IT
How FinTech will revolutionise the Accountancy industry by Patrick Horgan and Paul Moore
by Patrick Horgan and Paul Moore
What is the best way to view the seemingly endless innovative technologies coming on stream in the accountancy industry? Curiosity, rather than scepticism, might be the approach to take. After all, it is always much easier to continue doing things as we always have instead of embracing change. The embracing of change, despite the challenges that come with it, is where we will find improvements and advancements in how we operate.
As a rule, technology should be viewed as supporting, not replacing, accountants. It is understandable that worries might exist in relation to skills like creative problem solving being removed, but instead it should be viewed as an opportunity to enable accountants to do more valuable work. Leave technology take care of monotonous or time-consuming jobs and focus on being more creative or collaborative. Most of the tasks that can be handed over to technology are ones that could be automated, and the truth is, forward thinking organisations have always favoured automation.
It is important to note the success of FinTech in accountancy to date before we look at any future impacts. The implementation of cloud-based accounting and bookkeeping has radically changed how accountants manage and interact with their clients. This was especially relevant during Covid-19 when firms had to adapt and operate remotely during the pandemic. Indeed, it has become such a mainstay of the industry over the last twenty years that we probably take it for granted.
As FinTech continues to disrupt the accounting ecosystem, so too have the demands of the regulatory environment where obligations have become more onerous for the industry. Technology is an enabler to help firms meet these obligations in a more efficient way.
This, in turn, has given rise to new opportunities for companies in this space. This is evident in the boom in AML and KYC applications that are becoming must-haves for accountancy practices wanting and needing to remain compliant.
Not only this, the sheer amount of data that AI and machine learning can process means it far outstrips traditional methods of handling. It allows us to identify trends at a macro level which we may have otherwise missed. Machine learning should not be viewed just as a benefit but should be classed as a necessity. Added to this is the fact that both aforementioned technologies can demonstrate more critical analysis than manual analysis ever could.
This radical pace of change is only going to continue and is reflective of the business world at large. New and young companies are now much more agile and can be established and grown dramatically faster compared to 15-20 years ago. This can be seen in the number of different payment formats now available, mobile payments, mobile apps, all of which allow companies to manage their businesses from their phones from anywhere in the world. Accountants need to mirror such growth with sufficient services to ensure they are facilitating their client’s chances of success. If they don’t, their competitors will.
Indeed, this is one of the overarching benefits that FinTech has had on accountancy firms. It has taken dated business practices and transformed them allowing the firms to significantly improve the services they can offer to clients. What once may solely have been bookkeeping, accountants can now offer more value-added services like financial advisory, personal tax consulting, fundraising, and investment advisory. An improved and enhanced service allows accountancy firms the opportunity to diversify, grow quicker and increase the number of customers they serve.
As with all innovative technologies, there can be a fear of the unknown, particularly if the firm is used to more traditional ways of doing things. But on the other side lies radical improvement and a more manageable way of doing business, especially as an enabler to grow the business. Once the first trickle of positive change from technology is seen in a firm, it is hard to stop the inevitable flow of progress that comes if correct FinTech solutions are embraced.
Blockchain is most certainly in the category of needing more information and adoption before it can be fully, or even partially, welcomed. Whilst it is not so well understood as a technology, at least in terms of its potential impact, in financial services it has significant potential to change the way processes in accounting are conducted.
Actual widespread adoption of blockchain in accountancy is still a while off, but there is no doubting, in theory, its potential upsides for accountancy. Such benefits include instant payment settlement which reduces the risk of non-payment by one side, and a distributed ledger meaning there is a public history of all transactions to prove a transaction occurred.
In summary, it could lead to less fraud and more trust in transactions, with less errors on both sides due to automated transactions. The instantaneous nature of blockchain is where most of the promise is held. For example, tax returns could be completed and verified immediately, saving hours of work. Or, as mentioned earlier, audits of financial statements could be completed much faster as transactions could be verified by the blockchain.
Cryptocurrencies are normally bundled into the blockchain conversation, but there seems to be even less understanding as to how cryptocurrency will impact accountancy. At its core is this: what do we classify cryptocurrency as? No standards exist yet. It is not cash and cannot be readily (widely, at least) exchanged for any good or service.
Its high volatility further precludes it from the cash conversation. Therefore, it is most suitable as an intangible asset and most crypto assets are accounted for as indefinite-lived intangible assets. This means they must be carried at the lowest value since purchase, rather than its current value. Which is far from ideal and logically an obstacle if a firm needs to carry an asset at an artificially low value.
This overall lack of clarity is a reason firms would be slow on adopting assets based around cryptocurrency. This is exacerbated by the fluctuations in the industry of late and these drastic changes in value only serve to increase the apprehension people have towards crypto. However, that may be about to change as the FASB (Financial Accounting Standards Board) recently concluded that firms should measure crypto assets using fair value accounting in the US.
One would imagine that we will take our guidance on this tricky situation from somewhere like the US. It will take time to see if this is accepted and then reflected in everyday accounting but if it is, we could be looking at firms more regularly owning assets in the crypto world, especially if it enables/encourages the use of blockchain technology. Will we gradually see a move away from ‘traditional’ assets to digital ones? Possibly, as most global financial institutions are moving towards digital assets becoming a part of their portfolios. But there is a lot of water to flow under the bridge before that happens.
For both blockchain and cryptocurrency, their practicality and how easily or not they can be adopted into accounting will ultimately determine the scale of the impact on the profession. When the original internet was launched in the 90’s, people knew it had potential, but it is fair to say the transformative effect it has had on the world was not foreseen by all. We could be in a similar position with crypto and blockchain in terms of not fully realising the extent to which they will impact our lives.
Given the rate of advancement in technology in the last fifteen years, it will be interesting to see how the next fifteen play out and the impact they will have on the accounting industry. AI, Virtual Reality, and Blockchain will all become more ubiquitous, but they will all serve to make industry professionals more relevant rather than less. Accountants of tomorrow will play a more creative and strategic role in their company and should see their roles freed up for more ingenuity and creativity instead of being constrained or side-lined by technology.
Of course, this all depends on organizations realising the potential of new FinTech and supporting and empowering their accountants to take full advantage. This will be the difference in them being industry leaders or part of the chasing pack.
Marketing Manager of valid8Me