Where Machines Could Replace Accountants—and Where They Can't (Yet)
Considerable column inches of late in the business media—notably, “The March of the Machines” in The Economist and “The Future Of Work: Three Ways To Prepare For The Impact Of Intelligent Technologies In Your Workplace” in Forbes—have been devoted to the implications of advances in technology on the workplace and the professions. Advances in technology and their impact on work are nothing new. Arguably they’ve been with us since the beginning of time. The invention of double entry bookkeeping was, in its day, an advance in technology, and look how that came to have a lasting and profound impact on modern business. In our lifetimes, we have seen the calculator, spreadsheets, personal computer, and the Internet —the real game changer.
Before the Internet, globalization was largely confined to the cross-border exchange of tangible goods. But the Internet has extended this exchange to intangible services, enabling instantaneous cross-border dissemination of knowledge-based services including accounting and consulting work. The current wave of globalization is—according to Stephen Roach, a senior fellow at Yale University's Jackson Institute of Global Affairs—characterized by the unprecedented speed of technology absorption and disruption. The Internet has also served as the foundation for the most recent wave of technology, that which is blurring the real world with the technological world. This is dubbed the fourth Industrial Revolution—think Pokémon Go. One of the more pressing questions this revolution raises is—how will the way we work change?
The automation it heralds seems to pose an existential threat to many tasks associated with our profession, a threat that likely will demand the profession to redefine its core offerings. We recently reported on insights from Richard and Daniel Susskind, father and son academics who have researched the impact of technology on the professions. Their work is summarized in their book, The Future of the Professions. We interviewed Daniel in early 2016 (see video). The genesis of their message for the profession, captured in this article, this radio broadcast that took place in January 2016, and this more recent radio broadcast, is that various tasks associated with the profession stand to be automated and that the profession’s future rests on inventing useful new tasks.
McKinsey’s Report
A recent interim report by McKinsey—summed up in the article, “Where Machines Could Replace Humans and Where They Can’t (Yet),” offers further evidence and analysis into how automation stands to affect work, including that of accountants, and how we might respond. In sum, automation presents both threats and opportunities. But harvesting the opportunities will demand significantly redefining our role, moving from compliance services and tasks based on data collection and processing to knowledge work based on data analysis and advising on the data’s implications and recommended actions. As Susskind said, the challenge for the profession, all professions, is to reinvent their core tasks and offerings. IFAC and its members have the responsibility of leading this change.
Let's take a closer look at the interim report and the supporting data for each sector including that of professional services. The report is based on a detailed analysis of 2,000-plus work activities for more than 800 occupations. McKinsey quantified both the amount of time spent on these activities across the US economy and the technical feasibility of automating each of them. The report shows that current technologies could automate 45 percent of the activities people are paid to perform and that about 60 percent of all occupations could see 30 percent or more of their constituent activities automated.
Technical Feasibility of Automation
In discussing automation, McKinsey refers to the potential that a given activity could be automated by adopting currently demonstrated technologies that is, whether or not the automation of that activity is technically feasible.
Each whole occupation is made up of multiple types of activities, each with varying degrees of technical feasibility. McKinsey identifies seven top-level groupings of activities—managing others, applying expertise, stakeholder interactions, unpredictable physical work, data collection, processing data, and predictable physical work. Occupations in the professional sector, which include accountancy, involve activities such as applying expertise to decision making, collecting or processing data, and interacting with clients. Since all of these constituent activities have a different automation potential, McKinsey arrives at an overall estimate for the sector by examining the time workers spend on each of them during the workweek.
McKinsey concludes that managing others and applying expertise (to decision making, planning, and creative tasks) are the least susceptible to automation; stakeholder interactions and unpredictable physical work are less susceptible; and data collection, processing data, and predictable physical work are highly susceptible. Based on data on time spent in US occupations, those working in the professional sector spend most of their time onapplying expertise, stakeholder interactions, data collection, and processing data. This represents mixed news for our profession: the former are less susceptible, while the latter are highly susceptible. This suggests that large chunks of time spent by professional accountants on data collection and processing risk being automated. But that’s not the end of the story.
Accountancy Sector’s Susceptibility to Automation based on 5 Factors Determining Automation
While technical feasibility is a necessary precondition for automation, it is by no means a complete predictor that an activity will be automated. Whether or not automation will in fact become a reality is determined by five factors. Below we’ve assessed the risk of automation for the accountancy profession’s core activities in the context of the five factors identified by McKinsey.
1. Technical feasibility—As noted above, some activities performed by accountants are less susceptible, while others are highly susceptible, to automation. We look forward with bated breath to see what the final McKinsey report has to say on this.
2. Cost of developing and deploying the hardware and software for automation—it would seem the costs, such as that of data analytics and cloud computing, have fallen sharply in the past few years. This low to modest cost points to increased risk of automation.
3. Cost of labor and related supply-and-demand dynamics—many jurisdictions are reporting a talent war with qualified staff in short supply. This seems to have triggered significant increases in the salaries of professional accountants. This high cost of labor and shortage of talent points to increased risk of automation.
4. Benefits beyond labor substitution—it’s easy to see that automation might lead to higher levels of output, better quality, and fewer errors especially in data collection and processing. In the case of audit, one can see how technology enables the testing, quickly and accurately, of entire data populations rather than just samples. These substantial benefits of automation contribute towards a high chance of automation.
5. Regulatory and social-acceptance issues—it seems likely that employers or clients will be accepting of a robot or machine replacing some of the functions of an accountant, but perhaps less accepting where the situation demands the exercise of professional judgment or skepticism, such as an ethical dilemma. Regulators might also prefer to see human intervention than reliance on a machine. The net impact of these issues might be neutral as far as their impact on whether automation is likely.
Implications for the Profession
The upshot of this analysis is that it seems that not only does a large proportion of the core work of a typical accountant have the potential for automation but that other factors may work to realize this potential. If that’s the case, then it’s vital that the profession accelerates its move into tasks and activities less susceptible to automation. The top candidate is advisory—to clients or for employers. This has to do with managing others, applying expertise and stakeholder interactions that are much less susceptible to automation than data collectionand processing. The crucial ingredients to advisory, that for now at least seem impervious to automation, are that of establishing trust and providing personalized expertise.
Many accountancy practices have already made a big push into this service area. As the International Accounting Bulletin’s World Survey revealed many larger accountancy firms now draw the lion’s share of their revenue from this type of work. According to MGI Worldwide and IFAC’s Global SMP Survey, this trend away from audit in favor of advisory, including that around cyber security and data analytics that did not exist a decade ago, is gathering pace amongst medium-sized international accountancy networks and small- and medium-sized practices (SMPs). IFAC has challenged SMPs to carefully consider diversification. Diversification, and the resulting recruitment of non-accountants, means accounting firms are less firms of professional accountants and more firms led by professional accountants. A recent Gateway article sets out some guidance on how SMPs can go about diversifying. Similarly IFAC’s thought leadership on the role of professional accountants in business has stressed the need for them to be the strategic navigator for their employers.
Technology is a crucial tool in making the transition. Olivia Kirtley, IFAC President recently discussed how technology can be a strategic opportunity to strengthen the accountancy profession. In a similar vein ICAEW’s CEO concludes that “the future of the profession is an exciting one, but only if we embrace new technologies and focus on the value that we can offer to businesses and our clients as a result.” For example, accountants need to learn to use advanced technology to predict and achieve outcomes as explained in this AICPA article, which concludes that professional accountants, whether working in public practice or industry, will enhance their career opportunities through the acquisition of additional data analytics expertise. And embracing technology and change will, as Tom Hood says, demand us to go beyond thinking outside the box and forgetting the box altogether.
Finally, we might need to take a leaf out of the book of the profession that, according to McKinsey, looks least likely to be automated—teaching. The more professional accountants assume the role of educator or coach of their clients and employers, on things like the relevance and import of quality financial management and other information, then they will find their role, for the foreseeable future at least, more resistant to automation.
Please Share Your Thoughts
We are keen to hear from you as to whether you agree with the above assessment and what actions the global accountancy profession, professional accountancy organizations, and professional accountants need to take to ensure we don’t find a robot sitting at our desk one Monday morning.
Source: www.ifac.org
Author: Paul Thompson is a consultant dedicated to thought leadership and development of the global accountancy profession. From 2004 to 2016 Mr. Thompson worked for IFAC latterly as Director, Global Accountancy Profession Support, a role that extended to overseeing the Global Knowledge Gateway, research and innovation, and activities in support of small- and medium-sized practices (SMPs) and professional accountants in business. Previously Mr. Thompson worked for Touche Ross & Co., London, where he specialized in the audit of financial institutions, before going on to lecture on corporate reporting and analysis at the undergraduate and MBA levels at universities in the UK, Singapore, and Malaysia. He has contributed to a number of publications in academic journals and the professional press in the areas of ethical banking, corporate reporting, corporate governance, integrated reporting, practice management and the future of the profession. Mr. Thompson graduated from the University of Warwick with a bachelor of science in accounting and financial analysis and is a fellow of the Institute of Chartered Accountants in England and Wales.
