You may have seen the new thing is arising in recent times, which is big data and
Artificial Intelligence. But what is the buzz is really about on these two most discussed topics around internet? It is definitely because of the fast – paced technology shift that drives changes in most of the industry.
So, in general, how big data influences accounting & finance?
Applying analytics to big data creates many opportunities already for businesses to gain greater insight, predict future outcomes and automate non – routine tasks. It also provides opportunities for the accountancy profession to deliver greater value and to help businesses transform their decision – making in many different areas.
First we will start with an example: Auditors, both those working internally and externally, can shift from a sample – based model to employ continuous monitoring where much larger data sets are analysed and verified. The result: less margin of error resulting in more precise recommendations.
Another example, Tax Accountants, use data science to quickly analyse complex taxation questions related to investment scenarios. In turn, investment decisions can be expedited, which allows companies to respond faster to opportunities to beat their competition – and the market – to the punch.
How Big Data Influence Accounting & Finance
The power of big data lies in its ability to reveal trends and patterns in human behavior that are difficult to see with smaller data sets. In Accounting, they are already dealing with stacks of collections and data sets, so the combination of the two – industry and resource – seems inevitable.
The potential is essentially unlimited. One of the example within accounting or finance operations is in auditing. Big data can help detect issues or trends in exceptions and outliers within larger data set. They are able to focus their efforts on those exceptions for further analysis, that is one of a basic influence of big data in accounting and finance.
Big data can also be helpful for comparing a client against direct competitors. For instance, big data sets can allow accounting team to aggregate performance metrics across an entire industry and present them to the board, pointing out specific reasons the competition may be outperforming rather than relying on outdated methods such as ratios or guesswork.
Increases in computing power is one of the main contributor to the big data development. Here are few examples of valuable data that can be collected for data processing:
- The internet provides a variety of clickstream data, such as searches, sites visited and goods viewed, as well as transaction trends.
- Open data refers to the release of large amounts of primarily public sector data such as geo – spatial data, transport data, government financial data and public services data.
- The IoT involves embedding computer chips and sensors in physical assets, such as machines, building, domestic appliances and clothes, which then generate data
- Mobile technology provides more opportunity in data generation such as internet data, individual locations, behavioral analytics and other user information
Big Data Opportunities and Risks for Accounting and Finance
Generally, Big Data plays an important role in almost every sector, including accounting and finance, whether you are in accounting firm or holds an accountant role in a company. Nevertheless, all companies will have to follow the auditing process. One of the first opportunity of big data is at the core of auditing. Big data and data – analytics are transforming the audit process from being sample – based to data -based, providing information about all key areas of the business. It helps leaders understand their business better by providing detailed information. It help tracks expenditure accurately in real – time and is, thus, highly helpful with periodic accounting.
Another opportunity that foreseen with big data is the Risk Management. Having big data can caused so much trouble for the member of the team. But using a proper tool, having a huge set of data can empowers accountants to carry out predictive analytics, and thus they are able to predict future risks in accurate manner.
And lastly, Big Data can bring businesses to take complete control of their financial operations, business leaders can make sense of the exponential business decision that they are about to take using a real – time availability of data. Making better short – term, as well as long – term financial plans is no longer an issue. With proper set of tools and technology, any companies or organisations are able to convert it into actionable data. Making big – data an influencer in accounting and finance.
Although we heard many good things about Big Data, but still there are risks that may occur and needs to be taken into consideration such as unjustified conclusions, appropriate reliance on predictive models, regulatory around data handling, and the impact of uncontrollable automation growing.
Due to powerful capabilities, it can contains several risks. For example, management information systems have always been hampered by data which is inaccurate, duplicated or out – of – date. It will only amplifies in big – data environment. The logical error – handling step is to completely ignore it and disregard it entirely where the quality is very poor.
Another risks relates to the selection of data and parameters of the analysis. Big data techniques enable the analysis the entire data sets, instead of using data sampling. Although the sample analysis is valid, but it needs to be done carefully to ensure that there is no bias in the sample and to enable the results to be extrapolated to a wider population. By using entire data sets, big data can avoid these sampling risks.
How To Take Advantage From Big Data?
If you haven’t apply technology as part of your decision making process in your company, you should do it now. Especially in the middle of rapid technology development around Machine Learning and Big Data to name a few, you are almost missing out in any opportunities around your industry.
To sum up this article, here are few things that you can do already in order to seize the opportunity out of Big Data:
Use Predictive Analysis in Accounting Processes
Many accountants are already using data analytics in their daily work. They compute sums, averages, percent changes to report sales results, credit risk, inventory availability and more. Predictive analytics are important because they provide actionable insights for companies. They are able to increase their competence in these areas to provide value to the organisation.
Predictive analytics are able to enhance couple of things:
- Integrates data from various sources (such as ERP, POS, and CRM system)
- Predict future outcomes based on statistical relationship found in historical data from regression – based modeling
- Computation of a credit score to indicate future credit payments.
- Prescriptive analytics to make recommendations on most favorable courses of action to be taken
Data Analytics Applications in Audit Processes
Audit is definitely the most essential tool in a company to ensure good governance, risk and control, as well as compliance monitoring systems.
Some examples use of data analytics:
- To examine receivables and payables ageing
- To analyse gross margins and sales, highlighting items with negative margins
- Analysis of capital expenditure versus repairs and maintenance
- Matching of orders and purchases
- Testing of journal entries
Data Visualisation in Accounting and Audit Processes
The main objective here is to help users obtain better insights and to draw a better conclusions of their hypotheses. It is achieved by integrating the user’s perceptual abilities to the data analysis process, and applying their flexibility, creativity, and general knowledge to the large data sets available in most ERP systems. Big – data has significantly influences accounting and finance in the recent time.
Few examples of the utilisation of data visualization:
- Risk analysis
- Transaction and control testing
- Analytical procedures
- Audit engagement communication
- Misstatements detection
Thus, it is important for an accountant to adopt and implements dynamics reporting and visualisation techniques to enhance the ability to make an impact and gain influence.