I was asked yesterday what, if anything, of the accounting profession might survive the fourth industrial revolution. When so much of what so many who currently make a living in accounting, whether as accountants or bookkeepers, might be automated, what is the future of this bedrock of middle class income earning? My answer was that the accountant needs to change what they do. In an age of potential information overload their job will be to anticipate the need of the user of accounting data and explain it for them. Whether the answer was music to the ears of my questioner was open to doubt. I suspect that they shared my concern that many in the profession, from top to bottom, do not have the ability to adapt to this demand.
There are several reasons for thinking that this is the case. First there is professional arrogance. All professions are based on the old trade guilds. They were established to create barriers to entry to markets to preserve monopoly profits. Many of those barriers did in time become institutionalised: the accountancy profession's exclusive right to audit was just a part of that. So too was the exclusivity that Royal Charters, supposedly issued in the public interest, granted. More particularly, the willingness of the accounting profession to create language intended to reduce comprehension by those outside its exclusive fold reinforces this impression of mystery that supposedly justifies income differentials. If you doubt that such mumbo jumbo exists try to understand the incomprehension most non-accountants express when faced with the idea of depreciation.
Second, there is dogmatic incomprehension to overcome. Accountants are now amongst the strongest proponents of shareholder value. As example, when accounting standards were first being discussed in the UK it was suggested that they should be used to enhance the data available to all stakeholders of a company. These included shareholders, the providers of loan capital, employees, customers, suppliers, civil society, regulators and tax authorities. In contrast for more than a decade now the International Financial Reporting Standards Foundation has said (para 1.2) that the principle users of financial statements (as they insist on calling what everyone outside the profession calls accounts) are the suppliers of capital to a company. What is more they also insist that the only decision that the data supplied must inform is whether or not that the supplier of capital wishes to engage or disengage with the organisation, as if the relationship is purely one of base financial consideration. This is, of course the mantra of shareholder value writ large. And they then have the temerity to suggest all other users must make do with this inadequate approach or adapt to see themselves in that role as suppliers of capital which, for example, they think employees have until the day they are paid. This closed mindset, which is now deeply embedded, is not just antagonistic, it also is a massive impediment to comprehension of the alienation that most feel from the resulting data.
Third, there is intolerance to the needs of users. Take for example the recent change to UK accounting standards represented by new Financial Reporting Standards 102, now coming into widespread use for the preparation of accounts in the UK. These do, for example, embrace concept that many users of accounts, including the owners of the vast majority of SMEs will find entirely alien. As example, FRS 102 says that:
When a financial asset or financial liability, ie a receivable or payable, originates from an arrangement that is a financing transaction, that receivable or payable is measured at the present value of the future cash payments discounted at a market rate of interest for a similar debt instrument1 (paragraph 11.13 of FRS 102).
Very politely, whoever dreamt this up had never tried to explain what this meant to the director and shareholder of a company who finds the language alien, the maths of discounting incomprehensible, and considers the fact that this deems part of what they might be paid under a deferred payment arrangement to be interest is just wrong because that is not the commercial agreement that they reached with their customer. And yet despite all this an accountant is required to impose this rule on that director and prepare accounts as if they have done something they quite consciously disagree with, and tell the director in question to sign the accounts which they may well consider incorrect and mis-stated, or decline to provide them with professional services. That is the action of a profession disconnected from the reality of the interests it is meant to serve.
Worse, though, put these factors together and the accountancy profession has clearly acted contemptuously. This has significance. Take, for example, the rise of populist politics. As I told those I was in discussion with yesterday, I can and do in part blame this on the accountancy profession. There is no doubt that one cause of populist opinion is the alienation that people feel from the forces of multinational capitalism that seeks to control such large parts of their lives and quite literally keep them indebted to it whilst doing so. As I explained, I had always seen country-by-country reporting as an answer to this alienation.
Time and again I have written about this being a reporting mechanism for holding global corporations to account locally. So, it explains the value they add to a local community by the sales it generates, the people it employs, the profit it makes, the tax it pays and the capital employs in that place. As importantly, country-by-country reports simply explain how the global corporation can be identified though its local entity names. And country-by-country reporting requires explanation of what those local operations do. All of that is about supplying the information that a society needs to grant a global company the necessary social licence to operate locally, whatever the legal rights it might have. And almost without exception none of this information is available right now. Is it surprising that populist sentiment has been incensed?
But how did the accounting profession respond to country-by-country reporting? First it said it was not possible to produce it. Unsurprisingly that did not wash: even the companies saying this realised that this amounted to an admission that they had inadequate accounting data. Then they claimed it was too costly to produce. But that was obviously just contemptuous: what it said was that the providers of capital had value but everyone else had not. Now the argument, when country-by-country reporting data is actually in the course of production by the world's multinational corporations because it is a requirement for tax purposes, is that the public will not understand country-by-country data.
This too is contemptuous. Primarily this is because country-by-country reporting data is vastly less complicated than full accounting disclosure. It does, after all, only include just two narrative and eight numeric variables at most (assuming there are intra-group sales). In that case if the public cannot comprehend country-by-country reporting data what those in the profession saying that are implying is that the substantially more comprehensive full financial statements must also be beyond the public's comprehension. And apparently the profession does not consider it has any duty to change this state of incomprehension in either case, but would instead rather deny the information a user might desire than make the effort to explain it.
Now bring all of this evidence back to my opening contention that if the profession is to survive, and those within it are to earn a living, then they must adapt to supply the interpretation of data that automated systems will very largely produce unaided in the future for the benefit of those without accounting training. What is the realistic possibility of that change when the profession is at present either imposing incomprehensible data on users that involves the use of language and mathematical concepts that many will not comprehend or is suggesting that if the user has not the wit to understand this data then they should be denied it rather than have it explained? I suggest it's very low indeed.
Let me put this plainly then. Those with expertise in artificial intelligence suggest that accountancy is one of the professions most exposed to risk from it. I agree with them: it is obvious that large parts of the work the profession does at present could be automated with relative ease. But in that case the profession has to adapt and current signs are that it is in a remarkably poor place to do so. It really is time for accountants to stop counting the coffees and smell it instead. Unless they do they're not just in deep trouble; they'll find themselves working as baristas, if they're lucky. But from top to bottom I see almost no sign that the profession knows this. Future shock understates what is coming their way as a result. And I strongly suspect they won't realise it until they're mopping down tables.
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Hey, these accountants need to be kept away from working the counters at coffee shops, they might eat all the cake on the sly. The transferable skills they do have should result in them wiping bottoms at care homes.
As an outsider to the profession, I look forward to a day when all accounting will be as simple as it needs to be, *and no simpler*.
On that long-awaited day, there will still be a great deal of value in professional expertise in managing the flow of money in a business.
…More value but, alas, less money than in all the work accountants are expending in self-serving complexity, and the dubious pursuit of obfuscation.
We could say the same about other professions – my own included – but this is a post about the future of accountancy.
Will the AI-accountancy-bot be better at explaining to the uncomprehending director or shareholder that time is money? Is it so hard to understand that £100 in your pocket is usually more valuable than £100 in 12 months time?
But on your main point, yes, the ranks of the accountants will no doubt be decimated (and not just one in ten). The lawyers and bankers too. Perhaps even the doctors and surgeons. But there will be a place for people doing tasks that are hard to automate.
I frequently want cash in the future and nit now
It’s why we save
Is that because I value it less?
Come on – that’s not addressing the point.
If you were offered £100 today or £100 in one year you’d take the £100 today surely. Yes you might ‘save’ it becasue you don’t want it till next year, but you would invest it and expect to get more that £100 in one years time.
People are now paying to save: there are negative real interest rates
Your hypothesis is simply wrong
The facts show it
I retired from being an accountant a few years ago, not the least because I could no longer respect the profession anymore. Long before that I kept quiet about my qualification because I was tired of being accused of being something akin to Al Capones bookkeeper or an enabler for the wealthy to avoid tax. It was’nt like this when I started.
I agree with you that bean counting will be automated, and I am not sure that many accountants have the skill to interpret data as you suggest. How about augmenting Companies House chasing fraudsters or maybe use their expertise catching tax dodgers for the HMRC?
Working for the common good, well that would make change!
Keep up the good work Richard
Paul
No doubt we won’t be able to afford the chasing of fraud
Who will pay the tax!
I jest…..only a bit
Well, I’d say that accountancy’s future is going to be very secure for at least another 5 years and who knows how long after that.
I say this because of the amount of dodgy accounting going on that seems likely to accelerate as this anti-regulatory Tory government marches on.
Since such accounting seems to rely on the consent of individuals in the profession, those who use the ‘service’ in this way will always want to deal with a human face – someone they can trust and pay to manipulate.
Are you saying that technology will replace such relationships Richard?
Can technology be programmed to provide false info? Can it be programmed to be discrete? To be illegal? To argue on its clients behalf?
I’d be interested to know.
We have accountants, like most professions, because that is how the modern state works, via regulation; unlike previous models that used physical force. If you are a capitalist you will value some accountants and not others. For the general public it is difficult to see value; it is ethereal, i.e. made up. Like any profession it is as good as its practitioners. A good accountant is good for reasons more than their profession and can relate to other parts of society. That is the human being showing through.
A very sound article. “All professions are based on the old trade guilds. They were established to create barriers to entry to markets to preserve monopoly profits.”
I think this is accurate. Notice that it applies to all professions; only I think the purpose is not just to preserve monopoly profits, but monopoly professional status, and monopoly knowledge; hence the popular over-reliance on technical and (deliberately) mystifying language, which tends to escalate its obscurity quotient in those professions providing the simplest and least intellectually demanding services.somebdy should develop an App to de-mystify the mystifiers.
It has always seemed to me noteworthy that – apparently – Germany manages to operate its economy with far fewer accountants (per capita; or is that per unit of capital?) than Britain; but far more engineers. I must acknowledge that my reference to Germany is based on information that I acquired long ago, and cannot verify, either for the past, or now. I make the point in order to challenge exactly what it is that the British accountancy profession offers in terms of effective business economic insight, or added value; save in the sphere of taxation; which is however peculiar to the bizarre nature of the British tax system, which tends to serve land values and rent-seeking, over enterprise, risk capital or labour.
Excellent article and very accurate; as an accountant I have been saying exactly this for several years.The monthly and quarterly accounts we prepare and discuss with clients bear little relationship to the ones we file annually and serve up to HMRC.
Making tax digital will complicate things further when HMRC get a final submission with ‘accounting adjustments’ that differ from the quarterly returns. They will investigate thinking something is wrong. I look forward to explaining the reconciling adjustments to them (‘Yes, that’ll be paragraph 11.13 of FRS 102’).
And yes, a large number of accountants will decide to leave the profession rather than tool up for MTD and others will fail to make the change necessary from compiler to interpreter.
For the vast majority of businesses in Britain, accounts should be prepared for the owners to help them make strategic decisions. But will the AI be any more help than the HI?
Excellent last question
That is very true in big MNC’s too. The monthly/quarterly ‘Management’ accounts used internally for decision making purposes are typically not aligned to any external GAAP.
And for good reason
I see the outlook for accountants as bleak.
I dont think they have the capacity for change, adaption and creativity.
Look at our own institute a laggard in terms of opinion setting and leading.
It has/had nothing meaningful to say on tax evasion, agressive tax planning, offshoring profits, the 2008 crash and the obvious need for revisions to capitalism, on Occupy as it stood outside St Pauls, increasing inequality, excessive executive pay, etc, etc
I am now retired but set my accountancy practice up from scratch in the early 1980’s. I could not afford/was unwilling to commit to the £250000 that the practice i was with at the time wanted for me to be a 25% equity partner. The start of my practice coincided with my institute deciding to allow chartered accountants to advertise. Established accountancy practices found the thought of advertising for business to be below them. So i advertised. My practice was based on the clients i obtained from this advertising, and then later from direct mail, which again the existing pratices found to be beneath them.
So i built my practice up, un opposed by existing practices at minimal cost often taking dis satisfied clients from those very practices as well as new start ups.
In practice i was happy to lose the right to audit, as my small clients sought exemption – I still see no value in the audit of owner managed businesses.
Apart from the routine compliance work, the only creative work I had was some business advice and tax planning. I got my real buzz from the latter
I am interested in AI and have read extensively about it including Rise of the Robots.
In all this, accountants, tax advisers and auditors are most at risk from having their jobs taken by AI.
The message was clear. Any job involving routine is threatened by AI
In my view, all the tasks I did in my professional career, including tax advice, are capable of being taken by AI
Chartered accountants will not withstand this onslaught.
The future is grim for them
We agree
I believe digital currencies will have a larger effect than AI in the short to medium term, with lots of organisations using them internally as part of their accounts automation — providing continuous real time information.
Longer term the accountant will go the way of the scribe and other drudges. Auditors will have competition from retraining accountants I think.
Here I disagree
Digital currencies are con tricks