The Future of Accounting
Well, that’s it. Accounting started with civilization, grew up with, and was an integral part. Inventory control with tokens, abstract concepts of numbers, writing, the birth of banking and finance, double-entry bookkeeping, tracking increasingly complex business, understanding big business operations—especially bankruptcy avoidance, auditing and other monitoring functions, professional accounting as part of professional administration, taxes, converting instantaneous data to financial decision making, developing internal controls, obvious accounting applications as the first uses of business computing, integrating immense financial information into usable statements and reports for management, investors, and the public. This is the legacy of accounting and why it is part of the story of civilization.
Figuring out what the future will bring is a more challenging question. Financial information will continue to be more complex and likely more cumbersome. Perhaps future disclosures of complex topics like defined-benefit pensions, derivatives, and special purpose vehicles will be simpler and more meaningful, but that’s not inevitable. The concept of transparency is not going away and that generally means more disclosure quicker. Sales data now is used in real time to stock shelves and buy or produce new product as needed. Perhaps all raw data will become readily available instantaneously and killer aps developed to turn this intractable data to useful information across the board. It’s quite possible that financial statements and annual reports will be less important and corporate, government, or nonprofit web presence will provide increasingly extensive data in close to real time, likely providing users with programs and new aps to gather whatever relevant information is needed.
Auditing will not go away. Auditors initially treated computers as black boxes and audited around them, then became increasingly familiar with their structure and functions. This is still an ongoing process as auditors attempt to keep up with new developments and keep the hackers and crooks at bay. Since computer hacking is one of the top national security threats in the world, it is hard to say how it will all work out—just that auditors and related fields (such as inspectors general and intelligence agencies) seem to have job security.
Taxes are here to stay, although the theory or philosophy of tax policy and the role of government continue to be debated. As long as governments are obligated to provide basic social services (education, defense, public safety, environmental protections, health care, infrastructure) the demands for revenue continue. The most debatable points are: (1) what level of public services are needed, (2) how should these be funded (e.g., many alternatives to income taxes exist), and (at the federal level) to what extent should expenditures be funded by increases to the national debt? Generally, accountants are experts on insuring clients pay the minimum level of taxes (usually stated as “the legal amount required by law” or “all that’s legally owed”).
Closely related to taxes is the role of public policy. In the United States, the immediate split is between the federal government and state and local governments as mandated by the Constitution. This carries over to accounting as the federal government accounting system is considerably different from state and local accounting. The roles of government in general and the federalism split (federal versus state) is debated as vociferously now as in the 1780s. Historically the immediate answers cyclically swung left and right over time (often because of chaos caused by depressions and other calamities). These swings are expected to continue.
There are millions of nonprofit organizations doing all kinds of useful (and sometimes destruction) things. They are mostly small specialized organizations where everyone is a volunteer (it is easy to belong to a number of diverse groups like this). Some are large and considered politically and economically important—consider the Gates Foundation or the American Red Cross. Perhaps the most important NP group according to most people is charities, philanthropic or eleemosynary organizations with tax exempt status in the United States under Section 501(c) (3). Most are subject to FASB standards, roughly similar to commercial firms. Because nonprofits by definition do not have a profit motive,1 the earnings focus is somewhat suspect.
Technology will have major impacts on accounting, as computing power, storage, programming, and the ability to analysis data increases exponentially (as seemingly mandated by Moore’s Law). Big data created vast storage capability meaning the potential to tabulate and analyze huge amounts of relevant information—an accountant’s dream. This allows for extensive and complex queries related to policy, predictions of production decisions, evaluating audit risks, and so on. Accounting virtual reality looks real, turning a company’s operations, finances, taxes, and risks into a 360-degree game package. Forget sampling (sometimes); whole data population number can be tracked and analyzed, possibly in real time from multiple (and global) sources. The potential for artificial intelligence and computer power seems nearly unlimited.
The unknown is a perpetual concern. Statistician Nassim Taleb introduced the “black swan,” rare, unpredictable events (statistically identified as outliers).2 Most of the recent financial collapses (including the tech bubble burst and subprime meltdown) were considered black swans, at least by the financial models used by the so-called experts. Thomas Friedman described a related concept, the “black elephant” as a combo of black swan and elephant in the room, a visible problem but not addressed (such as climate change and related environmental problems).3 The subprime meltdown and other financial catastrophes logically fit the black elephant definition. Significantly, major accounting issues also seem black elephants. Multiple financial accounting topics seem unresolved (and perhaps unresolvable), such as special purpose vehicles and derivatives. These were contributors to the Enron debacle and subprime and continue more or less as before. The motivations for executive compensation seem to encourage accounting manipulation. Auditors are still not that great at discovering fraud. The future looks bright, thanks in part to technology, but expect a bumpy ride. Accounting is part of the solutions, but still a possible contributor to the uncertainties.