Why Machines Will Replace Your Accountant / The Future of Accounting

Roger J Gregg for The Invicto Blog writes: “The future has not been written.  There is no fate but what we make for ourselves.  I wish I could believe that.”   Me too John Connor.

Accounting, by long-standing definition, is “the process or work of keeping financial accounts”.  Keeping financial accounts.  Straight forward enough.

A recent report by the Oxford Martin School (University of Oxford) examined the expected impacts of future computerization on US labor market outcomes – basically, which jobs, and how many jobs, are at risk due to the rise of the machines.

The authors of the paper predict that there is a 94% chance of an Accountant’s job being automated in the next 20 years.  In my opinion, they are probably right.

When I tweeted that prediction a few weeks ago, I hadn’t had time to make a cup of tea before the first interjection came in.  But just think about it.  If the definition of an accountant’s job is the process or work of keeping financial records, do you really think accountants will be doing any of that in 20 years?  Won’t the machines be doing that for them?

If technological advancement is gathering pace (and not slowing up), then it’s useful to cast your mind back to where you were just 20 years ago.

Picture the Accountant’s office of 1994.

You arrived in a paisley shirt and loafers in your new Holden Commodore (VR), Wheel’s Car of the Year.

This morning you tried one of those new latte coffee drinks in the paper-cups as you ask a colleague if they knew anything about this new Internet thing you’ve heard about.   And by the way…if you have never watched this video clip, you must! (http://www.youtube.com/watch?v=JUs7iG1mNjI)

On your desk are Tipp-Ex, a hole-punch, ring reinforcements, a Parker pen and a calculator with printer functionality incorporated.
There are more filing cabinets than staff.

Dot-matrix printers are clacking-away in the background, the hum only being broken by the noise of pages falling off the tray, or when your colleague screams when they realize the printer ribbon was out of ink.

You just spent an hour installing Excel 4.0 from two 3.5” disks over a mug of Nescafe, and you are now trying to find the page of the manual explaining the new ‘auto-fill’ feature you heard about at the water-fountain.

The receptionist is about to gather up the cheques and credit card slips to visit the bank and collect the bank statement from last week.

And you still haven’t even heard of a young pup called Craig Winkler yet – he’s still 5 years away from renaming Data-Tech Software to MYOB.

20 years ago, Accounting was as much about gathering information, transposing it and filing the data, as it was about preparing it.  And with that gathering, storing and filing came billable hours.  Good times.  Classic hits as they say.

But the times they are a-changing.  Gathering data now happens with a drag and a drop, an upload, or the click of a few buttons.  In fact some data, like bank-feeds, just appears overnight.  Other data, like bills, appear in real-time, direct from the supplier.  Receipts can be recorded and expensed by the person who incurred them direct from their phone.  Sales systems are beginning to connect to accountancy software suites.  Timesheet systems connect to payroll that in turn connect to the general ledger and bank payment systems.

That Internet thingy they talked about on NBC just 20 years ago isn’t half bad, but perhaps not so much if your business is the business of collecting information, and manually entering it.
Since we launched invitbox 2 years ago, I have been amazed by the rapid pace of change that I have seen in accounting firms.  I have seen firms emerge that operate 100% in the cloud.  So much so, that the practice operates out of a shared office space with hot-desks.  They don’t need to print, nor do they have filing cabinets.  Everything is shared online with the client.
I have watched practices change from being traditional accounting firms (“I’ll see you this time next year then.”), into dynamic organizations providing business services to their clients, connecting with them weekly, and becoming an integral and valued part of the business’ DNA.  And I have watched as some of their competitors who have refused to change, reduce their staff numbers in response to falling client numbers.

I have seen accounting practices entering into both formal and informal partnerships with bookkeeping companies, recognizing the vital job that bookkeepers provide in the outsourcing of services to clients.

But equally so, I am still amazed by the number of accounting firms that either (a) don’t get it, (b) see it, but don’t care, (c) see it, but think that it won’t affect them any time soon, or (d) see it, get it, but procrastinate.  And I am equally amazed by the number of firms (albeit a small number) that still spread fear about functionality, security, speed, uptime, disruption, unsuitability etc.  They continue to put their own self-interests ahead of the interests of their client.

Today, the Accounting landscape looks very much like the environmental landscape of 20 years ago.  Where once there might have been a debate about carbon emissions, global warming and rising sea levels, today (in our circles anyway) a debate now rages about cloud software, security, functionality and usability.

During the environmental debate, in addition to those who were trying to change people’s habits, there were of course the doubters, the detractors, the false prophets, those with vested interests, the protectionists and those stuck in their ways.  And that is no different to what we see today with the debate around cloud, cloud technology and the efficiencies it brings.
Interestingly, the well known Technology Adoption Life-Cycle Model can be applied to the history of the environmental debate much in the same way than it can with the cloud debate.  The Technology Adoption Life-Cycle Model breaks down the adoption of technology over a period of time into 5 groups of people.

The Innovators
20 years ago there were bicycle riding, crop munching, placard-waving, organic cotton wearing, “I will chain myself to this mulberry bush” greenies who most of us ignored because we were too busy.  Over the last few years we have witnessed some accounting (and bookkeeping) practices adopting and advocating the advantages of cloud accounting software, and the App-ecosystem that exists around it.  They are telling their clients (where it is appropriate to do so, but in none-too uncertain terms) that they must change the way they do things.  They are modern Day Bob Greens and Bob Geldofs.

The Early Adopters
15 years ago there were Prius-driving, “I won’t eat tuna”, Greenpeace supporting, non-fur wearing, “I have a keep-cup at home” kindle-readers, and now we have accounting firms getting t-shirts, a twitter account, a nice website and fixed-pricing plans.  And they are setting out to learn about different accounting software and cool Add-ons, and not just rely on what they know.

The Early Majority
5 years ago there were the 325 (not 335) badged, organic-chicken eating, “I voted for the Greens”, non-animal testing, “I sometimes re-use gift-bags” recyclers, and we now have firms sending their young managers along to accounting roadshows and workshops to find out why it’s spelled with an X and not a Z, if it is pronounced in-VIT-box or in-VITE-box, and asking them to prepare a PowerPoint explaining it all in layman’s terms.

The Late Majority
We are only now starting to see the turbo-diesel SUV owning, barn-laid egg loving, “Greens were my first preference”, puppy-loving brigade that buy a new green Coles bag each time they shop, and we are also seeing their accounting equivalent questioning who these new firms are on the BRW Top 100, and reading about another accounting roadshow season in the Financial Review print edition.

The Laggards
And lastly there will be the “my engine is no bigger than the case of Perrier I drink”, Foie gras spreading, “Palmer might have a point on clean coal” minority that would never drown a puppy or use plastic bags to throw their rubbish into the oceans, that we may never see again.   The firm of Kodak and Partners think that cloud is how high their corporate office should be.
But the technology adoption lifecycle is an important one.  Supply must be able to keep up with demand.  Innovation needs time to find a niche, and then evolve before early adoption.
Very often, between early adoption and acceptance by the early majority there is a period known as the chasm.  Many technologies have reached the chasm, but have not crossed it.  I have heard it said by some that cloud accounting is at this point – at the chasm.  But by definition, this chasm is the period between early adopters (the technology enthusiasts and the visionaries) and the early majority (otherwise known as the pragmatists).  I don’t know about you, but I see accountants and bookkeepers as pretty pragmatic folk.  And as far as I can see it, these pragmatists are already adopting cloud computing.

That chasm that they talk about was crossed some time ago.  That boat has sailed.  We are now approaching the tipping point – the point at which there is an inevitable mass adoption of cloud accounting, and it is just over the horizon.

With cloud accounting, the question is not if, but how soon.

But ‘cloud’ is not just about the storage of data, or where we work and process information – it is about the connectivity of things.  The cloud facilitates systems connecting with each other, the sharing of information and the accessing of information.  And as cloud-based accountancy software systems develop to allow users, bookkeepers and accountants to add to, access, and use that information more easily and more intuitively, so too do they develop beyond simple data-entry and reporting engines.  They begin to learn from the rules accountants give them.  Accountants are teaching them, and in doing so, accountants are teaching the accountancy software companies how to build a better product.

Accounting software systems are now openly referring to themselves as operating systems linking business units, people and other software applications together.

At events I have attended in the last 6 months Xero and MYOB have both described themselves as an operating system for small business.  Intuit now refers to itself as a ‘provider of business and financial management solutions’ – but couldn’t that description apply to most of (but not all) what an accountancy firm does?  Providing business and financial management solutions.

As accounting software has developed to assist accountants in the preparation of financial records for their clients, we have seen a natural creep into the space of doing it for the accountant, as opposed to helping the accountant do it.  So if accountants simply adopt these cloud systems without changing and adding to the services they offer, what are they going to do with all the spare time they have?  Where else can they add value?  Accountants can’t keep billing the clients the same fee – the clients will realize that that a lot of the work is being done for them as part of the monthly subscription.

Accountants need to expand the services they offer, and to start to understand the opportunities that exist in providing expertise and services through the Add-on ecosystem that is expanding around the core accountancy software products.

For the moment at least, a monthly subscription to an accountancy software package still requires an accountant or bookkeeper to create system rules, validate, to manage exceptions, to evaluate the results and make recommendations.  But for how long?  How long will it be before accountancy software ‘helps’ the accountant to the point of actually doing it for them?  Where to then?  All of a sudden that Add-on ecosystem looks pretty attractive as a source of expertise, and billable services.

In January (2014) Google announced it had paid $750m for a company called DeepMind, specializing in artificial intelligence.  This added to the 5 acquisitions in the space of robotics it made in 2013.

At the same time, IBM announced it was investing a further $1bn in Watson, its artificially intelligent computer, and that it was going to open it up as a development platform in the cloud.
And if you think these systems are a long way off being as clever or as intuitive as a human, then think again.  Three years ago Watson beat the two most successful jeopardy contestants of all time.  In Jeopardy, contestants are read an obscure answer, and they need to work out the question.

It’s not just a Q & A contest, it’s an “Eh?” then a Q contest.

Watson was read the questions at the same pace as the contestants, and it still needed to be first on the buzzer before it could answer.  And just to put this all into perspective, Watson wasn’t connected to the Internet.  It was a stand-alone computer, albeit the size of 10 refrigerators.
Systems such as Watson are already being used to detect biometric readings from patients, and to provide a diagnosis.  Robots are already performing some surgeries instead of humans, once a diagnosis has been agreed.  Computers are now helping doctors, nurses and surgeons.  How long before the computer does it for them?

If Watson was able to beat the best contestants Jeopardy could find, don’t you think that in 20 years from now it could be taught to gather and prepare your financial accounts, prepare tax returns and offer advice?  It’s not open-heart surgery after all.

The future of accounting may not as yet have been written, but it is being written as we speak.  Software engineers working in the field of artificial intelligence and data mining are writing it, but they probably don’t know it.

But this is not just a challenge for accountants; this is as much of a challenge for accountancy software companies.  With the likes of Google and IBM investing heavily in artificial intelligence and data collection, they are building the foundations to create business operating systems that just happen to do accounting stuff brilliantly as well.
The Future of Accounting Software?  Well, that’s for another day.

20 years ago Microsoft (the world’s largest tech company at the time) introduced “auto-fill” into Excel.  Today, invitbox auto-fills your purchase ledger.  And in the next few months BankFeedMe will auto-fill your bank journal.

With that in mind, where do you think auto-fill will be 20 years from now?

Roger is CEO of invitco – Game over for Data-Entry.  invitco is a Sydney based technology company specialising in cloud-based data extraction from system-generated documents.  Its first product invitbox is Xero’s Emerging Add-on of the Year.  Its second product BankFeedMe will be launched in early 2014.