What Should a Mid-Tier Firm be Doing to Prepare for Innovative Technology?

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March 2019

What Should a Mid-Tier Firm be Doing to Prepare for Innovative Technology?

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What Should a Mid-Tier Firm be Doing to Prepare for Innovative Technology?

About the author:

Jim Bourke, CPA, CFF, CITP, CGMA Jim Bourke is a partner, member of the board of directors and management committee at WithumSmith+Brown, PC, and also director of firm technology and managing director of advisory services. Bourke has been a frequent speaker around the globe to accounting societies and international accounting and trade associations; the American Institute of Certified Public Accountants (AICPA); industry technology organizations; incubators; accelerators; and other groups on topics specifically related to various accounting, technology, practice management, and advisory services topics. In Bourke’s role as managing director of advisory services, he heads up the firm’s cloud advisory services, management advisory, outsourced accounting/CFO services, cyber and information security, data and predictive analytics, Office 365/SharePoint, ERP/CRM implementation, and transactional services initiatives. He is past president for the New Jersey Society of Certified Public Accountants and a past board and council member for the AICPA. Bourke currently co-chairs the AICPA’s largest conference – ENGAGE, and he and his team have an active role in the AICPA’s new DAS (Dynamic Audit Solution) initiative. Bourke has been continually named by Accounting Today as one of the Top 100 Most Influential People in the Accounting Profession and has been named by The CPA Technology Advisor as a Top Thought Leader in public accounting technology year after year.

Email: jbourke@withum.com Twitter: @JimBourke LinkedIn: https://www.linkedin.com/in/jimbourkecpa/ Website: www.withum.com


What Should a Mid-Tier Firm be Doing to Prepare for Innovative Technology?

What Should a Mid-Tier Firm be Doing to Prepare for Innovative Technology?


he profession is changing and the pace of change is that which we have never experienced. Deloitte Chief Executive Officer Cathy Engelbert recently stated, “In the next five or six years, I think that the accounting and auditing profession will change more than it has in the last 30 [years].”¹ So, what is driving that change? Simply put – Technology! Firms are currently scrambling to “innovate” existing processes and procedures as they relate to audit and tax services. At the same time, firms are beginning to understand how these innovative technologies are creating opportunities for monetization in the advisory services arena.

“In the next five or six years, I think that the accounting and auditing profession will change more than it has in the last 30 [years].” Deloitte CEO Cathy Engelbert Obviously technological innovation is not new in our industry. Today, most firms are using many forms of technology in the audit and tax space. However, there is a significant difference between the technology deployed today and the technology that is forecast for tomorrow. For the most part, the technology of today is the result of automating a paper or manual process. For example, the typical engagement management application used by most firms is an electronic version of manual workpapers. These electronic workpapers consist of files and folders organized in a way reminiscent of Redwelds and file folders of the past. In fact, many also still use programs like Microsoft Word and Excel as a foundation for their electronic work product, and thus a replication of an old 13-column spreadsheet but in an electronic format. In addition, a majority of these engagement management applications are not yet cloud-based. In the tax space, most of the tax preparation technologies look very similar to the paper filing forms, allowing users to easily identity tax areas

by referencing forms that they have historically become accustomed to and then drilling down those forms to enter source data into input fields. Not that it is a bad thing, but automating a paper or manual process is far from innovation.

In what ways will we see the profession innovate?

Innovation will flourish in firms of all sizes and at the root of this will be data. Data and the explosion of data is driving technological change in our space. This change started between 1994 and 1996, when the Internet shifted from a scientific and governmental research network to a commercial and consumer marketplace. Between 1996 and 2019, companies around the world have collected massive amounts of financial and non-financial data. Although this data has been accumulating, not much has changed in our profession’s approach to addressing this change. Why? Because this data, often referred to as “big data,” generally consists of data sets that are too large for traditional legacy applications to analyze. That is until recently. Over the past 24 months, we have witnessed new vendors enter our marketplace with a focus on data. That focus has included data extraction, analysis, and visualization tools that help non-data scientists display big data in user-friendly ways. Vendors such as MindBridge (https://www.mindbridge.ai), Validis (https://validis.com), TeamMate Solutions (CCH) (www.teammatesolutions.com), and Inflo Software (https:// inflosoftware.com/) have entered our space in the last few


What Should a Mid-Tier Firm be Doing to Prepare for Innovative Technology?

that have committed to this initiative, the choice is clear.” In collaboration with some of the nation’s largest accounting firms, nearly $50 million has been raised towards the creation of new methodology that will be the underpinning of this new state-of-the-art audit tool. Although a few years out from go-live, this will be one tool to follow.

years with new and innovative technologies that are helping accountants to not only better understand the stories that are buried in the data, but to also visualize those stories in ways that allow for near real-time reporting. Many of the legacy vendors in our space are currently scrambling to bring server-based engagement applications to the cloud and to build in features that tap into the power of artificial intelligence, big data, and machine and cognitive learning. In fact, many have partnered with new vendors that have appeared in our space, and in some instances, they have acquired them in order to quickly come to market with a competitive solution that meets the demands of the changing profession. Take for example the entry by CPA.com/AICPA into the engagement management space. In December 2017, they announced a new product offering known as OnPoint.² The focus of cloud-based OnPoint is on making preparation, compilation, and review engagements more dynamic, intelligent, and efficient. The product was showcased at the AICPA ENGAGE conference in Las Vegas in June 2018 and has since gained significant traction.

I am often asked, “What can a firm do today to get ready for this change?”

Think about the traditional audit. It is primarily focused on a paper-in/paper-out process with a significant amount of third-party verification. Not that the current process is going to dramatically change in the short-term, but firms can prepare for those changes by educating staff on the importance of deep diving on the data today to prepare for the future. Today, firms should educate staff about the importance of embracing data and the related analysis of data. Numerous untold stories are locked up and hidden in this data. Understanding these stories is the key to delivering a betterquality audit. Firms should be deploying and educating on data analytical and visualization tools for today’s audit. Tools such as CaseWare’s IDEA (https://www.casewareanalytics.com/ products/idea-data-analysis), ACL Analytics (https:// www.acl.com/products/acl-analytics/), Microsoft’s Power BI (https://powerbi.microsoft.com/en-us/), and Tableau (https://www.tableau.com) should be tools that are readily available to the audit staff.

On the audit front, CPA.com/AICPA have once again stepped up and are currently developing a product known as Dynamic Audit Solution (DAS). At the meeting of AICPA council in October 2018, the AICPA unveiled information about this product.³ “Technology is poised to disrupt auditing as we know it,” said Barry C. Melancon, CPA, CGMA, president and CEO of the AICPA, who discussed the DAS collaboration at the fall meeting of the AICPA’s governing council. “We can take a more cautious approach to change, automate here or there using existing methodology, or we can boldly reimagine what auditing in the future will look like. To me, and to the firms


What Should a Mid-Tier Firm be Doing to Prepare for Innovative Technology?

On December 12, 2018, FASB Chairman Russell G. Golden spoke at the AICPA Conference on Current SEC and PCAOB Developments.⁴ During his presentation Golden stated, “Over the last year, we held preliminary discussions with diverse types of investors, companies, auditors, educators, and others about the potential implications of technology on financial reporting. We will continue to gather information about financial reporting and the systems and processes that support those activities.

The largest concern around data is security and privacy. That is where blockchain comes in. By design, blockchain is resistant to modification or change to its data. Although blockchain was originally associated with being a platform for scrupulous behavior around exchange of cryptocurrencies for fraudulent transactions, blockchain has the potential to be the platform of choice for all financial transactions from start to finish.

“This input will help us better understand the current technologies that companies and investors are using and how they may evolve over the next five years. Our goal is to raise awareness about the potential impacts to our accounting

“Over the last year, we held preliminary discussions with diverse types of investors, companies, auditors, educators, and others about the potential implications of technology on financial reporting.”

As for the impact of blockchain on our profession, there is no question that once adopted and fully deployed, it will significantly change the way we audit. Although most of us will not see the impact of blockchain in the audit space for many years to come, auditors should continue to become more well-versed with this platform. This includes immersing themselves in continuing learning around blockchain and its impact to the audit.

standards and disclosures and to develop a plan that is responsive to changes that may be needed in the future.”

The explosion of these technologies and others like them are creating additional challenges for the profession and the auditors that use them.

Golden’s statement is significant for a standards setting body that is finally poised to evaluate the technological impact on the profession.

A basic premise in auditing is focused on an auditor’s selection of a sample size and their ability to extrapolate anomalies that might exist in that sample over the entire population. Many of these innovative tools allow auditors to examine the entire population (100% of the data) in a fraction of the time that it historically took to examine only a portion of the data (or the sample size). Therefore, this technology is pushing those responsible for setting standards to address issues involving the impact on the audit much quicker than ever before. Thanks to efforts being taken right now by the AICPA, I am confident that the standard setters will quickly catch up and embrace the features in these new tools.

In addition to the push to change standards, accountants need to understand that these new tools that allow the profession to quickly analyze massive amounts of data are

FASB Chairman Russell G. Golden


What Should a Mid-Tier Firm be Doing to Prepare for Innovative Technology?

not a substitute for auditor judgement. These tools are simply automating a “manual” task - a task that, in the past, may have taken hours or days, but now takes only seconds or minutes. Thus, the use of these tools should be allowing auditors to spend more of their time with focusing on risk and other areas of the audit where the use of machines or automated tools does not exist. Early innovative technologies actually exist today. A mid-tier firm should be bringing their audit and tax teams up to speed on some of these technologies and challenging their team members to re-engineer existing engagements. They should also be meeting and working with new vendors that appear in this space to see how they can assist them in replacing legacy audit steps with machine-based procedures, thus freeing up auditors to focus on risk and areas requiring professional judgement.

are embedded in the data, hiring data scientists to perform predictive analytics on data, or simply helping their clients to visualize and interpret the results of data analytics, accountants have the potential to own this space just as they have done with audits.

Lastly, mid-tier firms are going to see a change in the mix of revenues driving firm growth, from a focus on delivery of compliance-based services that are quickly becoming a commodity to the delivery of solutions to fill a void. As firms embrace this shift from compliance to advisory, they will be insuring their relevancy long into the future.

Firms need to continue to innovate to remain relevant. Embracing artificial intelligence and machine/cognitive learning; deep-diving on the data; creating a culture of change; and diversifying the mix of talent within our firms will all be key to a mid-tier firm’s success for many years to come.

Many firms are seeing significant growth in advisory offerings in the big data area. As firms educate their own staff on the importance of understanding data, they are also finding ways to monetize this offering within their client base. Midtier firms have begun to employ individuals that look very different from those accounting graduates employed in the past. Today we are seeing data scientists, engineers, graphic designers, economics majors, communications majors, and others filling key leadership roles in mid-tier accounting firms. This variety of talent is allowing firms to become true solution providers for their clients. Now many of their clients are coming to them first before going to third parties for these offerings.

Bibliography: 1 Cohn, Michael, “Deloitte Leverages AI and Analytics for Audits.” Accounting Today. November 14, 2016. https://www.accountingtoday.com 2

“CPA.com and CaseWare International Inc. Announce Preparation, Compilation and Review Solution for CPA Firms.” AICPA. December 4, 2017. https://www. aicpa.org/press/pressreleases/2017/cpa-com-caseware-announce-preparation-compilation-review-solution.html


“AICPA and Leading CPA Firms Commit to Dynamic Audit Solution Initiative.” October 22, 2018. https://www.aicpa.org/press/pressreleases/2018/aicpaleading-cpa-firms-commit-to-dynamic-audit-solution-initiative.html


Golden, Russell G., “Remarks of FASB Chairman Russell G. Golden, AICPA Conference on Current SEC and PCAOB Developments” FASB. December 12, 2018. https://www.fasb.org/cs/ContentServer?c=FASBContent_C&cid=11761 71771255&d=&pagename=FASB%2FFASBContent_C%2FGeneralContentDi splay&rss=1

As new innovative technologies continue to proliferate our profession, I encourage mid-tier firms to embrace this change. I would recommend forcing partners and staff to challenge the historical way of doing things and to think outside of the box when it comes to brainstorming the next cycle of engagements. With a focus on data, auditors are perfectly positioned to monetize this new revenue stream. Whether assisting clients in understanding the stories that


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