Disruption is the new buzzword today and FinTech essentially, is the outcome of the disruption. FinTech is a combination of Finance and Technology which entails use of technology like big data analytics, artificial intelligence, machine learning, virtual reality and robotics for doing finance. Fintech is an example of the positive impact of competition and technology which gives opportunities for the new entrants who have a unique idea for doing things in a better manner. As a result, the whole financial services industry, from funding to insurance, from accounting to consultancy, from consumer finance to investment banking, is witnessing a rapid technological intervention. The inputs, the processes and the outputs are the same with increased intervention of robotics in handling the same. Hence, the financial services is gradually turning into technology services where a person is required to know the technology use to execute the financial regime. With a dynamic industry environment, it is now a mandate for the organisations to invest time, money and efforts in adapting to the future way of doing things, at present. A cloud system is part of the basic infrastructure now. When the entire business model changes so does change the way of accounting and auditing.
Financial Technology and the Accounting
Although a computer as intelligent as a human being has not been invented yet, though the limited intelligence is increasing rapidly with the passage of the time. This limited intelligence include gaining from experience, recognising what is important, tackling complex situations, understanding and working on visual images, being creative and such other things. Accounting is no more a tedious and monotonous job with a significant time contribution to the repetitive work. The repetitive work is being done with the help of algorithms with a few clicks of computer mouse and that too with great accuracy, reduced operating costs and increased efficiency. The calculation of profits and taxes is now being done by the softwares. Now, the accountant is working on a next level. Since, accounting is being done in tandem with the happening of business transactions, the results are available on a real time basis. He is now contributing more time towards deciding on the economic use of the accounting data. The accounting is contributing more towards analysing various numbers to identify the areas of business improvement and do the financial planning with the help of accounting data. The role of an accountant is more strategic now. Prediction is not an art but is a science, which is essentially based on critical observation of the past and a reasonable understanding of the future. The future outcomes can be numerous with different amount of probabilities and the cognitive technologies like machine learning and artificial intelligence can refine it further. The language of accounting is also transformed to the language of the business. A businessman need not understand the accounting language as the latest financial technology is going to provide him the required data in the shape and form of his will and that too in no time. Regulatory compliance is another area where financial technology has changed and rather eased the things. The financial technology has transformed the compliance from a huge regulatory team to subscription to high-end softwares that help reporting the stuff at regular intervals and as per the rapidly changing demand of the regulators. On the other hand, the software companies have a huge staff led by the technology professionals who are helped by the accounting, tax and compliance people to understand the changes and their implications. Consulting is another area where accountants work a lot. This area has also been completely changed by the financial technologies. The problem are discussed over video conferences, the data is available to the consultant with sharing of credentials whereby the consultant accesses the data kept on the cloud, the issue is understood and analysed online, a solution is derived onthe-spot, discussed and implemented. The post-implementation monitoring is also not a difficult thing with the latest financial technology. From a software company’s perspective, the financial technology has mandated for it to use the best practices for accounting and to adapt to the rapid technological advancements. Financial technology is enabling smart data input techniques. For example, the document can be scanned and the accounting entry is done with the help of identifying key information like date of transaction, amount, number of items, commodity type, tax paid, supplier name, nature of expense from the document automatically by the system. There are certain limitations which demand the uniformity of the document format or uniformity of data typology But there are certain limitations too. When system is down, the operations stuck. The reason is that either there is no manual workaround in place or the manual workaround fails in the hour of need. The manual workaround fails as either the people do not have any idea of its execution or it is so tedious that the manpower is unable to execute it manually. The accountants, like any other profession, are made by imparting education and training. The training focus has also changed because of invention of new products and differing methods of execution. The need for strategic training has outweighed the need of basic and conceptual training. The core skill set of an accountant now also includes strong IT skills.
Financial Technology and the Auditing
Whether it is a question of investigation by the regulators or auditing by the organizations’ internal & external auditors, financial technology has changed everything for good. Hiring of technology guys on one side and increased dependency of auditing firms on the technology companies on the other, are strong signals of extensive and ever increasing use of IT in performing the audit. As per the findings of Forbes Insights/ KPMG report “Audit 2025”, 80% of the respondents expect auditors to use more sophisticated technologies for data collection and analysis in their day-to-day work. Cognitive technologies, which include artificial intelligence, machine learning, speech recognition, natural language processing and robotics, help in digital analysis of big chunk of data which cannot be performed by a number of audit teams. Data gathering from non-financial sources such as social media, radio, internet browsing, TV watch list and tallying it back with the financial data of the client is the next step. This will enable collection of audit evidences from diverse sources and enable expression of a strong and clear audit opinion about the true and fair view of the financial numbers The data classification also needs to be changed – One is structured and the other is unstructured. The robotics can easily analyze the structured data to filter the inconsistencies, which can then be made part of audit samples. Auditors are then left with looking at the reason for the exceptions, whether the same were as per the risk appetite or breach was as per the bye-laws. They have to use their judgement on the basis of correct and in-depth facts produced with the help of technology use. The trends can be formed using the past data and future predictions. The deviation of actual data from the expected data is going to be another indicator to investigate further. With big data being the most valuable asset, auditing firms are also paying to get reliable industry players data which is compared with the organisation’s data to see whether it is going with the flow or not. It also gives an insight into the validity of going concern assumption. Of course, there are limitations in use and disclosure of such use of data, given the increasing application of stringent data protection guidelines worldwide. The audit conducted on the back of extensive big data churning will be able to identify more pitfalls, will be able to fix more risks and will be revealing more about the company. The days are not really far where the auditees would be penalized for data inconsistencies. The need of sampling whether it is based on judgement, is done on random basis or through any other process, will not be there. The churning of complete data will be done and the exceptions will be the result, which will be as god as audit observations because all the known reasonable exceptions would have been part of the available data. The companies with more anomalies found after data churning, will be charged more on the back of a need to investigate more number of exception items. The impact will be analysed and the report will be made on the basis of % deviation from the reported numbers. An audit classification or grading might be assigned on the basis of deviation %.
Conclusion
When the technological disruption has changed each and every industry, accounting and auditing is no exception. Robotics is being used to do the accounting free of manual intervention whereas the machine learning and artificial intelligence is helping identify patterns and generates the exception reports which leaves the auditor with specific grey areas, where an investigation is sought for, removing the need of sampling either randomly or by judgement. Consider these articles:
Meaning of Accounting, Scope of AccountingChoosing an Accounting SoftwareShould Accountants learn to Code?
