The Implications of Automation on Accounting
It is the year 2030 at a mid-level manufacturing company located in Seattle, WA. Mason works at the company as a lower level accountant, mainly recording journal entries for the shipping department of the company. One day, Mason came to work to some horrific news; his manager informed him that a new software update has been implemented in the company’s Accounting Information System. Mason was told that his job had been completely automated by the new software, and his employment came to an abrupt end. Mason later came to find in the coming months that almost all accounting jobs like his had been wiped from the Earth, with many organizations implementing similar software.
This bleak glimpse of the future may not be far off from reality. In one study, it was determined that there is a 94% chance of automation causing a loss of jobs for accountants in the next 20 years (Boomer). This blog aims to investigate the impact computerized automation in accounting will have on the accounting field and behavior of the organizations who implement them. The future outlook for accountants will depend heavily on how these organizations react.
The term automation was coined in 1946 to describe the increasing automatic processes and mechanization being implemented to production lines, but has shifted into almost every area of business since. In the accounting field, automation can be defined more specifically as “a system to capture, manipulate, and interpret transactional data flowing from myriad information technology (IT) systems and applications” (Brazina). As it sounds, automation systems have the ability to replace many functions of an accountant’s duties. However, implementing automation systems and artificial intelligence opens a new opportunity for organizations to enhance and add value to their business functions. Automation systems affect every area of accounting from auditing and advisory services to financial statement and tax return preparations. Large accounting firms are increasingly deploying these systems into their business. Some recent examples include Big 4 accounting firm PwC partnering with H20.ai to create a system that uses A.I. machine learning to analyze billions of data points from the general ledger in a fraction of a second. The system finds irregularities and unusual transactions without bias (Brazina). Optical character recognition (OCR) is also being deployed by tax firms. This new software automatically prepares tax returns, although it comes with risk due to the complications of the tax code. As new automatic processes are being developed, organizations will bring in the new systems to enhance efficiency and capabilities. Management must navigate the complex times and guide the implementation to maximize benefits and minimize the negatives automation brings.
Automation systems bring a multitude of benefits to organizations who implement them. In a survey conducted by ACCA and CA ANZ, management cited three key benefits: improved controls, increased processing speed, and reduced costs. Historically speaking, manual accounting tasks including journal entries, adjusting entries, and billing/purchase processing have been known to consume a large amount of an accountant’s time. Recent research suggests that approximately 42% of manual tasks can be automated, while an additional 19% could be mostly automated (Lewin). By automating these tasks, workers will have more time to use analytical skills to formulate business strategies with advanced data. Automation can be a tool for accountants rather than a replacement. It provides accountants more accuracy in reporting and therefore earn more trust within their jobs. “Cognitive skills can never be replaced by automation and the ability to understand and predict business models will become increasingly important ability to an accountant” (Boomer). Rather than replace an accountant’s job, organization’s that effectively implement automation can both enhance and simplify different functions of the job. Another benefit management teams who implement automation systems identified is an increase in staff morale. The morale boost came from the elimination of repetitive tasks by the automation system freeing staff of monotony and increasing the quality of work (Colquhoun).
With as many benefits as automation offers, there are serious concerns among the general public and specifically the accounting field. According to the Swedish Institute of the Accountancy Profession, “[Automation] will result in the possible disappearance of the accounting career” (Hassan). Automation allows for accounting processes to be more accurate, more secure, and more efficient; all without the need for a human. Thus, there is tenable reason for people to be worried about possibly losing their profession to automation systems. According to a study done by McKinsey Research Institute, 44% of organizations that reduced their employees after the 2008 financial crisis did so through means of automation (Hassan). This fact not only shows that organizations are willing to replace humans with automated systems, but that it is nothing new. Currently computers are not sophisticated enough, but some predict that “all accounting functions could be taken by automation in the next two decades” (Hassan). What this means for the behavior of an organization is mostly unknown. The automation of these processes is inevitable, and organizations must decide how they will maneuver this massive shift in such a vital component of business. Writer and accountant Katherine Terrell describes some of the ways employees can react to such massive changes as automation, stating that, “When people are faced with change, whether positive or negative, there is an immediate emotional response as they assess their receptivity to the change. Depending on an individual’s emotional intelligence and adaptability, one’s willingness to accept change can be hindered by varying levels of resistance” (Terrell). Terrell also describes some of the stages of emotion that can occur with these changes. These stages include feelings such as denial, describing how workers may not believe it will stick, or that their skills simply cannot be replaced by automation. Nevertheless, automation is coming and most likely will undertake the monotonous tasks that are involved in the accounting profession. It will be necessary for organizations to plan for this shift in the finance and accounting field, and to decide what the future of the profession will look like.
Organizations who utilize the new automated systems will face many challenges in their implementation. Companies must acknowledge the feelings of the workers who will be replaced, as it may create a bad work environment and lead to a decrease in production (Terrell). The arguments show that the definition of what an accountant is will change for future graduates. Everybody in the workforce will have to transition into a more analytical role, stepping away from the classical image of the number-crunching accountant. This, however, does not mean a crisis in the accounting world. In the long term, it will mean more productive and less repetitive work, because time is freed up from mundane tasks and can be dedicated to bigger picture work. As many have said, some skills cannot be replaced. But making sure to mitigate the difficult transition will be a challenge for organizations, and this blog has highlighted some of these challenges. It is up to the managers to find the best solutions in dealing with these problems.
Team #1
Derek Binder
Logan Beachy
Jackson Greene
Joy Carson
Marco Lam
(*All Authors contributed equally to this paper)