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

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Technology Trends Impacting the
Finance Function and the
Profession – An Overview
An Overview and Resource
Professional Accountants in Business
Committee
March 29-30, 2017

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

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

Digitization and Technology
Relevant to Finance & Accounting

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)

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

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?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Implications

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

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

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?

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

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