Auditing and accounting professions face disruption: Disruption is rife in every aspect of business. Supply chains are morphing like never before; human resource productivity, training, skill resetting, job allocation and remuneration are all being reimagined; and manufacturing 4.0 is causing manufacturing to resemble an machine learning-artificial intelligence challenge. All this is completely upending the way accounting and auditing need to be done.
Banks and financial service organisations are being block chained with their constituents in a symbiotic way that is raising the question: should accounting be system generated altogether? At least for the bulk of transactions, this is becoming a real possibility. Attempts are afoot to scale this transition to make automatic cross validation of all transactions, feeding them into tax systems and making tax assessments determinate.
These trends have taken off. Large economies are moving towards tax determination, low rates and full compliance. Information exchange is becoming ubiquitous and Ultimate Beneficial ownership is being traced. Ratings based choices are becoming the default mechanism.
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It is the judgement areas like derivative and option accounting and creating provisions against uncertain future events that are now being moved to quantum experiments. Let’s look carefully at an unexercised option. The data flow underlying the transaction and the outcome from fund deployment are constantly changing decision making as these micro trends intersect with macro trends in debt and equity markets.
Accounting and auditing are being strongly influenced by interacting data from data streams outside the organisation and the challenge is to keep track and report in real time. Quantum algorithms will need to be written to describe these interactions and they must draw continually from ML-AI systems that influence changing decisions.
Add to these dimensions the need to report on Six Capitals instead of only Financial Capital. This ESG requirement has launched the search for an ERP for ESG! Every input output relationship between two interacting parameters will need to be tracked and the impact on six capitals: physical, human, brand, innovation and environmental fully visible and reportable. The ESG. ERP will need to be supported by the Netflix of Sustainability as outcomes need to be visibly demonstrated and by a TEDEX set of talks and communications strategy for all Board members and people.
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The shape of new age accounting
The data set capture and processing industry will grow by leaps and bounds. That is why quantum algorithms will need to be written to derive insights from these free flowing, interactive and complex datasets. The task of the accounting profession will morph to creating simulations of the external macros affecting every business and correlate the change to what may be anticipated internally. This would then be tested against the derived accounting outcomes to algorithmically determine if deviations mask fraud, error or other distortions that are forcibly attempted.
Bankers will take over accounting of all routine transactions: purchase and supplier payments, sales and debtor collections, payroll and fixed asset buying and selling. This activity will be integrated into the working capital financing activity. All transactions will be encrypted and public-private key infrastructure tightly connected to e-signatures will automate all data storage, retrieval and reporting.
All non-routine transactions, benchmarking studies and reporting on Sustainability will be taken over by quantum algorithms. So will all the judgement processes where external and internal data sets need to be multiplexed. Block chain will be the infrastructure and SAP and Oracle along with all current ERP suppliers would have an adjunct ESG ERP. Annual reports would be auto produced in mock up form and the CEO and the Board Chair would add the potential for change and innovation as inputs to indicate future direction.
Reskilling auditing and accounting professionals
Integrated Auditing services would be provided in domains, led by highly accentuated IT organisations. ML-AI would be continually deployed to discover fraud, unexpected patterns and errors. These would be corrected immediately. The idea of periodic auditing will be obsolete and only continuous correction-oriented Auditing will prevail. To test the impact of the deployed Quantum Algorithms, Auditors would have to write overall testing Algos which would generate simulations around the used algos and back test the base assumptions made in the used algos.
What would emerge is a twice filtered set of Integrated reports which are fit for Global decision making. Standards of Reporting would have been harmonized and applied uniformly in all Quantum and RPA processes deployed. External and internal algos would be run in an attempt to discover insights that can detect all fraud, error and distortion to finally assure outcomes that can be relied upon by all users of information.
Role of ICAI in the transition: massive retraining of the membership at a rapid pace to bring all the required skills to be imbibed. Setting up multiple forums where experiences, insights, issues arising and problems may be discussed. Make fraud free and timely reporting the main plank of its efforts. Integrated reporting to be adopted with Global standards in mind.
Role of Regulators and Standard setters: While Regulators would like to detect Quality variances and lack of adherence to standard and expected processes, they would also be interested in ensuring that professionals are compensated fairly to enable fair outcomes to be delivered. Also, as the bars keep getting raised, the Profession would respond by innovating and rising to user expectations. A symbiotic relationship would thus be established. Standard setting will have to accelerate to a course of uniform, Global Standards for reporting on all 6 capitals in an integrated manner.
Role of each one of us in the Profession: Keep an open and completely curious mind at all times. Learn from every forum and from every window of opportunity available in the world. Pick up the courage to experiment, innovate, take risks and go to the new world’s requirements.
The train of maximal, irreversible change in our Profession has already left the station. We need to decide which class we want to ride in. Embrace change and gain immensely or stagnate and perish. That is the stark choice before us.
(Shailesh Haribhakti is a chartered accountant and corporate leader based in Mumbai.)
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Shailesh Haribhakti is a Chartered and Cost Accountant, an internal auditor and a certified financial planner. He is a board chairman, audit committee chair and independent director at some of the country's most preeminent organisations. He is a thought leader on the Indian economy and public policy.