New technologies such as Artificial Intelligence (AI), data analytics, Machine Learning (ML), and Blockchain will be becoming more and more mainstream in the coming years in the accounting industry. A report from the Institute of Management Accountants also indicates the same.
These technologies help accountants segregate the data in an organized way and extract key insights from the data, which was not possible earlier.
There are four key components that every CPA firm should possess to become data-driven – curious people, the right tools and technologies, quality data, and a supportive data-driven culture.
The Marriage of Accounting and Data Analytics
Data analytics’ real power isn’t in its speed of analyzing the data; its true power lies in the fact that it can reveal user behavior. As CPA firms deal with datasets from multiple organizations of various domains, the collaboration of the two seems inevitable.
There is unlimited potential in this collaboration – the number of accounting tasks that can be benefitted by a data-driven approach is huge.
For instance, data analytics is already transforming auditing – CPA firms are using ‘audit sampling’ to analyze data for trends or issues in invoices. The same approach can be used to identify issues or trends in similar datasets used for other purposes. Also, firms can apply data analytics on these issues for further analysis.
Before learning about the combination of both, let’s learn more about data analytics.
Types of Data Analytics
- Descriptive Analytics – This type of data analytics evaluates what is happening by categorizing the information. There are multiple financial transactions that accountants report, like sales tax, revenue generated, travel expenses, etc. Precise reporting is a measure of quality accounting and analyzing data is necessary for precise reporting.
- Diagnostic Analytics – This is used to analyze the changes in data and reason behind them. CPA firms need to analyze these changes to compare current performance with past performance. Such calculations are often used to evaluate trends and changes with time.
- Predictive Analytics – It is used to analyze financial data and predict future outcomes so that CPA firms can identify trends and build forecasts. When your firm predicts accurately, it gains the trust of clients.
- Prescriptive Analytics – This is used to make critical business decisions. CPA firms analyze the data to predict future opportunities for better growth or warn business owners of poor decisions.
How CPA Firms Can Use Data
1. Risk Identification
Companies need to function according to the market and under other influences. CPA firm owners need to understand that things will change from time to time. These can be frauds, regulatory alterations, company mergers, etc. So, their services should be designed in a way that complements their clients’ business performance.
CPA firms can take the help of Big Data and see the bigger picture. Big Data helps in predicting market trends, consumer behavior, purchase patterns, economic changes, and the like. It also helps in identifying frauds and risks, the sooner they are identified, the better are the chances of mitigating them.
2. Improve Business Performance
With intelligent (AI-driven) and real-time reporting, CPA firms can now collect and analyze data from multiple companies across the same market or industry. Rather than presenting meaningless PPTs and Excel sheets, they can easily showcase how and why their firm is better than the competition (based on data and performance).
This is the impact of intelligent and real-time reporting that can help firms achieve the numbers they desire. This is how your firm can become an expert in serving clients with specific demands from multiple niches and sell more rewarding services like budget forecasting.
3. Data-Driven Audits
Auditors have realized the importance of big data in easing their work. The traditional methods of auditing, like analyzing millions or billions of transactions, are long gone.
Some auditors still use such methods, data analytics, and visualization to perform a range of financial tasks. They can quickly identify any suspicious data or pressure points to predict unfavorable outcomes.
4. Improve Client Experience
The marriage of big data and cloud computing expands the capabilities of CPA firms exponentially. This collaboration means that firms can access the data hosted on the cloud servers in real-time, be more frequent in communications, and improve their relationships with their clients.
Big IT firms are not the only ones to access technologies such as cloud computing and Big Data. While they may play an integral part in developing such technologies, CPA firms can also leverage them and hire data scientists and tap into new business opportunities while improving their relationship with existing clients.
With the ever-increasing data, data analytics has become a necessity for CPA firms and their owners. They can do much more than just running numbers and filing taxes. They can help businesses grow, predict future market opportunities, warn them about fraudulent transactions, and much more.
Thus, if you wish to see your CPA firm at the top of the list, now is the time to leverage data analytics and Big Data.
Get in touch with our Solutions Consultant to know more. Call us at 855-223-4887.
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