Without a doubt, we are gradually entering into the age of data. According to the World Economic Forum, the entire data produced daily would attain about 44 zettabytes in 2020.
With the instreaming of such enormous amounts of data, businesses require to be up and doing every time to discover valuable pieces of information and insights from the wide ocean of data. Although they also have to remove the unhelpful data.
Big Data comes into action in this aspect. Big data involves large volumes of data of various varieties generated at a high velocity, almost impossible to process by conventional data processing systems.
In the past decade, big data and data analytics have been implemented greatly in most businesses. The market for big data technology and services is estimated to increase at a compound annual growth rate of 26.4% between 2014 and 2018 to US$41.5 billion, approximately six times the growth rate of the entire information technology market, based on International Data Corporation.
Although big data application in accounting is at an early stage, and the rising of big data and data analytics generates an advancement for accountants and auditors to improve their skills.
The definition of big data differs across different sectors. Although, in general terms, big data is the collection of enormous and complex data that is difficult to be analyzed using any traditional database or tool. It is also most times referred to as data analytics or analysis.
Role of Big Data In Accounting
The growth of big data is real transformation. According to the survey carried out in 2016, about 59% of the employers agree that it will become essential for finance and accounting managers to have data science and analytics skills by 2020, unlike those days when accountant experts were solely responsible for making entries and filing of entries.
The finance team is also responsible for extracting financial data insights to assist strategically plan business to improve and drive operational efficiency. It’s safe to state that bookkeeper has now risen into a strategic business partner.
Before the big data, finance departments usually only do analyze the data using familiar techniques to calculate profitability and return on investment.
This could be achieved using traditional tools like spreadsheets. Although, now, they are needed to analyze semi and unstructured data from other departments and the assistance of predictive analytics software.
In which Sector Big Data Will Make an Accounting Industry?
Auditing is an important aspect of the accounting industry as it assists in analyzing a company’s finances and assets. Nevertheless, in the modern age, the typical audit methods do not produce similar results as businesses expect valuable insights.
Big data combined with data analytics is changing the process of auditing. The audit process is gradually moving from sample-based testing to the data-driven population-level audit that includes every major aspect of a business.
Big data provides auditors with structured data in real-time. Therefore, they can explore more aspects and identify outliers more efficiently.
2. Business Decisions
With automation in the accounting industry, the accountants took a step from the repetitive accounting tasks to the business advisory roles. They are responsible for generating financial plans for their customers and providing valuable insights.
Big data is useful when assuming the role of a trusted advisor for businesses. The accountants can implement big data to assist businesses to make informed decisions about their finances based on significant data sets. They can also generate/formulate long-term financial strategies.
3. Risk Management
The success of an accounting firm relies on identifying financial risks and correcting them. With the assistance of big data and predictive analysis, the CPAs can foretell future risks and advise them to take the essential actions.
By processing big data, CPAs can also identify potential frauds. This can be achieved without any human intervention and effort by only using algorithms on large data sets.
A business’s performance relies on several parameters, such as employees, core processes, and budget management. With the assistance of big data with advanced analytics, you can easily track the business’s performance by defining new KPIs. Also, the large sets of data help you identify market trends and be ahead of your competitors.
Whenever big data is used with advanced analytics, it allows you to recognize and analyze customer patterns, enhancing the customer experience.
Data visualization is the process in which the data is converted into a more recognizable form. Whenever big data is used with data visualization, it provides enhanced visibility to accounting professionals into the accounting data.
It leads to improved business insights as the big data sets can be segmented and changed into significant information.
What Is The Impact Of Big Data In The Accounting Industry
1. Data-Driven Audits
One of the best examples of big data in accounting is to perceive how it is transforming auditing.
Currently, auditing is bigger than the analysis of the income statement and the balance sheet. Also, an auditor might have had to manually scan through big files to track risks in the past. Although the arrival of technology and data analytics has transformed the way auditing is done.
An auditor can now comfortably assess a large volume of unstructured data, like emails, formal company records, and more.
2. Risk Identification and Management
Companies must frequently identify and assess the risk factor that can alter their business performance.
Risks in financial services are usually associated with mergers and acquisitions, fraudulent activities, supply-chain risks, etc. The benefit of big data in accounting is that it can significantly enhance risk management by analyzing customer behavior, predicting shifts in economic trends, etc.
Some examples of risk management are liquid risk management, credit risk management, card fraud detection, etc.
For example, analyzing the card transaction patterns, which includes the amount, timing, location, etc., can help identify fraudulent transactions and block the card.
For liquid risk management, big data can give deep insights into the incoming and outgoing cash flow. The insights can be utilized in optimizing liquidity management, which can be of significant assistance for the entire bank management.
Similarly, banks can decrease credit risk by analyzing transaction history, public information such as annual reports of companies, etc. Based on these analyses, banks can enhance credit models for both individual and corporate customers and help them accurately manage the collateral of credits.
Earlier the accountants can identify these risks, the better is the opportunity of alleviating them.
3. Provide Real-Time Reporting
Another important impact of big data in accounting is the arrival of cloud technology and real-time reporting.
The integration of big data and cloud technology has allowed accountants and auditors to offer real-time insights. They aren’t restricted to analyzing financial records on a monthly, quarterly, or annual basis. With the accessibility of big data in real-time, accountants can now offer timely insights.
Besides big firms, even small firms are trying to implement the benefits of big data in accounting. Companies like Xero are offering cloud accounting software to small businesses to assist them in tap into big data opportunities in accounting.
4. Increase the Efficiency of Acquisition
We usually resort to mass marketing campaigns to promote any type of offerings. Nevertheless, presently, every marketing channel is excessively filled with campaigns. So how do you achieve an effective campaign?
Big data can help target the accurate set of audience through the accurate channel and the accurate message. Using the big data, you can comfortably segment prospects based on the existing customer base. It enables you to target the accurate audience. And based on the segmentation of the potential/target audience, you can determine an excellent media channel for the marketing campaign. It could be through email, radio, social media platforms, etc.
Besides, it can assist you with customizing messages and identifying influential customers that can assist in circulating awareness about your financial services.
5. Improve Client Experience
The function of big data in accounting is not restricted to only generating future strategic planning but also optimizing customer relationships.
Analyzing big data gives you an accurate view of the customer information, including their family information, bank details, history of their transactions and inquiries, etc. These insights can help you build a thorough conversation with them, leading to an effective customer relationship.
Also, you can develop targeted offers for your existing customers. This will help you improve your customer loyalty. Analyze their spending habits or buying behavior, and partner with popular retailers to provide them with incentives. You can also generate a premium service for your high-value clients and offer attractive offers to keep them.
Big data in accounting is about creating values. Accountants and financial experts design the movement of data, external and internal, to enhance the organization. However, everything comes with its difficulties.
The most recent technologies, such as big data, artificial intelligence, machine learning, automation, and blockchain, will be major contributors to the new-age accounting. Big data can be implemented with these technologies to foretell future risks, recognize market patterns, and improve the risk management process.
As more data is becoming accessible, its value can depreciate speedily. Additionally, only access to this technology and information is not sufficient. Companies will have to ensure that it is accurately implemented and used. For that, experts need to improve the skills essential for transitioning from an accountant to a data-savvy planner or analyst.
Well, it would mean taking in a new mindset and skills. The earlier these firms accept the shift in big data, the better they will capitalize on the possibilities that big data in accounting will contribute.