While social media and cloud computing have been the technology wave of the last decade, a new wave appears to be in the making. And this new wave, artificial intelligence (AI) and blockchain technology, has the potential to cause sweeping changes in the accounting industry. This means new challenges and opportunities but also new risks. And as with all new dangers, the key to helping to manage them is understanding them and having a plan to deal with them.
So it is with AI and blockchain: learn about them and understand them, recognize the opportunities and challenges, and have a plan to manage both their opportunities and their risks. Technology is fast moving, and every day there are innovations. Now is the time to learn and understand both AI and blockchain technology and how they might work together to impact accounting.
Understanding AI and Blockchain
Artificial intelligence is not intelligence in the same way that it's applied to humans. But, it does center around similar goals. Just as humans can get "smarter" by using their experiences to update knowledge that they already have, AI works in a like manner. A computer algorithm, or program, gains intelligence when it's subjected to data that allows it to gain experience and start to predict outcomes. Those predictions can get better over time the more data to which the algorithm is exposed. Essentially, order is created from a previously chaotic set of data.
Blockchain technology, on the other hand, works differently. It takes "blocks" of data or source records and connects them in a sort of chain to create a record of related transactions. This chain of blocks or "blockchain" is then dispersed to different computers and made accessible to users via encrypted security keys. Both the dispersion and the security keys plus the addition of time stamps create a scenario where important transactional data is readily available. But the added feature is that it's almost impossible to make fraudulent modifications to the block or set of blocks.
AI and Blockchain in The Accounting Industry
Now imagine using both these technologies in an accounting environment. AI can "learn" to record transactions, increasing in both accuracy and speed as it's exposed to more data. Then, blockchain technology can be used to validate and confirm the transactions. Those items alone would appear to have the potential to adversely impact at least two core services that many accounting firms currently offer, write-up and auditing. If recording transactions can be simplified via AI, that can diminish the need for write-up services. And, if blockchain technology can result in real-time transaction validation and confirmation, that could significantly impact the nature of auditing services.
But, the changes coming due to these technologies don't have to be adverse to firm operations. The transformations can also create opportunities for those firms that decide to take advantage of them. For instance, write-up work can create a steady income stream, especially in cases where clients have their bookkeeping completed monthly. But, it also tends to be fairly low-level work since transaction recording and account reconciliation can be quite rote. The more significant money for firms often comes in consulting on larger transactional issues. So, a strategy here might be to embrace the new technology and allow it to take care of the repetitive tasks. Then, use the freed-up time to help clients with the more significant issues.
Managing Risk With AI and Blockchain
From a risk management standpoint, that might be just the way to go. Consider situations where clients have chosen, for one reason or another, not to seek advice on large transactions. Whether it was because they felt like they were already spending their budget on write-up services or they thought it would be easy to tell what happened from the limited information running through the bank account, there was no discussion of the potential implications of a transaction. But, if the transaction recording and reconciliation process could be reduced, more time might be available for review and recognition of the risks and implications. Plus, it could allow for more actual time with the client, establishing and maintaining that role of trusted business advisor, giving firms more access to details of long-range company plans and more opportunity to help frame transactions to maximize company profits and minimize regulatory risks. Work such as that can be much more valued-based and profitable for a firm. It can also help to solidify and strengthen the client relationship, helping to manage the risk that other firms could come in and steal the client.
Most companies, especially those that are strong and growing, strongly value work that helps them to project results and anticipate challenges. Traditional accounting services have focused on historical data, which is important from a regulatory standpoint, but less valuable in helping to develop things like future revenue streams. Creating a scenario where the historical information can be more easily taken care of, managed and verified, via AI and blockchain technology, can allow firms to manage future risk by being in on the planning of client transactions, not there to deal with regulatory issues from a post-transaction standpoint.
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Being on the cutting edge of technological developments like AI and blockchain technology can create profitable opportunities for firms and their owners. But, it's important to realize the importance of increased risk management in these situations. Technology is continually evolving, and it's important to understand that you don't know what you don't know. That's where the risk lies. Being as knowledgeable as possible to the opportunities and threats with AI and blockchain can help keep a firm profitable and secure.
But, these technologies do point to another critical risk management tool, professional liability insurance. This coverage can help protect firms from the unknowns in their accounting practices. So, embrace new technologies like AI and blockchain, and take advantage of the opportunities that they create. But, be also aware of the challenges and dangers. As with all new things, the risks don't become known until later. Protect yourself and your firm now with professional liability insurance. It's a sure thing in an uncertain world.