Opportunities and Challenges of Big Data in Accounting

Executive summary

Big data has changed the world of financial analysts. All the valuable data collected over a number of years is now used to draw valuable conclusions and make decisions. This is the integration of new technology with the accountant’s decision-making process. In this report, the challenges and opportunities presented by big data will be discussed in the field of accounting. The purpose of this study is to make a clear point in the areas where big data is helping to increase the growing competition. The areas of benefit are administered by accountants to take maximum benefit of collected data. Then the challenges are analyzed to see the areas in which they are lacking.

Further opportunities are helpful in defining the future prospects for the accountants. However, the challenges will be helpful for the companies to identify the areas where they should make progress and overcome their issues. This complete analysis can make the investment of the company pay off by the effective utilization of business intelligence. All the issues of security and customer experience can be addressed if automated procedures are used to analyze data.

The challenges show that it is important for a company to hire accountants with high-level skills to integrate IT with finance because now the modern dynamics are different from traditional accounting standards. A sound knowledge of business is required to integrate big data into the decision-making process.

Introduction

At first, big data is a large data volume that can be either structured or unstructured. This is extensively used in businesses these days. However, it is not the amount of data that matters; it is the information obtained from data that makes a difference. The analysis of this big data is used to get insights about the business that can be used to make good strategic decisions. If the analysis of data is not done properly, the big moves taken by the company are not taken correctly.

This big data has major implications in the field of accounting. The accounting discipline requires a lot of information processing. All the decisions in finance and accounting are taken based on information collected from data. The use of big data in the accounting field provides a large potential to increase business information. The raw data available to companies is of no use unless it is transformed into structured information for decision-making. Many ways are used by accountants to change this data for making important conclusions. The benefits provided by this data analysis are in the form of a reduction in time, cost reduction, impudent decision-making, and development of new products. When the data is combined with analytics of high power, all the business related tasks get the best decision.

The evolution of big data in accounting has integrated it with corporate data. This is helpful in connecting unstructured data sources with ERP (enterprise resource planning) systems. There is a need to change the traditional auditing and accounting techniques by enabling big data in large corporations. The integration of big data has raised new opportunities for audit analytics. This also has an impact on behavioral research and audit judgments^[1]. It means that along with the opportunities, there are many challenges associated with the use of big data. Here are the major opportunities and challenges that the integration of big data has brought for accounting.

Discussion

The use of big data and analytics of this data has increased in business, especially in the past few years. According to future forecasts, it is also foreseen that the market of this industry is going to face increased demand. According to the past data from 2014 to 2018, it is analyzed that the annual growth rate of this industry is 26.4 percent, which is even more than the market growth of information technology^[2]. In spite of all these facts, it is still the start of big data integration with accounting. There is a long way to go where big data will be helpful in sharpening the skills and analytic abilities of auditors and accountants. Information processing has become cost-effective and innovative solutions are offered. This is only possible because of the meaningful insights for the automation process and decision-making.

The opportunities provided by data analytics and big data could be helpful for accounting professionals as well as business communities. The main areas of benefits are efficacy, effectiveness, and efficiency in the work process. It is helpful because the decisions taking place with the help of big data are in the favour of business. Following are the challenges and opportunities of big data that are helping businesses in meeting the needs of the new business environment.

Opportunities for Big Data in Accounting

The potential of big data is enormous in enhancing business operations. This brings improvement in the lives of people by making it easy to do. Some of the opportunities that increase the potential of big data are accelerating the process. The most advanced implication of big data is the integration of IoT. IoT is the idea of the Internet of Things where the things are integrated in a way that the sensors generate valuable information for decision-making. The concept of interoperability is integrated in order to make updating, analyzing, and accessing business data faster and easier. This allows the users to access heterogeneous data with transparency^[3]. This will make an environment of connection between devices, people, machines, and sensors by integrating the concept of the Internet of things (IoT). This incorporation takes place with the help of interconnected devices and sensors that send signals in case of any alert. This will be helpful in controlling all the activities by a single big data source.

All devices are connected with the help of sensors. This will be used to analyze real-world features and then generate numerical or analytical information. This information proves to be helpful in decision-making because the information processing system has turned it into useful data for use, especially in accounting. This Internet of things can be integrated into accounting, particularly to track down the inventory. It will help in easily calculating past performance and future forecasts for purchasing.

Another important opportunity because of big data is that it has enabled decentralized decision-making. Now based on big data, the systems are capable of making decisions based on their available information and set criteria. Systems analyze the given situation, see the past trends, and then make a conclusion^[4]. All the necessary actions are done without any consultation of humans except for some of the exceptional cases where there is any conflict. It is helpful for the accountant because now they do not have to look into every short detail and the actions that have to be repeated regularly are performed without any delay.

Big data helps to account for some of the major areas such as in terms of risk and security. Having big data for making decisions helps in mitigating the risks and brings more security to the accounting processes. Such as, when big data is available, a complete analysis is done and then security decisions are made. In accounting, it is important to learn from past mistakes and not repeat them in the future. The big data is helpful in getting away from the risky decisions. In addition, if the security of data or the company is at stake, this large amount of data can predict preventive measures that ensure security.

Another major opportunity for big data in accounting is the use of predictive analytics and data visualization^[5]. When accounting practices follow the predictive analysis, all the decision making is done based on objective facts and figures. This process has made the data analysis process easier. Before the evolution of big data, there were huge volumes of data, but no process was used to analyze it properly for decision-making. Now many data visualization techniques are helpful in seeing the big picture. This overall concept of data visualization enables accountants to make decisions in real-time. There is no delay because the information is displayed immediately after any big change in data, and the choice is made easier. It has become easy for accountants to locate the big data stores and effectively correlate this opportunity for addressing needs. These visualizations have insights for everyone in every place.

Big data has introduced an amazing concept of business intelligence that contains analytics for the whole population that is easily accessible to accountants^[6]. This is not subjective but based on quality data that is managed properly. This helps in conducting research in multiple disciplines. The industry practices are increased by the vast data management and more resources for operations.

This information is available in all the audio, visual, and textual formats to make the analysis process easy. The practices of financial reporting, managerial accounting, and financial accounting have improved. In the processes of managerial accounting, the contribution of big data is in the form of bringing improvements to the budgeting process and providing more control over management systems. Financial accounting integrates the concept of big data by enhancing the relevance and quality of accounting information available to the accountants. This has a positive effect on the decision making of stakeholders and transparency of data. This is essential for the accounting procedure because if the data is not transparent, it will be of no help to the stakeholders.

Reporting standards of accounting are developed by providing assistance in the creation and then further help with the refinement of the standards of accounting^[7]. This provides surety that the accounting occupation with continuously evolving with the help of new information. This has provided a new dimension of real-time, dynamic, and global economic perspective.

Big data is a source of great advantage for accounting because there is a lot of information processing needed by this profession. Accountants have to manage a great deal of data in every aspect. It can provide data-driven results of audits that have better results for not only the auditors but also for the clients. Even in the services of advisory, the questions are identified by big data that further help in improving the performance of business and monitoring. Even the analytical models are helpful in supporting operational improvements and product varieties^[8]. All this evidence shows that big data is helpful for accountants in the management and identification of risk.

Challenges of Big Data in Accounting

The data creation has increased in the past decade. Now the amount of data created in the past few years is even more than the data created in thousands of years of human evolution. Using this data is important for making valuable decisions. It is a fact that out of all data ever created, only 0.5% is ever used and analyzed^[9]. There is great potential for this huge amount of data to be turned into value-added information. However, this data has a huge potential to boost the revenue of a company, but there are a few challenges that are associated with the use of big data in accounting.

CFOs are now expected by the companies to deliver insights that are data-driven. This thing has made the finance and counting department to be the analytic powerhouse of the company. The traditional role of accounting has now transformed because of the increased abilities of analysis. Conversely, it is only possible if the art of predicting is embraced and mastered to influence the performance. Only in that scenario it can be helpful in understanding the behavior of customers, predicting the trends, improving price decisions, managing risks intelligently, identifying new sources for profitability, and optimizing the supply chain. Financial companies go through a huge struggle to get positive returns out of their investment in data analytics. There are a few reasons behind their negative returns, and those reasons are as follows.

First, some of the accountants face the issue of analyzing the right type of data. If debris data is put into the system, then the resultant analytics will also be of no use. It is not necessary if the data analytic system is implemented it will start to show results. The analytics have changed over time from descriptive to diagnostic, then predictive, and now finally it is perspective analytics that is used for best solutions. This analytics only provides the best result if the data is taken from a trustworthy source. Therefore, accountants should be sure about the type of data that is needed for a specific type of analysis. Otherwise, the whole process will be of no use. It is true because if the data at the start is wrong, regardless of high-quality analysis, the results will lead in the wrong direction^[10]. To get away from this issue, a clear understanding of what type of data is available to the company and then see if there is any additional requirement for satisfying the analysis needs.

Secondly, the biggest challenge is having an unclear data strategy. To get a high level of benefit from investment in analytics and big data, the company should decide upon a rational strategy for the business. This issue is because of the bad implementation plan. It does not work in a way that the company collects a large amount of data and then draws valuable insights from that. The best strategy to achieve that is by making clear objectives and questions for which data analysis is done. If this process is carried out by a company, then they should have clear needs identified so that the resources will not be wasted^[11]. This challenge makes all the efforts a waste, and no valuable insight is driven out of analytics.

Thirdly, the skills and leadership qualities needed for big data analytics are lost in accountants. To deal with these advanced requirements of data, new skills and talent are required. The major challenge faced by finance companies is the restructuring of their team. The need has now shifted from traditional accountants to people with high analytics skills in data. This is supported by the evidence that the normalization and cleaning of data are both time-consuming and technical tasks. Therefore, to depict a high level of performance, the presence of business as well as technical skills is important for accountants. Having different backgrounds and strengths is important for a good team of CFOs. This will help in extracting the right meanings and making sense of the data.

Fourthly, the aims of companies using data analytics become too high, which poses a big challenge to big data. They do not understand that there is a long way to go from data analytics to actually improving the performance of the business. Having a pilot project is a good step for making quick improvements, taking lessons, and generating quick wins. Taking a smart and small step can make the overall implementation of a company strong. Otherwise, it will be a great challenge to determine the direction of movement that the organization follows in data analysis implementation.

Lastly, a big challenge for many big financial companies is that they cannot integrate the data successfully. They are not successful in generating an informed analysis for finance people. The combination of multiple datasets should be made clear without the consideration of format and location. Accountants normally fail to integrate IT with business activities that pose a big threat to data analytics because it is a combination of both^[12]. This problem arises when there is a failure of understanding between IT and finance. Even the language of finance and IT is different, which creates a major problem in interpreting the analysis. Another reason for this problem is that there is no integration between different departments. Accounting teams should work with the departments of operations, supply chain, sales, and marketing for better collaboration and integration of data analytics.

These are the main challenges faced by big data when it is integrated with businesses. If these challenges are addressed with appropriate strategies, the real value for money can be obtained from big data integration and analytics.

Conclusions

This whole discussion concludes that big data is a useful tool only if it is used with the right set of mind. It is up to the company and its analysts how they use this valuable opportunity to improve the performance of the company. The revenue can be boosted if all the reforms are taken correctly and automated procedures are followed by the integration of big data analysis.

End Notes

1. “Auditors and Accountants Meeting Challenges”. 2018. ACUITY. Accessed April 18, 2018. https://www.acuitymag.com/business/auditors-and-accountants-meeting-challenges.
2. “Big Data And Business Intelligence: How They Come Together | Transforming Data With Intelligence”. 2018. Transforming Data with Intelligence. Accessed April 18, 2018. https://tdwi.org/webcasts/2012/07/big-data-and-business-intelligence-how-they-come-together.aspx.
3. “Big Data and The Future Of Accountancy: Challenges & Opportunities – Information Technology Association Of Canada”. 2014. Information Technology Association Of Canada. Accessed April 18, 2018. http://itac.ca/blog/event/big-data-and-the-future-of-accountancy-challenges-opportunities/.
4. Booth, Andy. 2016. “The Challenges Of Big Data For Management Accountants”. AAT Comment. Accessed April 18, 2018. https://www.aatcomment.org.uk/the-challenges-of-big-data-for-management-accountants/.
5. Boyd, Danah, and Kate Crawford. “Critical questions for big data: Provocations for a cultural, technological, and scholarly phenomenon.” Information, communication & society 15, no. 5 (2012): 662-679.
6. Chung, J.Y., Lin, K.J. and Mathieu, R.G., 2003. Web services computing: advancing software interoperability. Computer, 36(10), pp.35-37.
7. Cockcroft, Sophie, and Mark Russell. “Big Data Opportunities for Accounting and Finance Practice and Research.” Australian Accounting Review (2018).
8. H. Davenport, T., 2014. How strategists use “big data” to support internal business decisions, discovery and production. Strategy & Leadership, 42(4), pp.45-50.
9. Hannan, Adina. 2016. “Big Data Meets Accounting | Becker Pinnacle”. Becker Pinnacle. Accessed April 16, 2018. https://www.beckerpinnacle.com/accounting-and-finance/continuing-professional-education/big-data-meets-accounting/2016.
10. Ho, Gerry. 2017. “Big Data, Big Impact On Accounting”. Aplusmag.Goodbarber.Com. Accessed April 16, 2018. https://aplusmag.goodbarber.com/previous-issues/c/0/i/17867251/big-data-big-impact-accounting.
11. Vasarhelyi, Miklos A., Alexander Kogan, and Brad M. Tuttle. “Big Data in accounting: An overview.” Accounting Horizons 29, no. 2 (2015): 381-396.
12. Warren Jr, J. Donald, Kevin C. Moffitt, and Paul Byrnes. “How Big Data will change accounting.” Accounting Horizons 29, no. 2 (2015): 397-407.
13. Vasarhelyi, Miklos A., Alexander Kogan, and Brad M. Tuttle. “Big Data in accounting: An overview.” Accounting Horizons 29, no. 2 (2015): 381-396. ↑
14. Ho, Gerry. 2017. “Big Data, Big Impact On Accounting”. Aplusmag.Goodbarber.Com. Accessed April 16 2018. https://aplusmag.goodbarber.com/previous-issues/c/0/i/17867251/big-data-big-impact-accounting. ↑
15. Chung, J.Y., Lin, K.J. and Mathieu, R.G., 2003. Web services computing: advancing software interoperability. Computer, 36(10), pp.35-37. ↑
16. H. Davenport, T., 2014. How strategists use “big data” to support internal business decisions, discovery and production. Strategy & Leadership, 42(4), pp.45-50. ↑
17. Cockcroft, Sophie, and Mark Russell. “Big Data Opportunities for Accounting and Finance Practice and Research.” Australian Accounting Review (2018). ↑
18. “Big Data And Business Intelligence: How They Come Together | Transforming Data With Intelligence”. 2018. Transforming Data With Intelligence. Accessed April 18 2018. https://tdwi.org/webcasts/2012/07/big-data-and-business-intelligence-how-they-come-together.aspx. ↑
19. Warren Jr, J. Donald, Kevin C. Moffitt, and Paul Byrnes. “How Big Data will change accounting.” Accounting Horizons 29, no. 2 (2015): 397-407. ↑
20. Hannan, Adina. 2016. “Big Data Meets Accounting | Becker Pinnacle”. Becker Pinnacle. Accessed April 16 2018. https://www.beckerpinnacle.com/accounting-and-finance/continuing-professional-education/big-data-meets-accounting/2016. ↑
21. Booth, Andy. 2016. “The Challenges Of Big Data For Management Accountants”. AAT Comment. Accessed April 18 2018. https://www.aatcomment.org.uk/the-challenges-of-big-data-for-management-accountants/. ↑
22. Boyd, Danah, and Kate Crawford. “Critical questions for big data: Provocations for a cultural, technological, and scholarly phenomenon.” Information, communication & society 15, no. 5 (2012): 662-679. ↑
23. “Big Data And The Future Of Accountancy: Challenges & Opportunities – Information Technology Association Of Canada”. 2014. Information Technology Association Of Canada. Accessed April 18 2018. http://itac.ca/blog/event/big-data-and-the-future-of-accountancy-challenges-opportunities/. ↑
24. “Auditors And Accountants Meeting Challenges”. 2018. ACUITY. Accessed April 18 2018. https://www.acuitymag.com/business/auditors-and-accountants-meeting-challenges. ↑