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Technology Trends Impacting the Finance Function and the Profession – An Overview

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Presentation given during the IFAC Professional Accountants in Business Committee meeting on tech trends and their impact, and disruption, of the finance function and accounting/accountancy. Presented as an overview and collection of resources.

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Technology Trends Impacting the Finance Function and the Profession – An Overview

  1. 1. Page 1 | Proprietary and Copyrighted Information Technology Trends Impacting the Finance Function and the Profession – An Overview An Overview and Resource Professional Accountants in Business Committee March 29-30, 2017
  2. 2. Page 2 | Proprietary and Copyrighted Information Overview of this Slide Deck • Objective: Provide a broad overview of developments in technology relevant to finance and accounting, and the work of professional accountants in business • Contents – What are the main technology and digital trends? • Data-Led Evolution and Revolution • Blockchain • Internet of Things • Artificial Intelligence and Machine Learning • Fintech • Implications for finance, accounting, accountants in business
  3. 3. Page 3 | Proprietary and Copyrighted Information Data/Information explosion Capturing unstructured data Cognitive business Cloud computing and the API economy allowing agility and speed Digitalization High speed low cost networks Penetration of mobile • Mobile – anywhere access and changes the way people interact • Data explosion – massive quantity of structured and unstructured data • Cognitive business enabled by data & internet of things, artificial Intelligence & robotics/machine learning and carrying out intelligent tasks • Cloud – tech resources provided remotely and Application Programming Interfaces (APIs) enabling connectivity of applications to transfer data Three Significant Interconnecting Trends
  4. 4. Page 4 | Proprietary and Copyrighted Information Digitization and Technology Relevant to Finance & Accounting
  5. 5. Page 5 | Proprietary and Copyrighted Information Data-Led Evolution and Revolution • 90% of data available today did not exist 2 years ago • Rapid increase in computing power and machine learning • Internet/web enabled • Actionable insights from data needed • Key areas and terms – Data science – Data analytics & data-driven decisions derived from big data (operational data arising from many sources, such as point of sales, sensors, transactions, etc.) – Business intelligence – Data integration and democratization (to front line users)
  6. 6. Page 6 | Proprietary and Copyrighted Information The Internet of Things – Developing Quickly • Digitization of the physical world (machines, vehicles etc). Extreme rise of connected and sensorized objects (examples of use cases, McKinsey) – Capture data through sensors – Transmit through Internet – Link to transactions - recorded and managed in Blockchain • Transforming business models, e.g., General Electric moving to a digital industrial business model
  7. 7. Page 7 | Proprietary and Copyrighted Information Artificial Intelligence (AI) and Machine Learning • Significant progress in way computers learn & the way robots react to their environment involving computer based – Vision and speech recognition – Natural language processing • Changes how humans interact with machines covering a range of areas – E.g., transportation, healthcare, education, and workplace – See “Exploring Artificial Intelligence & the Accountancy Profession: Opportunity, Threat, Both, Neither?
  8. 8. Page 8 | Proprietary and Copyrighted Information Artificial Intelligence (AI) and Machine Learning • AI Machines able to augment human tasks and decisions • Machine learning The application of AI allowing machines to access data and learn for themselves
  9. 9. Page 9 | Proprietary and Copyrighted Information Cognitive Computing • Augment people decisions by providing evidence base • Elevates and amplifies human cognition • Finding knowledge in vast amounts of unstructured data at enormous scale • Reasoning, inference, and extraction based on – Vast data sources, public, private, other – Algorithms and computation – APIs covering language, speech, vision, reasoning & empathy etc • Broad business applications - health, engineering, banking, F&A, audit
  10. 10. Page 10 | Proprietary and Copyrighted Information AI and Cognitive Impact on Finance and Accounting • Many F&A tasks are prime for automation by intelligent learning systems – e.g., repetitive finance tasks and processes within procure to pay, order to cash and record to report • Financial reporting audit – Automation of evidence gathering and production of reports and potential to provide additional insights of value to audit committees e.g., minimizing fraud
  11. 11. Page 11 | Proprietary and Copyrighted Information AI and Cognitive Impact on Finance and Accounting • Natural language software to humanize and simplify analysis of data and gain deeper insights • Cognitive forecasting to help leverage data and be more predictive and accurate
  12. 12. Page 12 | Proprietary and Copyrighted Information AI and Ethics • A variety of ethical issues – Who is responsible when AI fails? Who makes difficult choices, such as a driverless cars choosing between two bad outcomes? – Confidence in underlying data sources – Data protection and privacy – Augment or replace humans? – How does the profession support those whose skills become obsolete? – What skills are needed to engage with cognitive systems and other technology? • See PwC report: Ten Digital Trust Challenges
  13. 13. Page 13 | Proprietary and Copyrighted Information Blockchain – A Distributed Ledger • Allows people who do not know each other to trust a shared record of events • A shared record, or ledger, distributed to all in a network who use their computers to validate transactions • Decentralized and distributed – all transactions recorded (with audit trail), viewed & monitored in real time – Faster, cheaper, transparent and trustworthy – Does not require intermediaries to authenticate & settle transactions • Use of Blockchain being explored in many areas – Cryptocurrencies and peer-to-peer payments – Accounting records and processes; tax
  14. 14. Page 14 | Proprietary and Copyrighted Information Blockchain – Characteristics • Shifts paradigm from information held by a single owner to the lifetime history of an asset or transaction • Potential to enhance accounting, which currently aggregates data at high level, leading to low data visibility – Historically aim has been to reduce costs because of memory and capacity constraints – Future allows full visibility
  15. 15. Page 15 | Proprietary and Copyrighted Information Blockchain – Characteristics • Will allow full transparency on transactions • Credibility of financials is based on the legitimacy of every transaction • Credibility and trust need not arise from a published set of financial statements • Business world today is based on having a position or balance
  16. 16. Page 16 | Proprietary and Copyrighted Information Blockchain – Implications for Procure-to-Pay • Accenture report - Blockchain transactions would feed directly into the GL for accounting and reporting purposes – Prevent fraud through embedded authentication rights along PTP chain – Quicker purchase order mgt – including vendor searches, PO and good/receipt processing – Invoice processing transformed – invoice scanning no longer required; reconciliations streamlined – Advance settlements given complete and real-time transparency by all users to the shared database – Audit trail based on all parties registered in the ledger, transactions stored and with a tamper-proof audit trail
  17. 17. Page 17 | Proprietary and Copyrighted Information Blockchain Development Path • Nascent technology at development stage – Significant applications of Blockchain yet to be seen – Current stage of development– like the Internet was in the early 90s • Most large financial institutions and the accounting firms innovating with Blockchain technology – e.g., ING • Survey of IBM Institute & Economist: 1 in 7 financial companies expect to have blockchains in production & commercial in 2017
  18. 18. Page 18 | Proprietary and Copyrighted Information Blockchain Development Path • >50 of world‘s largest banks are in a consortium to develop Blockchain solutions • IBM is part of the open source initiative: https://www.hyperledger.org/ • Other types of distributed ledger technology exist outside of Blockchain e.g., Hashgraph
  19. 19. Page 19 | Proprietary and Copyrighted Information Blockchain – What Next? • Likely to develop rapidly in "permitted" environments to avoid current security concerns • Deployment speed dependent on sector, application and development of governance – Finance versus other sectors – Accounting and finance – Governance & trust of Blockchain & digital currencies needs to be developed – Implication for financial regulation needs to be considered
  20. 20. Page 20 | Proprietary and Copyrighted Information Blockchain – Additional Resources • Introduction to Blockchain technology http://tinyurl.com/kjeosuo • The Future of Blockchain www.charteredaccountantsanz.com/news-and- analysis/insights/future-inc/the-future-of-blockchain • Blockchain: How this Technology Could Impact the CFO www.ey.com/gl/en/industries/technology/ey-how-blockchain- technology-could-impact-the-cfo • Audit Futures, Unchaining the Blockchain www.auditfutures.org/pdf/AuditFutures-Panorama-1608- UnchainingTheBlockchain.pdf
  21. 21. Page 21 | Proprietary and Copyrighted Information Financial Technology Companies – Fintechs • Start-ups threatening established banking business models in providing peer-to-peer financial services • Link to sustainable development through financial inclusion – Reducing cost of payments and increasing access to capital • Fintech applies to banking, payments & wealth mgt – Data driven lending – Match borrower to saver directly • Citi GPS What Fintech Investments Tell Us – China accounted for >50% total Fintech investments globally in ‘16 – Fintech investments declined in US and Europe – Chinese investment focused on business model innovation
  22. 22. Page 22 | Proprietary and Copyrighted Information Fintechs • Industries where Fintech is changing the game http://tinyurl.com/grjs3m4 • ACCA Fintech report http://insights.accaglobal.com/contents_page/fintech_content s/pugpig_index.html • How Banks can keep up with digital disruptors http://knowledge.wharton.upenn.edu/article/banking-and- fintech/ • International Organization of Securities Commissions (IOSCO) Research Report on Financial Technologies
  23. 23. Page 23 | Proprietary and Copyrighted Information Key Themes and Case Studies Explored by the PAIB Committee • Moving financial systems to cloud – ex., Amex Business Travel • Automation and robotics – Ex., Shell finance shared services • Cognitive business – transforming customer service and compliance – ex.: Westpac • Tech enabled analysis and information presentation – Ex., Australia Post • See PAIB Committee meeting reports: www.ifac.org/paib
  24. 24. Page 24 | Proprietary and Copyrighted Information Implications
  25. 25. Page 25 | Proprietary and Copyrighted Information CFO/F&A Function – Implications • How does the F&A function complement other functions and the overall operating model? – CFO/CIO relationship will be critical – Evolution of the finance operating model – who does what & where? • Link to audit quality and efficiency – Continuous audit: driving up audit quality at much lower cost, and identify opportunities to improve business performance • Need to be more responsive to risk and uncertainty – Enhancing opportunity/risk and performance awareness at board and management levels – Cyber security and related risks
  26. 26. Page 26 | Proprietary and Copyrighted Information CFO/CIO Relationship Critical • CFO/CIO relationship – helps ensure IT investment drives business value – Provides a holistic view of the digital threats and opportunities facing the business – Connects teams and breaks down siloes, e.g., product development teams, data management, finance function, IT, & marketing cannot work in siloes • EY CFO-CIO relationship survey http://tinyurl.com/jrf5bfr – CFOs increasing collaboration in the IT agenda – Managing costs and profitability – CFO‘s insufficient understanding of IT issues is the main barrier
  27. 27. Page 27 | Proprietary and Copyrighted Information Technology and Integrated Reporting • Tech has a critical role in supporting integrated thinking and reporting processes to ensure that both management and external reporting are fit for purpose • See International Integrated Reporting Council Technology Initiative: – http://integratedreporting.org/ir-networks/ir-technology-initiative/ • Key questions include: – Do information systems cover all relevant capitals and performance areas? – How do you avoid siloes? – How do you standardize data definitions?
  28. 28. Page 28 | Proprietary and Copyrighted Information Providing Leadership in a Digital World – Additional Resources • ICAEW – Providing Leadership in a Digital World www.ifac.org/global-knowledge- gateway/viewpoints/providing-leadership-digital-world • Digital Darwinism: Thriving in the Face of Technology Change www.accaglobal.com/gb/en/technical-activities/technical- resources-search/2013/october/digital-darwinism.html • IFAC PAIB meeting reports covering technology www.ifac.org/about-ifac/professional-accountants-business
  29. 29. www.ifac.org

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