American Institute of CPAs president and CEO Barry Melancon challenged the leadership of the profession to embrace technologies like blockchain and cognitive computing that are going to have a major impact on accounting – and in particular, he called on them to join in the transformation of the audit.

Speaking at the Spring Meeting of the AICPA’s Governing Council in Arizona on May 21, Melancon gave those in attendance a serious charge: “We have an obligation to keep pushing these technologies and embedding them in the profession,” he said. “Our job is to bring as much of the profession forward as we can in this environment.”

While he discussed cognitive computing, robotics and data analytics, he focused on blockchain in particular, citing a survey that suggests that half of CEOs expect the distributed ledger technology to fall in the bailiwick of finance and accounting, where he expects it to have an enormous impact.

“We don’t need to really understand the underlying software,” he said. “It’s the implications and power of blockchain that are more important that the actual software.”

For those who are concerned that blockchain -- with its promise of a digital ledger that essentially audits itself – will disintermediate auditors, Melancon pointed to the need for outside experts to attest to the reliability of the blockchain. “There are going to be public blockchains and private blockchains, and we may need to create a new kind of SOC report around blockchains and whether a blockchain is achieving what it’s supposed to,” he said.

He illustrated the potential by referring to the switch from SAS 70 reports to the family of SOC reports. “It was so emotional to move away from SAS 70 -- we had to brand SOC reports as ‘formerly SAS 70’ so people could wrap their heads around the change. But firms are now doing thousands and thousands of SOC reports – we even have a Top 100 Firm where that’s all they do.”

He reported that the institute recently hosted a profession-wide symposium on blockchain, and tasked a number of working groups to report back on various issues in the fall. “That’s a little quicker than in the past,” he acknowledged, “because blockchain’s not going to sit around and wait for our working groups to report. Instead of thinking, ‘We have to get these things perfect before they go out the door,’ we need to accept that things will be iterative.”

“If we wait for perfect, we’re going to miss it,” he warned.

AICPA president and CEO Barry Melancon

Transforming the audit

Incorporating technology but also moving beyond it, a central part of Melancon’s message revolved around the coming transformation of the audit, and the institute’s role in leading that transformation.

To start, he recalled the institute’s decision three to four years ago to begin focusing on improving audit quality. “We needed to move the needle without breaking the gauge,” he said. “We have asked a lot of state societies from the peer review perspective, and we’ve asked a lot of individual peer reviewers, and we’ve created new approaches, new oversight and new guidance that have improved audit quality.”

The results, he reported, have been very positive, with 86 percent of firms demonstrating improvement. “It’s not perfect,” he said, “but directionally we clearly see a difference in quality.”

That improvement matters not just for the immediate benefit of audit clients and the public markets. “It’s important to remember how strategically and reputationally import audit quality is,” he said. “But audit quality is also an important issue when it comes to transforming the audit. The market won’t give us permission for this if they don’t trust us on quality.”

He noted that the profession had two pathways open to it: to attempt to merely streamline and improve the current audit – or to come up with “an entirely new approach to audits.”

In consulting with the profession’s leaders, the institute discovered a clear preference for the latter. “And the overwhelming response was that the AICPA has to lead the transformation in audit,” he said.

One of the institute’s initiatives in this area is a new tool for preparations, compilations and reviews that will be unveiled at the institute’s Engage conference in mid-June. “It will use cognitive technologies to examine your responses to certain questions and indicate areas where you might have made a mistake,” Melancon said. “It will also use AI to take the information you’re putting in and put it into Word in the appropriate engagement letter.”

Created in a partnership with CaseWare, it’s the first step and a test case in the longer-term creation of what Melancon described as a “dynamic audit solution.”

“The larger firms need to see the value in this and make the necessary investments,” he explained, noting that the DAS would be a $50-$60 million project, with half those funds already pledged by firms in the Top 500, and particularly the Top 100. “They can’t do it on their own; it’s a consortium approach. The results will be available to all. These are firms that compete with each other, but they understand the importance of it from a profession-wide perspective.”

Building the tool will be one thing, he warned; convincing the profession to get behind the transformation of the audit will be another. “There’s an unconscious bias in the way we think,” he said. “I was sitting next to the CEO of a major firm recently, and he told me, ‘We absolutely need to transform auditing, and I guarantee that 100 percent of my line partners in audit will disagree with it.’”

That only underscored Melancon’s charge to the Council members: “We really are a profession with limitless possibilities -- if we can push the profession to think about the opportunities and take chances,” he told them.

New technologies are freeing accountants up from much of the drudge work that once characterized the profession, while at the same time offering powerful analytical tools that can help accountants provide more “value-added,” proactive and strategic services to their organizations and their clients. Greg LaFollette, strategic advisor at CPA.com, discusses the opportunities.

If you believe some pundits, technology represents a threat to accountants and auditors. Machines, the thinking goes, will be able to do sophisticated compliance work and the kind of in-depth analysis that only humans can offer now. We see it differently, though: technology is going to change the role of the accountant, not replace it.

"The most obvious application for blockchain and accountants is in the audit, since it provides verification of transactions"

Everyone knows the pace of technological change today is unprecedented, with deep implications for the way we work. But we see opportunity in this transformation, and are pushing to redefine and expand the accountant's traditional role as a trusted business advisor. Automation and innovation are powerful tools in that effort and, if used correctly, will increase the strategic value of the accountant.

Think back to the early days of cloud adoption. One of the biggest trends for CPA firms over the past decade has been the rise of virtual CFO/controllership services, in which practitioners harness technology to offer outsourced finance and accounting services, bill management, human capital oversight, and the like. This category – known in the accounting profession as client accounting services – was a low-margin service mostly seen as a client retention tool before the cloud. But the ability to analyze real-time data, present it in easily-grasped dashboards, and collaborate more closely with clients to shape business decision-making has revolutionized this service line. It's now grown to roughly 10 percent of the average firm's revenue, and it's typically the fastest-growing piece, according to research by the American Institute of CPAs (AICPA) and CPA.com.

Tax and audit practices still anchor offerings for CPA firms, but these areas are undergoing some of the same transformations due to technology innovation as client accounting services. We expect artificial intelligence, machine learning and blockchain to have a major impact on how these services are delivered in the next few years.

Blockchain – a distributed, secure database that creates an immutable chain of transactions – may be the most interesting case. Gartner predicts the business value added from this emerging technology will exceed $3.1 trillion by 2030, from a negligible base today. Public blockchains – best known as the systems that support bitcoin and crypto-currencies – are probably less relevant to applications in a corporate setting than private blockchains, which are more scalable, have faster transaction speeds and are limited to only authorized users.

The most obvious application for blockchain and accountants is in the audit, since it provides verification of transactions. Unlike some of the hyperbole associated with blockchain and auditing, accountants will still need to provide assurance in several areas, such as configuration of these systems, management estimates of financial statements, etc.

How blockchain's uses will unfold precisely is still unclear, although there is considerable experimentation going on with the Big Four and other top accounting firms. That's one reason the AICPA and CPA.com have joined forces with the Wall Street Blockchain Alliance, an association devoted to education and advocacy surrounding blockchain for financial market professionals, to define the impact of the technology on accounting. It's imperative that CPAs and management accountants educate themselves about blockchain and its potential applications, since it's such a fast-moving area.

Now more than ever, accounting and finance staffs must develop complementary skills to ensure they are providing quality service to employers and clients. The skill set for transactional or compliance services is not the same as for advisory services, which we see as a critical future skill for accountants. Finally, we see the future for accountants who leverage technology and advance their skills as one full of opportunity and increasing value for their clients.

It’s a relationship that has been needful, fruitful and even distrustful at times, but accounting firms and the vendors that serve them are an essential component to moving business in general forward.

For all of these reasons and more, the AICPA and their marketing arm CPA.com have been assembling top executives to their New York offices in an annual, UN-style meeting known as the Executive Roundtable. Through this moot, the present and future of the profession and those that serve it are discussed in detail. So what came of this year?

Representing approximately 40 companies targeting the attentions of the accounting community, executives were questioned about their own challenges with the profession, their own competition and where they may be headed. Overwhelmingly, thoughts turned from what was once a heated debate about cloud to one of blockchain and artificial intelligence.

Meanwhile, they realize the profession as a whole continues to struggle with cloud not so much as a "why" question but "what makes the most sense" and “am I moving fast enough?” Vendors clearly feel the pain of their accountant customers and recommenders but in the same right also need to keep pace with what their competitors are doing and what business trends demand (and will).

The overall tone of the meeting was summed up by AICPA CEO Barry Melancon, when he said, “What we are trying to set a tone for globally is this notion that our profession is incredibly valuable and in order to be successful we have to be a profession that is in a constant state of transition.” To that, he added, "It is even more frightening to accept that we are on a job that will never be done.”

The point being, both vendors and accountants are trying to keep up with a future that is already happening. And from an accountant perspective (yes, there were several present at the Roundtable) they are looking for, what I deemed to be partners, no pitches from the vendor community.

So yes, AI and blockchain are technological advances that are happening now to vendors and accountants alike. Where it will take both remains to be seen, just like cloud from 10 years ago. Another consensus, on this point, was that these advances will happen much faster than cloud did in terms of their impact on product and profession.

In the end, with all of this “change” happening and not about to slow down, what are the majority of firms (who, by the way are solo owned or have fewer than 12 employees) to do? Again, it seemed to be up to the vendors to step up and act more like partners to firms to help manage this change. As Jeff Brown, a partner at Top 100 firm Moss Adams so eloquently put it during a large-firm, Q&A session, “If I was a smaller firm, I'm worried I don't have the resources to serve my clients and figure out what to do with AI” and the next wave of technological change.”

To this point, CPA.com VP for Strategic Alliances & Business Development Michael Cerami said, “The training that needs to happen to become a better advisor goes well beyond technology.”

This is true. Somehow firms have to be motivated to change, or at least deal with it, and without proper training on new systems and the ability to manage change outside of just learning tech, stagnation and possibly irrelevance will happen.

So, we go forward from this meeting with the question: Will we see more of a partnership between the vendor and accounting community around these specific issues?

As much as it will change the profession, the new technology offers tremendous opportunities for accountants. Ron Quaranta of the Wall Street Blockchain Alliance and Erik Asgeirsson of CPA.com discuss why it’s exciting, not terrifying.