How will Technology Change Accounting in the Future?

There is no doubt that technology is changing the accounting profession in an unbelievable way. And the good thing is that service providers, the government, businesses, and consumers are all feeling the impact.

We will look into the impact of technology on the future of accounting, how it has affected accountants, their responsibilities, and what it means for the future. In addition, we will also cover the increase in the speed and efficiency of service provided to clients, changes to accounting theory, and the facilitation of administration.

However, we can't really talk about technology in accounting without explaining it's meaning and providing some stats to help us buttress our points.

According to Oxford Dictionaries (2014), technology is defined as the application of scientific knowledge for practical purposes.

Technology in this context refers to systems or methods widely used to make a process more efficient and effective for its users. This could range from using basic Microsoft Excel setups to investing in specialized third-party apps designed for specific accounting tasks.

Here are some stats that show that technology in accounting is definitely here to stay:

We will explain how technology will change accounting in the future, especially in business automation, data analysis, cyber security, blockchain technology, and the use of artificial intelligence.

The main issue technology aimed to solve was the amount of time it took to finish various accounting tasks, but as Andy Warhol said, "They always say time changes things, but you actually have to change them yourself."

Research shows that, due to automation technology, accountants are projected to spend 50% less time on the accounting process by 2026.

Let's analyze if the collaborative impact of information technology, particularly accounting software, has shortened the time needed to complete the accounting cycle. We'll compare the efficiency of each step in the accounting cycle today versus twenty years ago.

We can get a rough idea of the time taken by looking at the differences between the manual systems and the computerized systems and software used today. Due to limitations on time, we will only look at accounts payable, the general ledger, and financial reporting to come to a conclusion on whether efficiency has been achieved.

Today, the automation of the accounts payable process starts by scanning an invoice directly into an accounts payable system, which is connected to both the general ledger and the purchase order system.

That's a significant change from the manual process, where invoices were initially recorded in an invoice register, then matched to a purchase order, receipted, and filed before payment. This process consumed a lot of time unnecessarily.

In today's accounts payable process, any incorrectly matched data triggers an exception that needs manual resolution. This is unlike a decade ago, when exceptions meant someone had to realize a payment had already been made and find the related invoice and purchase order, which could be quite complex for data entry staff.

Do you know that the introduction of business tools like predictive modeling, business intelligence, and other data analysis software has undeniably facilitated faster, more accurate, and more detailed analysis of a company's financial data?

These tools have, in one way or another, helped in forecasting events that might happen in the future, and identifying best strategies that the organization will implement to achieve its goals.

A prime example of how technology has revolutionized reporting is through the use of Microsoft Excel. The use of Excel by accountants has enabled faster, more efficient, and more complex data analysis compared to the traditional pen-and-paper method of accounting.

The advantages of using Excel for reporting are significant. It's backed by Visual Basic for Applications (VBA), allows for the creation of easily shareable web reports, offers ample data storage capacity, supports the launch of Management Information Systems (MIS) initiatives, provides OLAP services for more complex Business Intelligence (BI) analysis, and is widely available in companies both domestically and internationally.

Continuing advancements in technology have furthered the gap between manual data analysis and reporting, and the time it takes to obtain and compile the information has really been dramatically reduced.

Looking back, when we gathered and put information together faster, it tended to become outdated quicker. More recent advancements have also provided tools for predictive analytics that can forecast future events based on past data.

Cybersecurity and data protection have always been major issues, even in the early days of IT usage. It is the practice of protecting information from corruption, compromise, or loss through the control of access using security measures like passwords and encryption.

These measures must be taken as the value of information is high and information is really a valuable asset for an organization.

Failure to protect information will result in damage to the reputation of the company and loss of clients, and the cost of the actual and opportunity damage can be high.

With the rise of the internet, the way we store data has shifted from physical to virtual forms. Although there are some upsides and downsides to storing data online when dealing with data security.

The easy way to access and share data is the positive implication; this happens as data being stored in the cloud can be accessed from any location, which can bring ease and convenience to doing work. But the negative implication comes from the security risk of storing the data in a shared public cloud environment.

The central theme that emerges from blockchain technology is the disintermediation of the accounting information system. This means that if the secure transaction of financial data can occur through companies, there may be no need for an official ledger or for a third party to mediate transactions. 

An example of the power of disintermediation is the possibility of direct taxation on a pay-as-you-earn basis. A simple and secure direct transaction between employer and tax office could automatically alter tax information with no need for a separate transaction to update tax records.

Other tax transactions can be similarly performed between companies and the tax office. This leads to changes in the way accounting information is reported to external users and also changes the nature of the current role of accounting.

Blockchain has grown in popularity over the years as a decentralized digital ledger and has become popular in all sectors of the economy (public and private). You might know it best as the platform behind the popular digital currency, Bitcoin.

In accounting, blockchain technology is predicted to disrupt financial information transactions. It does so by generating, recording, and processing a firm's financial data with an audit trail that is in digital format. This is done in a complex and secure environment.

The potential impacts on accounting will be huge and may result in a significant shift in accounting practices.

Financial derivatives are getting more complicated, and because there aren't enough global rules, this could make the financial system less stable.

AI technology can pitch in here by swiftly evaluating the potential risk of specific firms and gauging how it affects the whole financial system. In the past, this kind of analysis was lacking in regulatory setups due to a shortage of statisticians and computer model experts employed in the regulatory sector.

This led to a poor assessment of the different business models and the risk these models posed to the system. AI technologies can quickly assess the data at a low cost and provide good assessments.

Firms have switched from manual auditing to AI technologies so that they can boost efficiency and mitigate risk.

For example, some AI technologies simulate the many ways a human mind thinks and how it can quickly analyze large amounts of complex data and provide an assessment of financial risk for a firm.

This technology can transform the role of auditors. Instead of manually reviewing individual calculations and sorting through vast amounts of financial data, they could simply analyze the AI assessment and take any required actions.

Perhaps the most dramatic change that technology has brought to the accounting industry is the introduction of computers and accounting software. No longer do companies have to keep all their records on large pieces of paper and sort through the stacks of information whenever they need to retrieve one piece of data.

For smaller businesses, the computerization of accounting saves both time and money. For large businesses, it is a necessity for survival in any business environment where you might find yourself now or in the near future.

Businesses are able to process financial information with much greater speed and accuracy than was ever possible using manual procedures. Computerized accounting software has improved since the early 1980s and many packages are now extremely user-friendly and don't require the user to have a great deal of accounting knowledge.

The price of most software packages is reasonable when considering the amount of money it will save the company on their accounting fees in the long run and the potential it has to provide great fiscal control over a company's financial future.

Although accounting software cannot make decisions for a business, it is able to process data to the point where a business owner can quickly generate reports and look at a snapshot of the business' financial state, allowing important decisions to be made.

Businesses can also save a great deal of money on paper supplies, storage, and shredding of old documents, which were traditionally necessary for keeping accounting information. This is achieved today by storing accounts in an electronic database, which has many advantages over keeping large ledgers of information.