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  • Another Hype Cycle, Another Dollar
Another Hype Cycle, Another Dollar
01 February 2019

Coping with, and exploiting, accounting and audit emerging technology. Is it possible?.

Helping growing businesses and their accountants cope with, and benefit from, information technology has been my goal and service to accountants and auditors for the better part of 40 years. That’s why I appreciate the opportunity to contribute to, and collaborate with, the ThinkTWENTY20 community and its leadership who would “be the guide who interprets information technology from a financial professional’s perspective.”

The Dawning of the Personal Computer Era

Back in the dinosaur days when I was graduated from university, the IBM PC had not yet hit the market. In my early years with (possibly the most controversial member of) the Big 8 firms, we had only a minicomputer, nicknamed “Little Arthur.​” A few years later, I would be the one to help introduce IBM PCs, Compaq portables and an electronic spreadsheet (Lotus 1-2-3) to the staff of a large local CPA firm, which soon learned to take advantage of automated workpapers and tax software many years before the national and global firms did.

However forward-thinking, there was hesitance to see our clients adopt the same technologies.

“If our clients get computers and accounting software, we will no longer be able to help them as we do now.” (Accounting Firm Managing Partner, early 1980s)

Our clients did adopt those technologies, largely because then, as now, developers, vendors and the press engaged in hyperbole and overstatement and our clients ignored their most trusted advisor’s warnings.

“With the microcomputer and software, you can fire your accountant!​” (Typical personal computer magazine cover article, mid-late 1980s)

For discussion (1): Is hyperbole and overstatement in IT necessary to overcome inertia, change budget priorities and encourage change? Can we weigh the damage of overpromising against the damage of stagnancy?

In addition, Electronic Data Interchange (EDI) was able to bring new efficiencies to large organizations and was, therefore, forced on my clients, who purchased a PC, modem and printer and installed a dedicated line to meet their supplier’s needs. Yet these types of standards didn’t seem to bring any new efficiencies to smaller companies.

From Individual to Several: the LAN Age

As individual PCs were soon hooked up to local area networks and software became more sophisticated, accounting firms struggled with their role in technology consulting on top of managing their own adoption of technology. The profession as a whole tried to figure out how accounting and technology overlapped. In my case, those who make decisions about continuing professional education made a choice that launched me into my ongoing mission.

“Technology education is irrelevant to accountants and auditors, as computers are only useful for secretarial and administrative tasks.​” (Regional Board of the Professions, early 1990s)

They were so sure that accounting and audit knowledge was so abstracted from technology that attempts to understand or teach it should not count toward continuing education requirements. That drove me to educate and urge the profession and the accounting and audit information supply chain community to have objective and realistic discussions on the topic … which meant spending time understanding the topic.

The Dawning of the ‘Net

I was fortunate to get early guidance into the next wave – the Internet and the Web. I was a willing student to an academic who caught an early vision of the Web, who mentored me through tools like “vi” and “lynx” to create some of the first accounting oriented web pages, leading to the first major article about the Internet for the Journal of Accountancy, one of the first books for the profession, The Accountants Guide to the Internet, and a few years spent touring the country offering continuing education (which now counted) on the topic.

Yet, once again, the technologists shouted about the power of the Web, but auditors felt it was too risky and that the time spent on it was stolen from more important tasks.

“I know how to search on Yahoo and send email, what else about the Internet matters?” (Accounting Firm Managing Partner, late 1990s)

For discussion (2): How do you manage the risks of using emerging technology? Once again, it is easier to tell stories of what went wrong than to be able to measure lost opportunity. And a risk-averse group is more likely to ignore a potentially risky movement than to invest in identifying and remediating the risks. With the Web came the dot com bubble, as huge amounts of money were made and lost.

Standardization

With the Web as catalyst, a new format called Extensible Markup Language (XML) was born, which served as a catalyst for groups of all kinds to work together to develop new ways to share information; what HTML was to information, XML was to data. As one of the founders of XBRL (Extensible Business Reporting Language), it was my honor to work with Jerry Trites and CPA Canada (then the Canadian Institute of Chartered Accountants) to work toward the potential efficiencies for all members of the business reporting supply chain. As a small business advocate, my hope was that we could simplify the use of accounting software – especially sharing detailed data for analysis and audit and upgrading systems).

For discussion (3): The ability to query and export/​import accounting files using standardized representations can have tremendous value in managing, analyzing and auditing organizations. But management fears that others will exploit the potential transparency and developers are concerned that standards will make it easier to drop their software in favor of competitors. How can we understand and gain the benefits while minimizing the opposition?

The Cloud Rolls In

The hype waves keep coming. There was/​is “the Cloud,​” which is largely just more acceptance for “The Web.​” There’s Big Data, which many “small to medium” data vendors are using to gain credibility they might not otherwise have. And now, there’s cryptocurrency and blockchain.

CPAs: New Kids on the Block(chain)?

With a ferocity that rivals the dot com bubble, Blockchain has emerged. As a national expert to the ISO committee focusing on blockchain standards, I am aware that there is little agreement among the world’s experts on even the most basic issues here. But, as with the introduction to the PC, the headlines – whether related to blockchain, or artificial intelligence (AI) or numerous other technologies – are once again foreseeing the end of accounting and audit as we know it.

“Blockchain is inherently self-auditing; auditors will be out of a job” (Famous futurist, late ‘10s)

For discussion (4): How do we encourage and engage forward thinkers, like key members of the academic community, to work with like-minded practitioners to objectively evaluate the possibilities and risks of action and inaction?

I look forward to working through these and other questions with you.

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    The SEC was the major regulatory body that got the ball rolling in 2009, when it mandated rules for the use of the interactive data format (XBRL) for public company financial statements. Then several other countries and organizations got on the band wagon. There was a relatively quiet period for a few years, when the new electronic form of reporting seemed stalled. But then the EU stepped in and began requiring their ESEF filings in 2021. That meant most of the major companies in the world were using digitized reporting.

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    But yet, we provide annual reports in paper or PDF form, which extend to around 150 pages and often more, of difficult, often technical, material and expect people to read them. It doesn’t happen. Professional analysts might, but they are more likely to employ analytical tools to get the information they need.

    There is an excellent article on the website of the International Federation of Accountants (IFAC) by Amir Ghandar, titled “The Accounting Revolution Will Be Digitized”.[1] In that article, Mr Ghandar points out that “A 2D, static annual report format in paper or pdf is not that different to the papyrus on which Egyptian scribes reported on the royal inventories more than 7,000 years ago.”

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    https://www.ifac.org/knowledge-gateway/contributing-global-economy/discussion/accounting-revolution-will-be-digitized

     

    [1] https://www.ifac.org/knowledge-gateway/contributing-global-economy/discussion/accounting-revolution-will-be-digitized

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