Innovations in Accounting: Accounting for the Future by Juanita Meunier


Abstract: There are powerful emerging technologies that are influencing both businesses and the accounting field. The technologies researched in this paper includes; cloud accounting, cryptocurrencies, blockchain, quantum computing, and machine learning/artificial intelligence. The findings of the research will show that implementation of technology by business will result in cost savings, increased productivity, and an increased ability to expand into new markets. However, as with all technologies, there are risks, and each company must evaluate if the benefits they will receive from implementation of a technology will outweigh the potential costs of any risks involved. The research also shows that the impact of these powerful technologies will make the accountant of tomorrow vastly different than the accountant of today. An accountant must become knowledgeable about emerging technologies and learn to work with them, or they will soon find their jobs eliminated by automation.


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Technology is changing how people do business, this requires the field of accounting to also continue to evolve. There was once a time when no one envisioned the internet, spreadsheets, or automated software. Now newer innovations are impacting the field of accounting. The accounting industry must understand and learn how these new technologies will impact their profession. Evolving with technologies keeps professionals such as accountants fast paced, dynamic, and better prepared to serve their clients. Innovations such as the Cloud, Blockchain, artificial intelligence, machine learning, quantum computing and the use of digital currencies are all going to be impacting the future of the accounting profession and what it will mean to be an accountant in this era.


Cloud Accounting


When accountants look toward the future, they will see the Cloud. No, not the fluffy white puff in the sky, but a new way of accessing accounting software from a web browser without having to install it on a computer. It is also referred to as “online accounting”. Sheree Corkern, an accounting professor at Mississippi College University states in her article, published in the American Journal of Business Education, that “the cloud has been identified as one of the key technology trends that accountants should stay abreast of over the next decade. Its many advantages include instant accessibility, cost savings, improved productivity, and increased mobility” (2015). Cloud accounting software means that multiple people can access the data directly and simultaneously, allowing real-time updates to all involved parties and eliminating the need for physical meetings to transfer data. Data is synchronized, removing the issue of multiple versions of the same information. Cloud accounting allows for businesses to get up-to-the minute financial information that can also be accessed and managed by their accountant.


Business owners are always on the move and increasingly use tablets and smartphones to access their financial data. Cloud accounting allows them to see their account balances, outstanding invoices, cash position and much more from anywhere, at any time, so long as they have an internet connection. Cloud accounting will allow business decision makers to have access to the most recent data, allowing them to make decisions faster, and it will streamline accounting practices.


With cloud technology, accountants can be more efficient. They will waste less time on administrative tasks, such as entering data, and chasing down documents. Instead, accountants can spend more time on advising their clients and revenue generating business practices. Corkern also writes, “all businesses are subject to change. Some grow while others downsize. Scalability enables an organization to obtain large amounts of computing resources for peak performance periods without investing in excess computing capacity” (2015). Due to cloud accounting taking place on the web instead of being installed accountants will not need to worry about updates to their computers to get the latest accounting software, having large accounting files taking up valuable data space, or having to back those files up.


As with any new technology, there are some concerns. Cloud accounting depends on a computer server functioning as its brain; if the server fails, companies will not be able to send or receive information. There is also the question of whether the third-party host managing the software has strong enough cyber security. As with all information on the internet, the possibility of cyber-attacks exists, and data can be compromised. According to Corkern, companies will need “their accountants to help them with understanding the advantages and challenges of cloud computing. Accountants must master this new tool to be equipped to provide greater service and add economic value to the organizations that they work with” (2015). The decision on whether to use cloud accounting should not only be based on the losses a company may suffer if the system failed but also on how its reliability, expense, and adaptability to the company’s needs would offset those losses.


Cryptocurrency


Cryptocurrencies are another new technology complicating the current accounting practice. Cryptocurrency is a digital asset that is designed to use cryptography, an advanced encryption technique, to conduct and secure transactions. Large servers use computer arrays to solve complicated algorithms to validate and record virtual currency transactions on a public ledger which time-stamps and contains every transaction. Traditional paper currency differs from cryptocurrency because the government controls the supply of paper currency making it centralized, while cryptocurrency is relatively decentralized. Hugh Grove, professor at the Daniels College of Business, School of Accountancy, states, “The decentralization occurs because cryptocurrency is produced by the entire cryptocurrency system collectively, at a rate that is defined when the system is created and is publicly known at creation” (2018). What this means is that cryptocurrency is not backed by any government; it exists only digitally, and it’s not subject to inflation because the creators capped the number of cryptocurrency that will ever circulate to a pre-specified amount.


Businesses are finding advantages in using cryptocurrencies, so accountants are sure to see more transactions utilizing this digital currency in the future. Because cryptocurrencies are decentralized, the government and banks can’t seize it, a benefit to those that do not trust their current banking system. Cryptocurrencies are digital, so they cannot be counterfeited or reversed arbitrarily by the sender, which reduces the potential for fraud. “Cryptocurrency operates at the universal level making transactions quite easy and saving lots of time as well as money on the part of any business which is otherwise spent in transferring money from one country to the other” (Blocnation, 2018). Cryptocurrency transactions are almost instantaneous as they don’t require a third-party entity or bank to run security checks, or to authorize or approve the transaction to use cryptocurrency. With the digital age the consumer market is changing and a business giving its consumers more payment options, including the use of cryptocurrency, makes the business more attractive to current consumers and opens a new market of potential consumers that would be closed to those businesses not offering this feature.


Cryptocurrencies growing as both an investment and as a means of commerce means “CPA tax preparers should recognize that it has tax consequences, and that it is an IRS target” (Adams 2018). How a cryptocurrency is taxed will be dependent on its usage. Cryptocurrency held as a capital asset is treated like property for tax purposes, so it could potentially incur capital gains tax when using cryptocurrencies to buy goods or services. The percentage of taxation will depend on when the cryptocurrency was bought. The International Tax Review states in its article “Bitcoin and other Cryptocurrencies”:


In an effort to simplify the tax system, the US is completely overhauling its tax code. One proposal especially stood out because of its impact on the taxation of virtual currencies: The First in, First out mechanism. If a person bought one Bitcoin (a cryptocurrency) at $1000 in 2013 and another at $10000 last month, and then decides to sell one at $15000, that individual must sell the one bought first (the $1000 one) and realize $14000 worth of taxable gains. (2018)

Another tax implication of cryptocurrency would be its usage by an employer to pay an employee. The “fair market value of the virtual currency is considered wages, subject to federal income tax withholding, Federal Insurance Contributions tax, Federal Unemployment Tax Act tax, and reporting on Form W-2, Wage and Tax Statement” (Adams 2018).


There is currently no specific guidance in International Financial Reporting Standards, or generally accepted accounting principles on how to account for cryptocurrencies. Most digital accounting products on the market today, that current accountants will be trained in, are still not ready to account for cryptocurrency. Besides the myriad of possible tax implications and accounting issues that using cryptocurrencies brings, other issues to consider are the ease at which it could be used for money laundering and tax evasion purposes. This is mainly due to the fact that it is not controlled by a centralized entity. While transactions may be transparent, the individuals connected to the transactions cannot be easily identified, which raises concerns for law enforcement and tax authorities. In addition, the decentralization means that there is no arbitrator to appeal to if a person is victimized in a cryptocurrency transaction. As far as its investment potential, the high volatility shown by wild value swings, and its lack of financial statements, or historical dividend payments to analyze, makes cryptocurrencies a risky and questionable venture for investment purposes. If accountants have clients that use cryptocurrencies, the accountants should obtain all their clients’ cryptocurrency documentation, including copies of virtual wallets, purchases, and exchanges. In the future, an accountant will be expected to help clients to transition and navigate, moving from physical to digital currency. Accountants will be involved with evaluating and creating internal controls for cryptocurrency and its cyber security risks.


Blockchain


Cryptocurrency transactions are recorded on an encrypted public ledger called blockchains. “Blockchains are transparent, auditable, cryptographically secure, impossible to alter retroactively, and distributed to every party involved so they always have a complete record of confirmed transactions” (Keystone, 2017). The technology allows straight entry of transactions without the use of an intermediary. Dr. Pascal Bizzaro explains that “servers known as miners verify the transactions and add them to the blocks and the previous blocks before them, thus creating the chain. Companies can then gather these blocks and add them to the blockchain databases through a cryptographic signature” (2018). The cryptology means a person would need to have the company’s private key and must change all the blocks to be able to alter any transactions. The validation system prevents tampering of records, and transactions are preserved forever, resulting in an unchangeable permanent recording of transactions. Professor Krishnan Dandapani, of Florida International University, says that “it is an almost incorruptible digital ledger capable of recording practically anything that can be digitized: birth and death certificates, marriage licenses, deeds and titles of ownership, educational degrees, medical records, contracts and votes,” making it useful for more than just finance (2017).


Blockchain’s security and potential uses are catching the attention of businesses. The functionality of its usage to create smart contracts ensures that parties adhere to an agreement by creating an escrow type system. Blockchain eliminates middlemen; it is a peer-to-peer system. This simple two-party system can facilitate cheap electronic transactions from anywhere in the world without the use of banks or lawyers, allowing business transactions to happen almost instantly, instead of waiting days or weeks for transactions, contracts, and deeds to clear. Regulations and compliance are important concerns for businesses; blockchain extensions have the power to keep transactions secure, as well as to notify businesses of the latest regulations. Supply chain businesses are benefitted by blockchain technology by providing a secure, distributed ledger that tracks information on goods, services, and transactions. With the rise of identity theft and security breaches, blockchain may even be used to create a digital identity to replace usernames, passwords and even someday possibly social security numbers.


As blockchain technology continues to grow, it is important for accountants to be educated on the technology and its impact on their profession. This newly distributed ledger created by blockchain has been termed by some as “triple-entry accounting” because of the cryptography that seals and secures it, creating a third entry. However, this is just an enhancement of the traditional double-entry method. When a seller records a debit to account for cash received, the buyer records a credit for cash spent in the same transaction. Liv Watson, Senior director of strategic customer initiatives at Workiva, ensures that “this feature alone could solve many data integration issues. It could be used not just to prepare accurate financial statements and business analytics in real-time but also enhance productivity through a wide range of applications” (2017).


The same difficulty of changing transaction information that protects blockchain data from manipulation is also one of its problems. If a business was to omit necessary information in a contract or make an error, it is extremely difficult to correct and can end up being very costly to the company. Another potential issue arrives with the coming age of quantum computers and the ease at which they would be able to penetrate current blockchain cryptography, the only possible prevention of which would be to use quantum cryptography. However, quantum cryptography is still in its experimental stage and is not suitable for the internet because it requires a special dedicated network. Due to this issue, current cryptographers are researching using “supersingular isogenies, structured and unstructured lattices, and multivariate polynomials for quantum proof cryptography,” but turning that into usable computer code and updating every computer that will require it will be extremely difficult (Prime Factors, 2018). With new types of encryption being required, this means it also changes the way browsers negotiate connections with websites. The extra data involved could make it so that the websites potentially refuse to connect or experience noticeable delays in connecting.


Quantum Computing


Quantum computing uses the capabilities of quantum physics to processes information, potentially working up to 100 million times faster than traditional computers of today. Idalia Friedson, co-founder of the Hudson Quantum Initiative, explains:


Rather than using a binary system of bits, where each bit is 1 or 0, quantum computers use quantum bits or “qubits” composed of physical particles, often single photons. Because a bit is only ever 1 or 0, a classical computer calculates in linear fashion. In contrast, the quantum physical properties of superposition and entanglement mean a qubit is both 1 and 0 at the same time, which allows for exponentially greater computing power. (2018)

This means quantum computers, unlike traditional computers can attack all problems at the same time, considering all possible solutions to problems at once and discarding the solutions that do not work. These are the problems that are too complex, powerful and time-consuming for traditional computers, which can only address one task at a time.


Optimization is one of the most important processes in the business world. Being able to conduct more simulations at a faster rate is easy for a quantum computer but not possible on a traditional computer; this is important in optimization problems, where there are multiple probable answers, and the task is to find the right one. “Logistics companies are already exploring route optimization while the defense industry is considering communications applications” (Morgan, 2017). Quantum computing has the potential to help generate attractive portfolios with thousands of assets with interconnecting dependencies, meaning that it can be used to identify a better way to manage risk. Today’s fastest supercomputers may take months or even years to run through a series of computations, making it impractical to attempt, while quantum computers have the potential to run massive amounts of calculations all at once in seconds. Many companies regularly run large scale computations for risk management, forecasting, planning, and optimization. Quantum computing could do more than just accelerate these computations. It could enable organizations to change how they operate, by increasing revenue, reducing costs, or lowering investments in infrastructure and being able to address entirely new challenges. Businesses will be using quantum computing for: forecasting, investment management, directing resources, risk mitigation, time allocation, portfolio management, chemistry, designing communication and transportation systems, cryptography, and artificial intelligence. The companies that are not investing in the development of quantum computation may end up falling behind or even being absorbed by other companies since they may be too far behind to catch up in the technology boom.


Quantum computers are faster and more powerful than traditional computers of today; they are capable of quickly processing the technical aspects of accounting. The prospect that quantum computers will solve problems exceedingly faster than classical computers has significant implications in computational finance, including “portfolio analysis, market clique analysis, credit default analysis, and risk management” (Goddard, 2016). Quantum computing could enable faster, more complex simulations, for example, trading, optimization, market instability, and hedging strategies. Financial institutions are investigating the potential use of quantum computing in areas such as portfolio optimization, asset pricing, capital project budgeting, and data security.


Unfortunately, there is a downside to the quantum computing industry. The biggest disadvantage is that it is in its infancy of development, and people are still making parts and projections about what this computer will be. The equipment is too expensive and fragile, as well as lacking standardization, resulting in materials and designs varying wildly. Quantum computers must be cooled to a temperature close to absolute zero, which is a very hard temperature to maintain and control. Quantum processors are also very unstable, making it difficult to test them. Currently, quantum computers can only run limited business applications and specific quantum algorithms. Because of this, quantum computers may always be specialized, instead of being created for a general purpose. Most experts in the field say that quantum computers will integrate and work with, rather than replace, classical computers. It will be a valuable future technology if developers can find ways to stabilize and streamline it for practical usage and quantum computing promises to revolutionize artificial intelligence.


Machine Learning and Artificial Intelligence


Machine learning is the underlying component of artificial intelligence that describes the ability for computers to essentially program themselves by making their own predictions. “Machine learning uses neural networks that are designed to function the same way as a human brain; when algorithms process and analyze enough data, they start to recognize patterns, make connections, and classify it according to the elements it contains” (Botha 2017).


The anticipated benefits of using machine learning platforms for business intelligence include infrastructure cost reductions and operational efficiency. Artificial intelligence and machine learning platforms are getting better at predictive tasks, such as determining what customers might want based on the information the systems are fed. Advancing usages of artificial intelligence will provide opportunities for businesses to develop their customer service, logistics, sales, marketing, and research and development departments. Machine learning does not just make businesses run easier, research has suggested that the tedium of repetitive tasks can lead to a high staff turnover, introducing additional costs, such as recruitment and training. By allocating repetitive tasks to artificial intelligence, businesses can reduce costs. Another issue machine learning addresses is that of small business owners who can find it difficult to keep their books current and to remember where to allocate transactions. Accounting mistakes result in lost time and an inaccurate picture of financial performance. Accounting errors must then later be corrected. Machine learning technology can eliminate errors and save time by automatically suggesting or completing accounting codes.


Accounting software is getting smarter, it is able to automatically perform analysis, which previously required human intervention. Machine learning systems can completely automate tasks, such as a bank reconciliation. Machine learning and artificial intelligence have an increasing role in the accounting profession. Over half of all finance and insurance jobs are at medium to high risk of total automation. However, even if machines can perform all the calculations or initial accounting related tasks, an accountant is still needed to analyze the process and draw meaningful conclusions from the data. As artificial intelligence takes over some of the more basic tasks of an accountant’s role, accounting departments will downsize and eliminate some accountants’ positions. The employees that are left will concentrate on job responsibilities that “require performing multifaceted and idiosyncratic calculations. There are relatively complex accounting topics, such as fair value accounting and accounting for derivatives and hedges, as well as predicting the economic effects of outstanding litigation and future warranty expenses” (Grove 2018). Accountants will also need to focus on more strategic initiatives, like process improvement, cost control, and capital optimization. Traditional human accountant skills such as skepticism, judgement, analysis, and understanding technical accounting, will become even more important because those are vital qualities that artificial intelligence is unlikely to ever duplicate. If an artificial intelligence system is well configured, it can eliminate accounting errors that are generally hard to find and thereby reduce liability. Accountants will be more proficient, more productive, and more capable of taking on and handling more clients, while also delivering more value through insight, rather than through long hours of calculating numbers.


The replacement of humans with machines, which can lead to large-scale unemployment is just one of the more serious drawbacks to artificial intelligence. The creation of artificial intelligence, results in very complex machines with very high repair and maintenance costs. Also, because machines can only do the tasks they are programmed to do, they have no emotions and cannot make judgements on what is morally right or wrong. “They cannot even make decisions if they encounter a situation unfamiliar to them, it will cause them to either perform incorrectly or breakdown in such situations” (Reddy, 2018). Human minds have creativity and the power of originality that machines cannot match.


Conclusion


Companies and their accountants must learn, evaluate, and implement emerging technologies for increased benefits for their companies. New technologies --such as cloud accounting, cryptocurrencies, blockchain, quantum computing, and machine learning-- all have the power to increase revenue, speed, output, and customer satisfaction, while cutting costs and time. Technological advances continue to bring specific and significant benefits to accountants, as well as changes that are redefining their work and even their purpose. The accountants of tomorrow will be very different than the ones of today. Instead of data entry and number crunching, they will be helping companies transition to cryptocurrency, teaching machine learning systems how to search for and organize data, and using quantum computers to calculate complex estimates. Accountants will create, implement, and evaluate internal controls of the new technologies and their outputs, ensuring their integrity. People are now inseparable from their smart devices, and new applications can give them instant access to their financial information on the go. To stay relevant, and employed, accountants must learn to adopt and adapt to new technologies. Using available technology can put accounting and other financial advice at the heart of all business meetings and decisions, therefore increasing the importance of accounting as a profession. If companies and accountants do not stay abreast and involved with current technology, they will find themselves soon lacking in business, while technology savvy firms take advantage.


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