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Will Accountants become Obsolete?

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An anxious student recently appeared at my office door. He was considering not applying to the master’s of accounting program; a professor elsewhere in the business school had told him accountants would be obsolete within a matter of years.

My immediate reaction was to laugh, but I quickly stifled that impulse when I saw real concern on his face. I walked him through the fatal flaws of this conjecture, and I believe I successfully convinced him to continue his accounting studies.

Nevertheless, the incident got me thinking about the “audit of the future” — in particular, the role of the audit professional in a rapidly changing technological environment. This topic generates considerable attention, but discussions to date have been mostly high-level and aspirational. Big accounting firms and business journalists use common buzzwords: data analytics, big data and — the newest addition to the nomenclature — blockchain. No one seems to know when or how “blockchain” will change everything, but everyone is convinced it will. (A blockchain, for the uninitiated, is a decentralized database or distributed ledger that records “blocks,” or data records, across multiple computers, reducing the risk of tampering or hacking.)

Take this recent article from Accounting Today. A very credible panel assembled to discuss the audit of the future. Lots of blockchain and big data talk ensued. For example, three different roundtable participants mentioned that, in the future, instead of using sampling techniques, auditors would be able to test 100 percent of a data set. That’s a popular response to the question, “How will auditors use data analytics in the audit of the future?” However, an accountant with good auditing and analytic skills (i.e., judgment) will have to decide how to handle the many exceptions or outliers that will inevitably result from “100 percent of data” computer number-crunching (ironically, probably through the use of sampling).

I agree that continued advances in technology will change the audit process, as well as the skill sets required of future auditors. But that’s not anything new. One of Accounting Today’s roundtable experts stated that “auditors must embrace new technologies.” No argument there, but auditors have been doing that for a long time. When books and records were first converted to computers, accountants and auditors had to develop and test IT controls. Later, audit documentation was converted from paper to digital form. The process was difficult and ugly, but the transition was successfully made. And, since day one, auditors have used various forms of data analytics.

Technology always changes, and auditors adapt. Big data, data analytics and, yes, even blockchain are simply the latest changes.

So, what does the audit of the future look like, and what is the role of the accountant/auditor?

An audit is about providing confidence to shareholders and other stakeholders based on trust. Governmental and commercial requirements for assurance services on information critical to investor/stakeholder decision-making will not go away — and will expand. The fundamental elements of delivering that confidence include independence in fact, professional skepticism, sound judgment, and courage. Each is a human characteristic that must continually be taught and demonstrated by the experienced professionals who have gone before. These are the important things that will never change. So what will?

Sustainability

It’s the umbrella term for various components of information beyond historical financial information relevant to investors and other stakeholders. Also known as Environmental, Social and Governance (ESG) reporting, or the “triple bottom line” of 1) economic viability, 2) social responsibility, and 3) environmental responsibility.

Strategy reporting is encompassed by the concept. Sustainability might be the auditing profession’s huge growth opportunity in the future. Currently, sustainability reporting is voluntary in the U.S. and many other countries, but stakeholder demand is growing significantly. One high-profile organization, the forward-looking Sustainability Accounting Standards Board (SASB), has been rapidly developing and publishing sustainability accounting standards. (Note the similarity — FASB and SASB.) Although no regulator currently mandates adoption of specific sustainability accounting standards, the SASB is positioning itself to be the go-to standard-setter if mandatory reporting becomes a reality, something the right president and Congress could make happen quickly. Auditors will be ready and willing to provide assurance services on mandatory sustainability reporting. Big 4 accounting firms are already supporting the SASB with dollars and cooperation.

Valuation Services

As financial reporting standards move from historical cost basis accounting to fair value, demand for valuation services increases. The valuation profession continues to develop professional frameworks, standards, and credentialing processes. Valuation services are exercises in professional judgment. For example, purchase price allocation in an acquisition is a common valuation service well-suited to the accounting professional’s enhanced training and experience.

Non-GAAP Information

Companies increasingly complain that traditional generally accepted accounting principles do not properly reflect the true picture of their operating results, so they calculate and publish financial metrics not defined by GAAP. These metrics include various measures of performance, such as cash flow (EBITDA and adjusted EBIDA) and even “adjusted revenue.” Currently, auditors don’t provide assurance on non-GAAP metrics, but they will likely be required to do so in the future. Include other non-historical financial information, such as management discussion and analysis, and you have another high-growth practice area.

Accounting Advisory Services

Generally accepted accounting principles are getting more complex in response to a changing global business environment and the trend toward fair value reporting. Independent accounting firms play an expanding role in advising clients and non-clients on new standards (massive new standards on revenue recognition and leasing are prime examples).

Consulting

It’s the ultimate hot button auditing firm service. The giant firms have rebuilt their consulting practices at a high growth rate in the years following the chaos caused by watershed restrictions imposed under the Sarbanes-Oxley Act of 2002 (SARBOX). This high growth trend is likely to continue, representing huge opportunities for accountants now and in the future. The looming question is whether the profession’s regulator, the Public Company Accounting Oversight Board (PCAOB), will take further action to dismantle, or at least discourage, consulting by audit firms. A causal link between consulting for audit clients and audit failures in major accounting scandals in the years leading up to SARBOX is more inferred than directly proven. Notwithstanding the tenuous link, the inference was enough for SARBOX to include significant prohibitions on many consulting services previously provided to audit clients.

As a result, large firms turned their focus to providing new permitted consulting services to audit clients and all types of services to non-audit clients. Additional restrictions would likely be aimed at limiting public accounting practices to audit or audit- and tax-only practices (i.e., no consulting). However, such a major disruptive move by the PCAOB is unlikely, unless another series of audit failures opens the door to opportunistic restrictions. One argument for auditing firm consulting practices is that the firm’s relevant consulting expertise improves the quality of the audit practice. Consider cybersecurity, an area in which consulting expertise is increasingly needed by nearly all companies (and that represents a huge growth opportunity for auditors). It makes sense that the firm’s consulting-related cybersecurity expertise could improve the quality of an IT internal controls evaluation performed as part of an integrated audit.

The list of current and future value-added services by CPAs is long and growing. The global economy and the regulatory and business environments will continue to evolve, and the accounting and auditing industries will evolve in response; artificial intelligence and automation won’t make them obsolete but rather enhance their effectiveness. It’s an evolution, not a revolution.

For those pursuing careers in accounting and auditing, the future is big and exciting, and we can prepare you for it. What we need from you are the irreplaceable human characteristics of independence, judgment, professional skepticism and, most of all, the courage to do the right thing.

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About the Author 

This article was written by Jeff Johans of Texas Enterprise. Jeff Johanns is an accounting lecturer at the McCombs School of Business. He is a former U.S. Assurance Risk Management Leader at PricewaterhouseCoopers LLP and is a Certified Public Accountant licensed in Texas with more than 30 years of experience in public accounting and private industry.

Entrepreneurship

Science is the Next Big Thing in Startups

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From pharmaceuticals to petrochemical processes: Newcomer companies and investors and investors alike are setting their sights on science. How the start-up scene moves beyond the mobile apps bubble…

For the last two years Silicon Valley analysts and venture capitalists are anticipating the burst of yet another bubble. This time, under the risk are the mobile start-ups which constitute the biggest share of the market. Out of 50 companies listed in Forbes’ “the hottest startup of 2015” (by valuation) only six companies are based on innovations in other-than-mobile area, one company provide cleaning services, while the rest are diverse mobile apps.

Meanwhile many products listed can be barely called innovative. A significant proportion of the listed start-ups are texting apps, apps for people search (starting from business partners to life partners) or delivery services. While those services can definitely facilitate one’s life, in general they differ from their predecessors by only a narrower audience.

Many venture investors expect stagnation if not decrease on the markets, which is why they start to transfer their capitals from start-ups offering customers software to start-ups offering specific solutions for existing businesses. Such companies are expected to demonstrate more stability in the near future.

The Market for Mobile Apps Might be Saturated

Back in 2012 a talented entrepreneur could walk into a venture capitalist’s office, say his startup was a mobile-first solution for pretty much any problem (payments! photos! blogging!), and walk out with a good-size seed investment. “That pitch was enough to get going,” says Roelof Botha, a partner with VC firm Sequoia Capital. “It’s not enough anymore.”

“I think investors are bored with investing in another messaging app. And our idea is crazy enough that it might just work. ”, has declared in 2014 Nadir Bagaveyev a founder of a start-up using 3-D printers to make rocket engines. By 2016 the company attracted investors funding sufficient to launch its first rocket.

Pharma and Biotech Start-Ups in High Demand

Currently the most successful science-based start-ups are the companies offering innovative solutions in the field of pharmaceuticals and biotechnologies. It’s noteworthy that despite the previous revelations and even judicial proceedings the list of the most expensive start-ups still includes Theranos, blood analyzing laboratory, whose story did not descend from the main pages of the global leading media from 2014.

It first amazed the audience with its fantastic take-off and then with its collapse. One of the crucial parts of the success story of this start-up is its fundamental difference from the majority of the services produced in the Silicon Valley. Unlike the others, it was not a story of yet another beautiful gadget for communication or mobile app, but the story of the scientific idea which intended to conquer the world.

The great success stories in other scientific areas are now happening on occasional basis. However certain facts allow to predict that the situation is to change soon. One of such factors is growing interest among the big corporations to attract innovative solutions from outside to develop their businesses.

Given the accelerating pace of scientific and technological development of the world, the activities of internal R & D departments are often turn to be insufficient to ensure stable development of innovative business. Outsourcing of the R&D may become the efficient mechanism to stimulate the growth of the company. And high-tech start-up can certainly benefit from it.

Start-Up Technology for the Petro-Business

In December, 2016 world leading companies in the field of gas processing, petrochemicals and chemicals announced their intentions to enforce their R&D capacities by attracting start-ups. 3M, AkzoNobel, BASF, The Dow Chemical Company, DuPont, Henkel, Honeywell UOP, LG Chem, Linde, Sibur, Solvay and Technip together created a global stage for startups and investors.

“The petrochemicals industry can and must rely on the potential of open innovations to facilitate further inventions and implementation of new solutions in all major application areas, from construction and medicine to packaging and 3D printing. Thanks to the participation of international partners, IQ-CHem is now the largest global project within the industry which attracts innovative solutions and provides for their implementation into practice,” said Vasily Nomokonov, Executive Director of Sibur, a company which coordinates the project.

Positive Experience in Chemicals and Beyond

Some of the listed companies have already gained positive experience in working with start-ups which may have driven them to elaborate a systemic approach to attract innovative companies.

At the beginning of 2016, SIBUR and RRT Global start-up reached an agreement to build a pilot plant for isomerization based on RRT Global technologies in Sibur’s Industrial Park SIBUR “Tolyattisintez”. According to Oleg Giyazov, co-founder and CEO of RRT Global cooperation with a large corporation bring significant advantages to his company.

“By cooperation with Sibur we get a huge industrial experience that enables us to develop technologies and solutions better fitted to the market demand. This advantage is often not given due attention, but we, on the contrary, see significant opportunities in it. Currently, RRT Global cooperates with several companies around the world” he said.

Another petrochemical leader BASF enjoys successful cooperation with Genomatica start-up. In 2013 BASF started the production of 1,4-butanediol based on renewable feedstock (renewable BDO) using Genomatica’s patented process and in 2015 the license was expanded to the Asian market.

Unlike traditional forms of cooperation between a start-up and a venture capitalist, a cooperation between start-up and a relevant corporation allows to minimize the risks associated with investing in a potentially promising idea where the key word is “potential” (but not “guaranteed”). While delivering services in the same field as the start-up the corporation gets an opportunity to more effectively and accurately estimate the market value of an innovative idea and to support its implementation.

Structural Changes Ahead: Outlines of A Coming Market

In the short term prospective, possibly in 2017, the global start-up market will face structural changes – both in terms of start-ups professional orientation and of funding mechanism. In the future science-based start-ups will dominate the market and will change our lives at a deeper level than the way of sending a text message or searching the restaurant for an evening meal. To be more concise this is already happening in the pharmaceutical industry, and the other scientific areas are to follow.

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About the Author

This article was written by Dominik Stephan of Process Worldwide. See more.

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Entrepreneurship

Do Aesthetics Matter?

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Asa product designer, sometimes I question how important beauty is when it comes to software.

Look at this list of some of the most popular websites on the Internet:

  • Craigslist
  • Reddit
  • Hacker News
  • Wikipedia
  • Drudge Report

These sites have little to no aesthetic appeal, but collectively they are visited by tens of millions people every day.

So I ask myself…

Are we just showing off our design skills to other designers? Does the average consumer notice? Do aesthetics have a direct impact on revenue?

These are questions worth answering.

“No, Aesthetics Don’t Matter!”

Some would point to the above examples (and more) to make the case that beauty is irrelevant. They’d say visual design is mostly un-measurable mushy marketing.

After all, software is a tool. We use it to accomplish tasks like communicating, writing, checking off a to-do, or socializing with a friend.

Giving the user the ability to perform a unique task is far more important than making it look good.

We jump on Wikipedia because it’s easy to get free encyclopedic information. We pull up Craigslist because we want to buy or sell something locally without having to pay for it. We visit Reddit for its distinctive take.

It doesn’t matter that these sites are ugly because they’re the best tools for their specific job.

In fact, part of the popularity of these sites has become their ugliness. It’s as if the user base is saying, “We just laugh at how ugly Reddit/Drudge Report/Hacker News is because we get quite a lot of utility from it, and that’s what matters most.”

You can’t build a valueless product, throw some eye-appeal on it, and expect it to last.

The ever-stunning rain poncho. Source

Take a rain poncho. This is an incredibly ugly piece of clothing. But millions of them are sold every year because they’re really good at their job — keeping you dry.

“Yes, Aesthetics Do Matter!”

Others say beauty is critically important.

stripe.com

For companies trying to build or sustain a brand, visual design matters because it’s part of the package. People recognize Stripe, for example, in part because of their stand-out aesthetics. Paul Rand said:

“Design is the silent ambassador of your brand.”

Something beautiful is also pleasing to use. And pleased customers keep coming back. It’s a piece (however small) of user experience.

When something is beautiful, you can feel that there was some thought put into its creation. That makes it feel professional and gives it an air of having been built on purpose — a feeling that whoever created this thought about you, the user, as they made it. When the opposite is true, it feels like someone just hacked it together.

Those sites mentioned above — Craigslist, Reddit, etc. — those are the exception. They’re popular in spite of being ugly because they were first to market and have an entrenched user base. For those of us building something new, there’s no reason to purposefully forgo aesthetics.

Think back a decade ago to when the very first iPhone came out. The usability and utility were there in abundance, to be sure. But people were also astounded by how beautiful it was. No other phone looked like that. Many people were (and still are) willing to pay an astronomical price for it, in large part because of that beauty.

My Takeaways

Which side are you on?

I don’t think it’s black and white. It’s a matter of priorities.

“Form follows function.” Function certainly comes first, but that doesn’t mean form is nonexistent.

To me, the priority goes like this:

  1. Utility. Does your software help the consumer perform a unique task in a distinctive way? If it doesn’t, the heart of your software is missing and it will eventually die. Who wants a tool that doesn’t help you accomplish something?
  2. Usability. Do you get out of their way so they can execute that task easily and intuitively? Is it reliable, speedy, organized?
  3. Aesthetics. Is it attractive in a way that contributes to utility and usability?

By all means, add beauty. Beauty is wonderful. But utility and usability come first because that’s why people are there in the first place. Build around the purpose, then add aesthetics on top of that.

Your user will thank you for it.

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About the Author

This article was produced by Jordan Bowman of HackerNoon. see more.

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