can eliminate the need for someone to physically move numbers around in an account. It coordinates activities on both sides of a transaction simultaneously to avoid labor-intensive communication and post-reconciliation. Blockchain also has built-in safeguards through its transparency and permanency. Transactions cannot be erased, edited or altered in any way, and they are fair game for anyone to view. Imagine the time savings if numbers did not have to be physically moved on a spreadsheet from “waiting for payment” to “paid” or the headaches eased from not having to dig through paperwork to check the status of payments. Blockchain seeks to deliver accurately, in real time, who has paid and who has not.
Although there are many benefits of blockchain, it should be approached with a healthy dose of caution. Its intended purpose was not meant for accrual-based accounting and all the related activities. There are still some drawbacks to the blockchain as it is fairly slow, uses a great deal of energy per transaction and still has the potential to be hacked. There is great potential for blockchain integration, but as with any new technology, due diligence needs to be performed and a professional should be consulted.
Large Labor For High Volume
This technology will have different impacts on different companies. In particular, companies with a high volume of accrual invoices would likely feel the biggest impact. Why? Automation can shorten the time it takes to close the month through automatic communications and instant recognition of transactions. With the reduction in touch points and removal of some human labor, accuracy can be improved. The resource time that was previously spent on manually tying out month-end and preparing audit workbooks would instead be reallocated to more important tasks.
Beyond the benefits of time and money, automation offers security. Machine learning lacks the human traits that often lead to error, including boredom, distraction and fatigue. Precision is not optional in financial accounting. If accruals are materially inaccurate, there is a risk that companies will need to restate their financials. The consequences of this are widespread, including employee burnout from all the extra work, loss of investor confidence and increased audit fees. Mistakes are inevitable, but in the case of accounting, they have the potential to derail a company’s growth trajectory.
Slow Change Carries Risk
Accounting departments are often slow to change—and with good reason. Change takes work and carries a level of risk. And the finance work must be done even as a software implementation project is underway. As the world is adapting to new technology, it’s important to consider what might work for your company.
This process isn’t helped by the fact that recent history has been tough, to say the least. If one lesson is taken from the past two years, it would be that complacency can be dangerous. Blockchain and AI are poised to disrupt the way accounting is practiced, so now is the time for organizations to evaluate how and when to automate finance activities.