The impending power shift in accounting
Last updated: 2 January 2020
Over the centuries, the accountancy profession has always had to adapt to technological advances from the invention of the double-entry systems to the calculating machines of the eighteenth century and the invention of the Excel spreadsheet. It's clear, however, that the pressure for accountancy practices of all sizes to go digital surpasses all previous challenges. This is an uncertain time which is unsettling for many in the profession.
The drive to go digital has already impacted the world of business and accountancy is no exception, instigated by the rapid technological advances of the last twenty years and frequent changes in legislation.
All these changes have already impacted the accountant's commonly perceived role as a number cruncher. Accountants are now required to have sophisticated IT and relationship management skills, as well as a good head for figures so these skills are going to be even more important in the future.
The impact of Making Tax Digital
Many accountants are concerned at the pace of change driven by the government's Making Tax Digital (MTD) initiative, which will required businesses to submit their tax returns online with digital accounting. Eventually, MTD will apply to individual tax returns, although these plans are suspended for the time being. Those working in the world of small business accounting believe that their roles are particularly likely to be affected by technology and can see advantages, as well as disadvantages to the predicted changes. Some see technology used for digital accounting in a positive light, seeing that the latest software can make the work of an accountant increasingly enjoyable and satisfying, reducing the likelihood of error and with the role of an accountant more as an adviser to their clients.
Nonetheless, many are worried about the problems that are predicted to arise with the digitisation of small business accounting over the next decade. Common concerns among accountants are related to choosing the right software - there are many possible packages - in addition to Making Tax Digital which is underpinned by a shift to digital record-keeping and online taxation. Most accountants already use a cloud-based system, but this is not true of many of their clients.
The drive to migrate practices and clients to a wholly online cloud-based system is believed by many to be the biggest driver of change in the sector. Accounts and clients will have access to extremely in-depth analytics and real-time data which will inevitably alter the way accountants work with their clients. Accountants also expect there to be improved integration with apps and AI in the next decade.
How exactly will these digital changes affect services?
Will there be a power shift? Will there be fewer accountants with machines becoming ever more capable of tackling their tasks or will going digital give accountants more time in a positive way, allowing them to focus on elements that still require a human role? It's important to realise that these are not new fears - the perceived threat of 'robots taking our jobs' has been around since the emergence of technology.
The installation and training involved with the adoption of any new system will take time to embed. The transition from a traditional to a digitised system is not that straightforward. Accountants might have a year of pending paperwork and a sudden switch from a manual system to a digital one could lead to lots of extra work. However, most accountants believe that digital technology will allow bookkeeping and compliance tasks to be completed much more quickly. Other tasks that could free up accountants' time are personal and company tax, VAT review and submission and general accounts preparation. All are key elements of small business accounting.
Looking at MTD as the most significant impending change, there are several clear advantages and disadvantages for small businesses and their accountants. MTD will make the collection of taxes much more efficient. Any errors will be easily spotted. Business expenditures can be entered as they are earned, leading to an increasingly accurate claiming system. Unlike the traditional and primarily manual system, MTD will reform the tax system, making it easier to navigate, use and analyse. HMRC is working closely with the software developers to ensure that the software is as client-friendly as possible.
Another benefit of digitisation is reduced amounts of paperwork. Increased use of software and cloud-based storage solutions should, hopefully, reduce the amount of paperwork generated by accountants which is better for the planet - although cloud-servers are not without a carbon footprint requiring vast amounts of electricity to operate.
One major concern about digitisation is digital exclusion. Even though software such as MTD software is designed to be as easy to use as possible, and more people regularly use the Internet than ever before, there is still a core group including small business owners who are unconfident when it comes to navigating new technology and will be reluctant to comply with the new demands embodied by MTD.
Unlike the traditional predominantly manual system, MTD requires taxpayers to submit their returns each quarter so there are more deadlines to meet. Although HMRC claim that this will lead to greater accuracy at calculating how much tax is owed, not complying with this could mean more fines.
Automation is vital but isn't everything
The most sophisticated machines still need skilled accountants to interpret and evaluate work. AI can only do so much; machines can’t think or interpret data. Qualified accountants are certainly still needed to perform critical assessments and evaluate the best way of using the data to inform the best practice of the business. Digital software will enable accountants to spend more time on advisory tasks, nurturing client/accountant relations and business development.
Although the need for traditional accountancy tasks will inevitably be reduced, the advisory part of the role is predicted by industry experts to be the area with the greatest potential for growth.
How should accountants face this challenging period?
How should the accountants of today prepare for this uncertain future? They should aim to be prepared to adopt the latest software and not be close-minded about altering business models and core processes. Ensuring that clients are compliant will still be at the heart of their services, but the majority of the work carried out to complete these tasks will inevitably be increasingly automated. However, more detailed, accurate and instant data will create new chances to provide more forward-focused offerings. Accountants that can adapt to new requirements could thrive in the new digital age, while those reluctant to evolve could become extinct.
Working closely with software providers could also be mutually beneficial. As technology underpins the digital world, large practices are already developing the solutions necessary to take accountants and their clients through the next 10 years, with the increasing use of real-time data and ever-changing regulatory requirements.
As with most periods of transition, some will see opportunities while others will struggle. As an ancient Chinese proverb says 'when the winds of change blow, some will build walls but others will build windmills'. Successful accountancy practices will embrace the changes and turn them to their advantage; those who are slow to respond will be doomed to failure.