Guest post written by Ben Cornforth – FinTech Expert, Helping Finance & Accounting Teams Transform their Organizations through Risk Intelligent RPA
Having spent more than a decade in and around Finance and Accounting (F&A) technology, I have had the incredible pleasure of witnessing the various changes impacting our chosen profession; dozens of emerging, maturing and fading fads.
Years ago, before the days when thoughts of documenting Internal Controls for S404 or HMRC filled us with dread and kept many of us awake at night, the term “Virtual Close” (Harvard Business Review, 2001) was coined. The premise was that well-run F&A organizations should seek to engage in multiple “soft closes,” perhaps weekly — and maybe even daily — in order to attempt to reduce the level of effort at the period end while detecting and addressing internal control issues before the intensity of the close itself. Steven Bragg’s informative book, Fast Close, helped to provide some practical steps that transformative F&A executives might take to capture the benefits of the Virtual Close.
On the technology front, first generation software tools began to appear in 2006-2007, initially to help support the documentation and monitoring of key controls during the period end, and then later to assist companies in embracing the promised benefits of the Virtual Close. It was at this intersection of business process transformation and technology that begat the concept of “Continuous Accounting.” From a business process perspective, Continuous Accounting (CA) represented the notion of a more frequent tempo for activities, as well as a reduced focus on the period end as the only time during which work may be performed—quite consistent with the concepts associated with the Virtual Close. Where CA differed from its predecessor was in the use of technology. From a technology perspective, CA largely represented the transition from general office automation tools such as email, Microsoft Word and Excel, and others toward dedicated, cloud-delivered & workflow-enabled solutions. The primary purpose of these tools was to reduce the governance exposure associated with the office automation tools and to provide a general framework and workflow for the business process itself. Through the use of templates, as opposed to spreadsheets, companies could ensure that work was being performed in a timely and accurate manner. In most respects Continuous Accounting delivered, and continues to deliver on the notion of a “smoother” and less intensive period-end, reducing the stress on the organization during the period-end close activities.
That said, there remains one very important, and perhaps troubling dependency…. Continuous Accounting is still a human-centric endeavor, with accounting professionals engaged as the centerpiece of the activity itself. At its core, in most CA deployments humans are still delivering most of the work, manual reconciliations are still prepared and approved by humans, journals are still approved and signed off prior to posting, and close tasks are manually checked off as work is completed. True, the relatively primitive workflow in most CA tools does reduce some human effort. However, the fact remains that in Continuous Accounting, as it exists today, the humans are still doing the heavy-lifting.
In fact, many Finance & Accounting organizations are already recognizing that for all of its positives, Continuous Accounting falls short in one critical area… it does not deliver on the expectations around quantifiable Return on Investment. Consider that most anecdotes around CA detail the soft, or qualitative, benefits associated with standardization—email reminders and a reduction in reliance on spreadsheets. They mention that performing the work earlier in the period reduces the stress on the F&A organization and helps support morale. All of this is true. F&A is better off for having CA. The challenge now, years into Continuous Accounting, is what’s next? Business leaders, ever-mindful of their profitability and desire to scale without having to hire in a linear fashion want to know, “Where is the ROI…where is my leverage…how can I really do more with less?”
The Return on Investment (ROI) exists within Continuous Accounting’s emerging successor, referring to Autonomous Accounting. In fact, I contend that we are on the precipice of an Autonomous Accounting sea-change that will wash over the back-office in the same way that the robotics revolution re-cast the shop floor of traditional manufacturing in the 1970s. In fact, best performing F&A teams are already embracing Autonomous Accounting, through early investments in Robotic Process Automation (RPA), Rules-Based Artificial Intelligence (AI) and Machine Learning (ML) technology. And, why not? According to the Hackett Group’s study published in April 2018, estimates are that Autonomous Accounting initiatives could, “deliver 60-80 percent savings while also achieving significant improvements in quality, productivity and speed.”
Early RPA, AI and ML solution providers have come to market primarily offering tool kits, which may be used by internal Information Technology (IT) resources or external consultants to create bespoke automation routines. It’s a wonderful first step. But where Autonomous Accounting really hits its stride is when the automation, business rules and predictive analytics are codified in a purpose-built application, specifically for Finance and Accounting. Consider that, relative to most other functions in the modern enterprise, F&A, and particularly Record to Report (R2R), is largely a rules-based exercise—particularly if your firm is a US-GAAP (United States Generally Accepted Accounting Principles) filer. These rules tend to follow simple Boolean statements, such as “if these conditions apply, then do the following things.” Although they can be, and often are, complex in nature, for the most part, they can be readily understood and are relatively easy to encode in a technology solution.
Interestingly enough, those leading the efforts around Autonomous Accounting are already seeing some genuinely eye-popping ROI through Autonomous Accounting, which foreshadows the previously mentioned sea-change. For example, Trintech recently commissioned a survey of their 3,000+ clients and reported some awe-inspiring results for those clients who have adopted their Risk-Intelligent RPA (RI-RPA)-enabled solutions. The results are compelling, to say the least, as these clients achieve all of the benefits promised by CA, but with ROI and hard-savings that makes the investment by enterprises easy to justify.
Some of the outliers for Autonomous Accounting make for fascinating reading as well. Consider the large, international non-profit that was able to reduce the number people engaged in daily reconciliation activity from over 100 to just one person! Or, the multi-national Athletic Apparel manufacturer that eliminated the manual preparation of over 45% of their monthly reconciliations, while maintaining — and even improving — their balance sheet coverage. The data does not lie; the hard benefits are just too much to ignore; Autonomous Accounting is here to stay.
Now, this does not mean that accounting professionals are an endangered species. In fact, far from it. For the first time perhaps in the history of the profession, accountants will genuinely be valued for their analytic and deductive acumen, as opposed to their fluency around spreadsheets and willingness to work weekends. Many accountants fear that their jobs and livelihood are at risk, but that is not the case. The simple fact is that an accountant’s ability to interpret results from disparate data sets, create narratives and identify causal events is something that will continue to be a very rare skill set indeed, in fact well beyond current AI solutions. Autonomous Accounting does not mean that there is no human presence, it simply means that the human need not be the glue that holds the process together. As well, Autonomous Accounting ensures that our best and brightest are focused on those activities that have the most material impact on our business, and will allow us to be the true “strategic partner to the business” that we have always wanted to be.
The evolution from Continuous Accounting to Autonomous Accounting represents an exhilarating time for Finance and Accounting professionals, and a transformational moment in all of our professional lives. It’s time to start talking seriously about it instead of trying to fight against it.
Written by: Ben Cornforth
Edited by: Chelsea Downey