ThinkTWENTY20

By Ricardo Rodil
Ricardo Rodil leads the capital markets advisory services division at Crowe Macro (Brazil).

Every time I try to understand or analyze a very complex event,  I usually try to reduce the problem to its essential elements – a sort of inverted zoom lens. I know that the devil is in the details, but I need to have some distance from them. So, I formulate extreme hypotheses, thinking about all the possible/plausible results (from 8 thru 8,000, as we say in Brazil). And, of capital importance, I know I need to keep my mind open to all possibilities. Today, I want to share with you where my latest thoughts have led me, about where and how technology is progressing and how that is transforming our lives.

This is an issue that has been, and is being, studied and commented on for decades as the world is turning more and more to what technology can offer us and how it is changing our lives, our work and the very way we act and behave. Lately, especially, a lot has been said about the incredible impact that the  continually accelerating technological advances are having on the production and distribution of goods and services, constantly making them different from what we have known to date.

The Impact on Economic Activities

We can sumarize these production activities as follows: a mass of workers produces goods and services, supervised by foremen, managers, directors and so on. Those functions are remunerated, forming what we know as a “remuneration mass.” With these financial resources, the different actors buy the goods and services available on the market, depending on their needs, preferences and possibilities. This is a really brief description of income and expenses of any individual, organization and of all of humankind as a whole.

Having said that, I invite you to take an imaginary trip into the future – follow me as I propose what the activities noted above will look like in the not-so-distant future:

• Goods and services will be produced in a personalized, automated form, employing a few highly specialized workers who will command a number of robots that will produce the goods and render most of the services.

• Purchase orders (prepared by robots) coming from clients will be analyzed via blockchain procedures and approved or rejected as needed.

• Packing and billing will be robotized and delivery made through autonomous vehicles (bikes, cars, trucks, airplanes, drones, etc.), all coordinated by remote or/and robotized operators.

• The consumers/clients, too, will receive the products by means of robots, which will advise the clients that they have arrived and will deliver the packages to them via voice-operated elevators.

At this point, we are not sure whether the building doorman will survive or not.

Wonderfull, isn’t it? But a cruel doubt pops up at this moment, with the answer not at all obvious. Because the the remuneration mass has been significantly reduced, who will have the financial resources to buy goods and services?

And another question comes to my mind: Would the world then move to a comprehensive program of minimum income for each citizen/family or might there be a drastic reduction in working hours without a pay reduction?

The Accounting Profession

Given these possible scenarios, many people believe that our profession is going to disappear. By applying the inverted zoom lens mentioned in the first part of this article, we need to focus on specific features of accounting services: (1) bookkeeping, usually including tax compliance and payroll preparation; (2) auditing, embracing assurance and non-assurance services; and (3) consulting in management, finance and accounting matters. In this article, we focus on activities (1) and (2), which are the most structured ones.

These two primary services, as almost all of us know, consist of three basic procedures:

• Planning: in bookkeeping, this means preparing a chart of accounts, defining a cost system, establishing the frequency of receiving documents and preparing trial balances, etc. In the auditing field, we analyze risks, plan responses, prepare a formal planning strategy, etc.

• Execution: in bookkeeping, it mainly means classifying documents, preparing book entries, obtaining trial balances, etc. In auditing, we are talking about field work, performed by staff and intermediate senior personnel.

• Conclusion/products: in bookkeeping, this means grouping account balances with a view to preparing financial reports, preparing payroll and tax returns, and the like. In auditing, it comprises analyzing the results of field work, writing conclusions on work papers and writing the report(s).

Based on this summary, we are in a position to formulate the one million dollar question: what will be the impact of technology innovation on the accounting profession?

It is possible to have some idea as to what extent data analytics and machine learning (for example) will influence activities such as planning and arriving at conclusion, which tend to be performed by the most qualified personnel in accounting firms. But when we think about “execution,” the possibility of almost complete automation in that field is quite clear at this point in time. This leads us to a series of questions, which may severely affect our profession in a not-so-distant future:

• If automated processes take over the workof qualified professionals, significantly reducing the headcount of staff and senior auditors (field work people), how will firms train young accountants to get experienced professionals for the future?

• In this scenario, and recognizing that the market will offer fewer and fewer qualified professionals, how will firms structure their recruitment processes?

• Will this lead to a fierce competition among audit/bookkeeping firms for qualified people? Will this mean better salaries for fewer people?

• How will firms structure their training activities, once hands-on training tends to be significantly reduced?

• Will this aggravate the competition between the big firms and the second-tier firms?

• Will this result in an increase in the so-called “consolidation” process among the second tiers, leading to a stronger intermediate layer between the very big and the very small firms?

More Efficient and Less Expensive, But...

Technological progress can make our lives easier and make production processes more efficient and less expensive. In the long run, however, this will lead to unemployment. This undesired effect will most likely be counterattacked with minimum income programs or/and a reduction in working hours without causing pay reductions.

But what concerns me specifically about the effects on the accounting profession is: How will accounting firms deal with the serious knowledge gap within their intermediate level of bookkeepers/auditors? That is, given that most of the field work they used to do will be replaced by IT apps and software, how will audit firms train their newer and intermediate levels of auditors so that they will become experienced auditors who can perform tasks at manager and partner levels?

What do you think? Please help me see this issue with your perspective and rethink what I foresee as our not-so-distant new world.