“Technological developments will make the traditional accountant unnecessary.” One would hold on to his way of thinking and refuse to accept that things are changing. However, the technological changes are not to be denied. Automation and robotization are being implemented increasingly and on a larger scale in the world of business. Big data and blockchain are examples of disruptive technologies that are relevant to accountancy. These developments are still in their infancy, but are likely to grow fast and become increasingly important and indispensable. Revolution of the digital era The development of society in technological means transform the way one communicates, makes use of products and utilizes and provides services. Big data is both collecting and storing unstructured data on a large scale. It is mainly used when the amount of data is too large to be maintained in regular databases. It offers companies a high level of accessibility to information that can be transformed to added value. Blockchain, originally the data structure behind Bitcoin, is a rather non-hackable transfer method of data and digital money. Many large companies are already evolving when it comes to digitization. For example, firms as Ernst & Young and Deloitte focus on providing information on opportunities and hazards of technology as well as their core tasks. The end of the audit profession? The use of automation, robotization and data analysis is cost-effective and leads to more effectiveness. It is therefore not incomprehensible that these business processes gain ground within financial positions, including those of the accountant. Administration is usually done automatically and the financial statements can be compiled with one press of the button. The core tasks of the accountant can be replaced; the role of the traditional accountant is increasingly fading to the background. And what about checking the accounts? The obligation that large companies and socially important organisations have for this ensures that this remains a task for the accountant himself. However, it will not take long before the continuous automation can take over. What’s left is checking whether the check has been executed properly. The expectation is that even this task can be taken over by computers. There is a chance that computers become more intelligent than people, which makes human intervention unnecessary. The audit profession seems to be lost in the growth of technology. Transformation A dead-end future? Not necessarily. It should be clear that in time the traditional accountant cannot remain traditional. Nevertheless, innovation would not be innovative if it does not involve opportunities. Despite that the core tasks of the accountant will be taken over by computers, does it not necessarily mean the end for the audit profession. It only means that the profession has to be transformed. Companies can use big data by deploying it for checking accounts, detecting fraud and benchmarking; comparing customer performances. With data analyses, firms are able to support their advice and get better insights. Furthermore, plans and models for the organisation can be developed to improve the relationship with external parties. It is therefore likely that a shift from a traditional accountant to an adviser of analyst will take place, of course in conjunction with the role of trustee of the business. Hostile takeover? The arrival of new technologies can also go hand in hand with the audit profession. That data transfer and doing transactions are becoming safer because of blockchain, is something positive. Cross-border transactions can be accelerated and simplified. This facilitates doing business with customers worldwide and reduces costs as well. The control process can also be performed more accurately. Furthermore, it provides much more information that can be used for its own business or can be sold to external parties. The accountant can then focus on aspects that are not yet automated. For the time being, there has not been a complete and hostile takeover by computers. Although that automation will take over a lot, computers and robots cannot do everything. What humans are good at and better than computers, is being human. Soft skills are still important in terms of customer relationships. Accountants must be able to communicate well and focus on creative thinking and leadership. Insight in numbers is replaceable by computers, empathy is not. In conclusion Society is growing and changing. To what extent the accountant is being disadvantaged because of these developments, lies largely in his own hands. Keep on denying is no longer an option. Adaption is inevitable, but one must ensure that these adjustments are clear and positioned well. It must be clear to the customer what the added value of data-driven advice is. In order not be disadvantaged by disruptive technologies, it is important to train accountants in the field of IT or compose innovation teams that are able to start change. Change is frightening, but development needs to be embraced in order not to lie behind the competitors. Sources https://www.accountant.nl/nieuws/2017/5/financieel-professionals-onderschatten-impact-van-technologie/ https://www.accountant.nl/artikelen/2017/8/van-starre-rekenmeester-naar-baanbrekende-mensenmens/ https://www.inspireertbeterondernemen.nl/accountancy/big-data-biedt-accountancy-gouden-kansen/ http://www.watisblockchain.nl/wat_is_blockchain.php https://www.inspireertbeterondernemen.nl/accountancy/daaag-accountant/ http://www.ey.com/nl/nl/issues/driving-growth/ey-internet-of-things-iot-de-risicos-van-een-revolutie https://www2.deloitte.com/nl/nl/pages/financial-services/articles/5-blockchain-use-cases-in-financial-services.html
Financial Auditor and IT-Auditor: from working together to yellow Post-Its!
The traditional accountant that wants to have a client’s stock record printed on paper to work with during an audit is just about to extinct by now, but is a modern financial auditor with a laptop, checking a digital version of the same file ready for the future? The following question often pops up: what should the financial auditor do with the black box called IT? My answer is: seek cooperation with the IT-auditor! Five years after graduating as financial auditor, I started to study IT-auditing. In a world where IT-systems are getting more and more important, I thought it was useful to have some more knowledge about IT myself. Because of that I have put more attention to IT-aspects in a firm during my work as a financial auditor. A benefit of that is that I knowledge about as well the world of a financial auditor as the world of an IT-auditor. I still haven’t regret my choice to do the study for IT-auditor! Has the cooperation between financial auditors and IT-auditors improved in the last couple of years? Yes! Is there more room to improve? Again: Yes! However, how are we going to do this in practice? The cooperation already starts in the planning-phase of an audit, when the financial auditor determines the proper scope and gives the IT-auditor the appropriate research questions. For example, the financial auditor determines which systems are important for the numbers that end up in the financial statements. In this phase of the audit, the financial auditor and the IT-auditor jointly explore on which control measures in the automation environment the financial auditor wants to rely on for the system-based controls. The IT-auditor tests these automated controls in the system (the application controls) after it has been confirmed that the base of the automation environment is in order (the general IT-controls). An example: in an audit, the term separation of duties is really important, as for instance a staff member that can manage invoice entries and also execute the payment might be undesirable. At the client of an financial auditor, the ERP-software is in use. Orders, receipt of goods, invoices, etc. all go through this system. There are no more paper documents in this process. Users of the system can have access to different parts of this system, which the system regulates. It is possible that certain users have multiple functions that break the desirable separation of duties. In these cases, the financial auditor asks the IT-auditor to check if the separation of duties is in order. The AO/IC (Administrative Organisation and Internal Control) description within a company can help determine this. The IT-auditor first checks if the basis of the automation is in order. When this is to the IT-auditor’s satisfaction, the IT-auditor looks, using the authorisation-matrix, to check if users can handle more than one type of function. However, this is not where the work of an IT-auditor ends, because for the financial auditor it is important to know if these users actually did transactions in multiple functional roles. This is because these transactions carry extra risk and need to be checked thoroughly by the financial auditor. However, be aware, the real world is always more complex than the theory. For example: Imagine that the IT-auditor has found no exceptions. Does this mean that the right cooperation between IT-auditor and financial auditor mean there is no risk of a breach of the separation of duties? Certainly not! Because who hasn’t seen the yellow Post-its on company monitors? So keep your eyes and ears open during an audit. A critical mind set is important for both the financial auditor and the IT-auditor.
Abolishment, at least partly, of the audit obligation
I see the Audit as an important hygiene factor in the economic traffic. Especially when Accountants perform their job well and keep the public interest adequately in mind. Reality is that this is not always the case. Time and time again, regulators in the Netherlands, the United Kingdom and the United States show that there is something wrong with the quality of the Audit practice. Multiple cases often show that the customer’s interest or self-interest for accountants prevail at the expense of the public interest. Within this context it is not surprising that there is a discussion about the question how to increase the quality of audits. The fact that a raise of quality is necessary, is beyond dispute. That is why the supervisor of the accounting profession, the ‘Autoriteit Financiële Markten’ (AFM), made many proposals in recent years. Laws have also ensured quality impulses, but also to confirm the relevance of the accounts function. The new Code Corporate Governance, in which both the internal and the external auditor occupies a prominent place, is a proof of one of these impulses. In September 2014 ‘Werkgroep Toekomst Accountantsberoep’, from the industry itself, has separated a readable report. It proposes 53 measures designed to improve the quality of the Audit. Measures which the Monitoring Committee Accountancy recently reflected. Scientifically, the quality of auditing is an important area of research where many theses and articles have been published. There, the level of quality is measured to the need to and the size of restatements. That is a completely different standard than the one supervisors handle, namely: is there compliance with laws? The National traffic sets quality sets other quality requirements, for example, does the Accountant know how to fulfill his signaling- and warning function, prevent this loss and whether there is other Value added by him or her. “They then choose an additional hygiene factor which can differentiate them from competitors.” Professor Bouwens also added insight recently trough a column in ‘het Financieele Dagblad (27 december 2016). In his opinion, abolishing the the statutory audit requirement will increase the quality of audits. Bouwens refers to the work of Shyam Sunder (Yale). Sunder has already warned in 2003 about the fact that the obligation of the audit lead to a decrease in the prices of audits and the controlled companies still can barely distinguish themselves on their quality by choosing the best accountant or totally forgo of the audit by the accountant. Bouwens continued by stating that the quality of the external accountant is already difficult to detect and that the quality is further clouded by the obligation of the audit. Because companies, thus still Bouwens, cannot distinguish themselves with obligated controlling, they would rather not be controlled anymore and push the price down to bring the size of the audits to an as low as possible level. For the waning audit quality Bouwens has the following solution: “It is much better if companies can signal their quality to the outside world (banks, shareholders, customers, etc.) by choosing the best accountant for the audit of their financial statements, rather that they have to choose from an offer that is more or less if equivalent quality. Thus, we have to let companies choose freely whether they do or do not want to be controlled.” Within the Dutch context – which Bouwens in his contribution (consciously or not) disregarded – the plea of Bouwens is not new. Both Brenda Westra and me have previously called for the abolition of the audit. I have thereby however placed a nuance, namely at the top of the market – by which I mean at least in the category of listed companies – the legal requirement to audit and the supervision should be retained by the AFM and could be even stricter. But with Bouwens I believe that you could void the statutory audit requirement for a large part of the (SME) market. Which does not affect the fact organizations may opt for a voluntary audit. They then choose an additional hygiene factor which can differentiate them from competitors. “Legal obligations operate prohibitive and will be bypassed.” Bouwens’ vision seems to have a liberal and economically driven basis. My starting point is different. I am of the opinion that it is a fiction to suppose the accountant in SME segment can serve the society and public interest in situations where his client does not see or want to have that social interaction and public interest. Such a client wants an accountant that serves his interests and provide him or her added value. If this is the reality of the market, then that reality also determines the structure of the market of Audit. Legal obligations operate prohibitive and will be bypassed. By clients and their – failing – accountants.
Accountants, are they just boring cowards?
On August 26, ‘Financieel Dagblad’ published a front-page article titled: “Accountants became cowards”. When many people already had the idea that accountants are boring. The profession is presented boring, while it really is a versatile and dynamic trade. For the article in the ‘FD’ a number of acknowledged CFO’s from for example Jumbo, Vebego and Molecaten are interviewed. One of their messages is that accountants keep showing less additional value to their customers because they are too busy with implementing the rules. After my study Business Economics in Tilburg, in 1993, I started as an assistant-accountant at Deloitte. During my postdoctoral study to become a register accountant we spoke a lot about the gap of expectations between the accountants and the society. After all those years it seems that our profession still has not been able to close this gap. In fact, sometimes I think that the gap is even growing, even more after reading the article. “After all those years it seems that our profession still has not been able to close this gap. In fact, sometimes I think that the gap is even growing…” We have to explain to our clients and the society better why we do certain tasks, why we don’t do other tasks and what our responsibilities are by doing these tasks. Besides, these tasks are often suggested by the law. We still do not explain enough; because of that sometimes there isn’t a lot of understanding. What stays special, is that we fulfill tasks for the social intercourse, but that our customers have to pay the bills. It’s impossible to avoid tensions like this. I think it goes too far to qualify accountants as cowards, just because we comply with the rules. However, I can understand the article. When accountants are talking about quality these days, most of the time they mean staying with the law. In contrast, our customers think of a more broad definition of quality. Indeed, they want more added value for the bills they’re paying, like soundboards and brainstorming on a strategic level. I think one aspect doesn’t have to exclude the other. Accountants have to look for a new balance, together with customers and the society. By doing that, we can finally close an important part of the gap of expectations. People who think that accountants only check boxes, are missing an important part of the trade. Still I would like to return to the boring image of accountants. People who think that accountants only check boxes, are missing an important part of the trade. I certainly don’t see myself as a boring accountant. Give me one more trade, where you can look into the deepest roots of an organization? And not just at one organization, but more! An accountant has to be good in communication skills, he or she needs to have a professional and critical attitude, has to be good at working in a group and has to be good at analyzing. An accountant has to go into the business model of the customer with great depth to check whether the income flows are complete or not. An accountant has to converse with management teams and supervisory boards about risk management on a strategic level. These are only a few examples, which illustrate that an accountant has a lot of challenges. Herewith, I encourage you to get a better knowledge about the different elements of the trade. Despite the publicity, which is often negative, I can’t imagine a trade more beautiful than this. I still get a lot of energy from my work, my customers, but also from receiving new starters in our company. It is nice to witness their vision on the work we’re doing. The fact that accountants are in the media on an almost daily basis, shows that we apparently are relevant. Otherwise we wouldn’t see that many people worrying about the job we’re doing. I think I gave you enough argumentation to show that accountants aren’t cowards and absolutely aren’t boring. In any case, I hope to keep enjoying my job for many years and I hope that I can educate some of you to become an accountant at Deloitte!
Just Graduated: Anne de Smit
My name is Anne de Smit, 23 years old and I graduated for my master Accountancy last July. Since the end of August I am working for EY. From student to the working life At the end of August, a new adventure started. I said goodbye to the student life and entered the real working life. A couple of months later I can really say my life has changed. I replaced my bike by a new car, my sneakers by high heels and having a good night sleep is only possible in the weekend now. Especially in the beginning it took some time getting used to the working life. In my student life, I had few contact hours at the University and did many extracurricular activities besides my study. I was treasurer at T.S.A.V. Parcival, editor in chief of Faces-Online at Asset | A&F and I was an active member at student association I*ESN. I loved to sport and being busy with different things. Therefore, I decided to do my master in two years instead of one. In my extra year I did an internship at the intern audit department at Rabobank. The purpose of this was to gain knowledge and experience as it was not entirely clear for me what an accountant exactly does. Through the internship at Rabobank I got a better view about what an accountant actually does and I knew since that internship that accountancy was certainly something for me. After my internship I completed some deficiency courses for my Post-Master Accountancy and have been very active for Faces-Online. During this period, I interviewed multiple CFO’s and a CEO of big companies. This experience definitely helped me to give me more courage in contact with clients and I have had quite some interesting conversations with leaders of companies. Currently, I am still busy doing a lot different things, but now at the office or at the clients instead of at the University. The knowledge I have gained during my student life certainly is of great value for me today. My extracurricular activities, my bachelor Business Administration and my Master in Accountancy help me in all practical issues at the office today. Besides, I learn a lot of my fellow colleagues. That is one of the best parts of the job: “You get to know a lot of new people who want to help you with your development by working together on different cases.” That is one of the key things I found out at my employer. Before I decided to work for EY I have broadly oriented myself. By participating in in-house days and accountancy days organized by A&F, I connected with a lot of different employers to get a clear view about the differences between these employers. That is one of the reasons why I did my graduate internship at an office of the famous ‘Big Four’. At the end I got the opportunity to start at EY and I am sure this was the right decision. Post-Master Accountancy Besides my work I started my Post-Master Accountancy which means I am still a student for one day in the week. The Post-Master takes a lot of my spare time. Every week I have to hand in a case which usually takes at least a couple of hours to complete. A solid planning is needed considering I still want to work out and do fun things with my friends in my spare time. The famous student expression ‘starting on time’ certainly is applicable to this situation. Even more when you do not want to work until midnight. The working life took some time to getting used to, but I am slowly getting used to it. During the week I am working hard with my team and I learn a lot of things every day. In the evening there is still some time to go to the gym or do something for my study. At the moment of writing, I am looking forward to my journey to United States of America next week. A chance which I am aware of not everybody gets. I am very pleased to get this opportunity and therefore it is time to seize it!
IT challenges for the small business accountant
Soon, all the work of the accountant shall be replaced by computers and smart algorithms. The assembly work disappears, tax advices are programmed and controls are performed automatically; the accountant only has to follow the (digital) signals. At least, these are the stories you hear everywhere around you and you may believe, following the discussion in the accountancy world. However, accountants who delve into the wonderful world of IT also see all sorts of new possibilities and opportunities arise. The combination of knowledge of accounting on the one hand and knowledge of IT on the other hand is priceless. SMEs (small and medium-sized enterprises) heavily invest in IT, the ‘paper organization’ is shifting more and more towards a digital world. One thing all companies have in common is their increasing dependence on IT. Entrepreneurs are usually very proud of their IT solutions and like to see the accountant making use of it. If you magically come up with a number of notable transactions thanks to smart data analyses, the customer is often deeply impressed. Moreover, if these analyses for example trace double payments, you may save money for the company and further increase your added value as an accountant. SMEs have many questions and needs in the field of IT. The exchange of data between different software packages both inside and outside the company for example. Also, the optimization of the business processes that make use of the IT systems is often high on the priority list of the Board. The SME entrepreneur can of course hire an IT company to get these matters implemented. However, the accounting firm can also fulfil an important role. The accountant has a clear advantage compared to the (equally expensive) IT expert. The accountant knows the customer well and knows all about process control and process optimization. He can better and faster foster translation of the processes through (internal) management to a good functional application in the end. In practice, it often turns out not to be that easy to actually get started with the IT systems and the data stored therein. Major challenges the accountant has to deal with include for example: – Outsourcing of IT; – Improper regulation of the (primary) registration, so that data integrity is not guaranteed; – Wide variety of packages used. These challenges will be explained below. Outsourcing of IT Companies make different choices about how they organise IT. Larger companies often have an internal IT department, while SMEs more often purchase IT services externally, which will often be accessed from the cloud. This will bring important benefits to SMEs, like: – The company does not need to maintain the hardware and software and does not require IT expertise; – The use of new software does not require a (large) investment; the services are often billed on a monthly subscription basis; – The service can easily be adapted to the needs of the users (scalable) Outsourcing of IT also has certain risks. The (technical) IT knowledge is often concentrated in the hands of a few and even outside the organization. The continuity of the IT can quickly get into danger by the loss of a single person or by a disturbed relationship with a supplier. Another major challenge is the shared responsibility of the IT infrastructure. Internally, one is responsible for the functional part of the applications while the system is invested externally. Who is responsible for matters like the proper functioning of the backups, database management, information security, or extremely slow systems? This often requires a joint effort, about which sound agreements must be made. The auditor can play an important role in the communication between the company and the external IT service provider, for example in making proper arrangements and the recording thereof in a Service Level Agreement. The auditor can also be pivotal in the translation of the needs of the customer into the technical implications of it. Data integrity Data integrity refers to the accuracy, completeness and timeliness of the data. This applies to the input of data, the processing of these data by the system and the output of the system (for example reports). In order to ensure data integrity, recording data definitions is an important first step. Defining the concepts and terms used in an organization may seem to be a simple task at first glance, but in practice there appear to be interpretation differences surprisingly often. Clarity on issues such as the method of calculation and any filters or aggregates prevents much confusion. Automation should force a large part of the data integrity. However, control remains essential because the system cannot take into account all exceptions. More people watched the transactions in traditional systems. Multiple eyes could detect errors. In embedded systems, the system performs many checks ‘in the background’ which are less visible to users. An error in a programmed control can therefore lead to a structural error with a big impact. In Figure 1 a few key differences between traditional systems and integrated systems are displayed. Figure 1. Integrated IT systems versus traditional systems The reliability of data depends to a large extent on the people who use the IT systems. However good the IT systems are when tested in advance, they will never be able to give a 100% guarantee. The responsibility for the reliability of the information should be embedded in daily operations as well. The expertise of the auditor comes in very handy here. Wide variety of packages Each system has its own characteristics and hence its own specific risks. Even ‘standard’ systems contain a lot of company-specific settings. Especially with the more complex packages it is therefore hardly possible to make a distinction between standard and custom software. Despite many differences, the auditor may still be of great value in the implementation or optimization of an IT system. Regardless of the system used a company should always consider to implement an authorization model, a process flow and controls; all of these subjects integrate seamlessly