What is Accounting Automation?
Understanding the numbers
When reviewing job growth and salary information, it’s important to remember that actual numbers can vary due to many different factors — like years of experience in the role, industry of employment, geographic location, worker skill and economic conditions. Cited projections do not guarantee actual salary or job growth.
Accounting has been a key part of businesses for centuries, helping show a company's financial health. Today, how you manage financial transactions has changed.
"Originally, every step in the accounting process was done by hand,” said Nathan Gay, MSA, CPA, an adjunct accounting instructor at Southern New Hampshire University (SNHU) who has spent over 25 years working in governmental, non-profit and grant accounting. “With automation, the most time-consuming parts of accounting are analyzing transactions and entering them into the system."
As the demand for real-time data and efficient processing grows, accounting automation will become more relied upon for its efficiency and precision.
What are Accounting Information Systems (AIS)?
Accounting has always valued accuracy, organization and trust. Traditional accounting systems were relied on by businesses to record financial transactions, but as industries evolved and the pace of business quickened, the need for more efficient systems became evident.
Embracing the wave of technological advancement, AIS rose to the forefront, offering a modern solution to the age-old challenges.
"Accounting information systems are the way accountants keep records. Today, we always think of automated systems from QuickBooks, FreshBooks, and the like,” said Dan Puhl, CMA, CPA, an adjunct accounting instructor at SNHU with over 20 years of experience with AIS, including leveraging it to build a multi-million dollar business.
“An automated accounting information system is a database. Databases are merely collections of spreadsheets — in accounting, one for each account," he said.
Traditionally, accounting is about organizing business documents in chronological order, said Julia Blockberger, MBA, CPA, an adjunct accounting instructor at SNHU who has experience working with AIS. Blockberger worked in a bank's data processing center, and has sold and installed accounting software to clients, while also providing consultation to those wanting to learn more.
By leveraging AIS, accountants can now get instant generation of financial statements and real-time data analysis, she said. When data gets entered into sophisticated systems capable of completing several tasks at once, the accounting process gets effortlessly streamlined, said Gay. With AIS the traditional accounting principles mesh with modern technology to create an optimized accounting process.
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The Transition from Manual to Automated Accounting
In the past, accounting was done in ledgers filled out by hand. While rooted heavily in detail, manual accounting was a lengthy process with its own challenges.
Puhl said that generating financial reports, identifying errors and conducting audits of paper-heavy accounting systems was very time-intensive, and as a result, manual accounting has often led to prolonged decision-making.
"Manual accounting is labor intensive, and (you) are not able to make timely decisions to adjust production or pricing," said Blockberger.
Accounting automation has simplified the traditional accounting steps. Now, after you enter the initial data, software can take care of the rest, from journal entries to financial statements, Gay said.
There are many reasons for the shift to accounting automation. One of those benefits is time efficiency.
Blockberger said that automation offers immediacy — you can now review financial statements, cash flow analysis and even intricate financial ratios daily. For businesses, this means the ability to respond to economic changes almost instantaneously.
There are three other benefits, as reported by Fyle in The Ultimate Guide to Accounting Automation for Business in 2023:
- Reduced risk of errors: According to Fyle, computers, devoid of human dependence, can handle massive calculations and ensure data is automatically updated and accurate whenever needed.
- Secure, centralized storage of information: Centralized storage in accounting offers a consolidated platform where all financial data and related documents can be accessed swiftly and securely, according to Fyle. This uniformity simplifies data management, promotes consistency in financial reporting and enhances collaboration among accounting professionals. When you house all data in one place, you can implement backup and security measures more effectively, ensuring the integrity and safety of financial information.
- Improved cash flow management: Improved cash flow management is pivotal for businesses, allowing for more precise forecasting and real-time analytics instantly, according to Fyle. By closely monitoring and optimizing cash inflows and outflows, companies can mitigate financial risks, ensure timely settlements of liabilities and capitalize on growth opportunities.
Besides these benefits, automation may also open new opportunities for accountants. With some routine tasks handled by software, accountants can pivot towards more strategic roles, such as data analysis, trend predictions and financial forecasting.
Which Parts of Accounting Are, or Will Be, Automated?
The effects of automation in accounting are far-reaching, evolving existing roles and presenting new opportunities and challenges. With the development of new technologies, several tasks are either already automated or on the cusp of being so.
Puhl said one significant shift has been in "transactional" jobs. Processes like vendor invoicing, which were previously manual, can now be directly input into systems by vendors, thereby eliminating intermediate roles in accounts payable.
The rise of barcoding and scanning has revolutionized the sales and inventory sectors. The immediate recording of sales and the automated queueing of materials for reorder are just the tips of the automation iceberg. These advances not only streamline processes but also ensure real-time updates and accuracy.
However, the transition isn't merely about replacing manual tasks. It's about elevating the role of accountants. As tasks become more automated, the scope for accountants to take on more analytical functions becomes evident.
Blockberger said the real fun in accounting now lies in data analysis. With tools and software at their disposal, accountants can indulge in horizontal trend analysis, ratio analysis and other deep dives that were previously too time-consuming.
Gay further envisions an intersection of accounting and software development. With the increasing reliance on accounting software, there's an emerging demand for accountants with tech skills.
Automation is not just a trend; it's the evolution of the accounting field. As the boundaries of what can be automated expand, the accounting profession continues to learn about the new opportunities and challenges that come with it.
So, What Are the Risks of Accounting Automation?
While the advantages of accounting automation are substantial, it's important to understand the potential challenges that may arise too.
- Data Security Concerns: At the top of the list is the issue of data security. With businesses relying heavily on online databases, the threat of cyberattacks looms. "Whenever you put something on a computer, someone can get in and change it," Puhl said. The interconnectedness of the internet means data breaches, hacking and phishing attacks are concerns. Defending information requires significant investment, both in terms of finances and technology.
- Potential for Oversights: The very efficiency of automated systems can sometimes be their Achilles' heel. Blockberger recalled an instance where a client's system accepted a transaction dated back to 1920 without flagging it as an error. Minor oversights emphasize the need for internal controls in automated systems. Relying solely on the software without periodic checks could lead to such mistakes going unnoticed.
- Human Touch and Reasoning: No matter how advanced our systems get, the human touch remains irreplaceable. As Gay said, the manual review and analysis will always have its place. AI might handle fundamental decisions and processes, but algorithms can only partially replace the intuitive understanding, reasoning and validation humans bring. For example, some situations you might want to be handled by humans, such as deciding if a transaction makes sense or determining the importance of specific financial actions.
Professionals and businesses can navigate automation with informed caution. The promise of efficiency and accuracy can be balanced with proactive measures to address potential challenges.
Will AI Replace Accountants by 2030?
With advancements in artificial intelligence (AI) and machine learning, there's excitement and apprehension about the future. The question lingers: Will AI replace accountants by 2030?
While AI and automation aim to streamline further and optimize accounting processes, they are unlikely to take over accounting completely. The Bureau of Labor Statistics (BLS) expects accounting jobs to increase by 4% for an additional 67,400 jobs from 2022 to 2032.*
Accounting usually needs a personal touch, Blockberger said. You need to use your judgement to decide if the transactions you're recording make sense for what you need.
As much as AI can compute, analyze and predict based on vast data sets, the multifaceted role of an accountant goes beyond mere number crunching. Accountants are advisors, strategists and partners in financial decision-making. Their insights, derived from experience, intuition and data, provide context that raw AI-driven results often won't offer.
"Humans create the programs for retrieving required information. Humans analyze data for decision-making," Puhl said.
The job of accountants is changing. The repetitive, transactional tasks will increasingly fall under AI's domain, allowing accountants to focus more on value-added services and consultancy roles. This shift isn't about job elimination but rather job transformation.
*Cited job growth projections may not reflect local and/or short-term economic or job conditions and do not guarantee actual job growth. Actual salaries and/or earning potential may be the result of a combination of factors including, but not limited to: years of experience, industry of employment, geographic location, and worker skill.
Nicholas Patterson ’22 is a writer and alumnus of Southern New Hampshire University (SNHU), where he earned his bachelor’s degree in English and creative writing. He is currently honing his craft further as he pursues an MFA in Creative Writing from SNHU. Connect with him on LinkedIn.
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