According to the 2016 State of Analytics and Data Science report published by data analytics firm Mu Sigma, 65% of senior business leaders surveyed in the United States believe that data analytics has influenced their business in a positive way.
As businesses increasingly try to position themselves to reap benefits from data analytics, accountants are also poised to play a leading role in managing that transition. Indeed, the same survey by Mu Sigma found that CFOs were the second largest group of executives who had overall responsibility for analytics at their workplaces, after Chief Information Officers (CIOs).
Accountants are at a distinct advantage when implementing data analytics not only because they have ready access to financial data. Often, they also have a keen understanding of how that data can help their companies retain a strategic advantage over competitors in the modern business environment.
Johann Xavier, the Regional CFO for Asia Pacific & Greater China for Saatchi & Saatchi, expressed a similar sentiment in a recent interview when he commented that the “new generation of CFOs should take advantage of their ability to derive more robust and revealing conclusions from the analysis of financial data.”
While data analytics presents a range of opportunities for accountants and their organizations, many have some way to go before they can extend their capabilities
Applications of data analytics in accounting
Data analytics can certainly play a key role in many aspects of accounting. Here are some ways that data analytics can enhance the work that accountants do and the contributions that they make to the wider organization:
- Boost competitiveness. Predictive analytics techniques can boost a company’s competitiveness and profitability by allowing accounting professionals to make more accurate and detailed forecasts.
Such forecasts enable the company to anticipate and react more quickly to market trends that would otherwise be difficult to foresee.
- Enhance financial reporting. Companies are increasingly moving towards the adoption of Integrated Reporting, which seeks to create “concise communication about how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value in the short, medium and long term,” according to the International Integrated Reporting Council.
More sophisticated data analytics tools can allow companies to link diverse financial and non-financial datasets and provide more comprehensive and rigorous reporting of their performance to shareholders and other stakeholders.
- Manage risks. Over time, the role of the accounting and finance function in managing risks has evolved from being one that is primarily focused on compliance and internal controls, to one where it is also equally likely to involve assessing risks arising from a diverse range of areas such as the regulatory environment, the supply-chain, or even business strategy.
Data analytics techniques such as continuous auditing and continuous monitoring can help accounting and finance professionals assess and manage relevant risk levels within their organizations.
- Identify fraud. Data analytics techniques are well-suited to detecting fraud. Emerging technologies in this area can allow a forensic accountant to quickly and effectively sieve through large volumes of transactions to identify anomalies in data which can often be indicative of fraudulent activity.
While data analytics presents a range of opportunities for accountants and their organizations, many still find themselves at the beginning of their journey, and have some way to go before they can extend their capabilities to fully reap the potential benefits.
Highlighting this, the Chartered Global Management Accountants recently surveyed C-level executives from 16 countries and found that almost a third of respondents feel that big data has made things worse, not better, for decision-making in their organizations.
Develop a clear plan – and leverage talent
To develop strong capabilities in data analytics that suit their needs, accountants, together with the rest of their organization, should first work to develop a clear plan that articulates how three key component parts – data, analytics, and people – can be strategically integrated and aligned to create business value.
In particular, building a strong data foundation is key to the success of any data analytics strategy. Planners need to identify external and internal data sets that will be needed for analysis, and also need to ensure that relevant data is treated and managed in such a way that allows it to be used across a range of analytics applications.
One way for CFOs to overcome the talent shortage is to assemble teams that, as a whole, possess all the requisite skillsets, rather than look for all those skillsets in a single individual
Achieving this often involves making considerable investments in new data capabilities, and may also require substantial reorganization of existing data architectures.
A good data analytics strategy should also address the potential trade-offs that a company must inevitably make between the time or cost that it takes to implement data analytics and the potential business value that can be generated from it.
Another critical but often neglected component of a successful data analytics program is the people who are tasked to run it. In order to maximize the value it extracts from data analytics, an organization must ensure that it leverages on talent with the appropriate skillsets and abilities.
Overcoming the talent shortage
Finance professionals must develop relevant skillsets in order to ensure that they continue to play a key role in driving data analytics initiatives within their organizations. This was recognized in a recent study of Singapore-based CFOs undertaken by accounting firm Ernst & Young and CPA Australia.
In anticipation of the accounting and finance function taking on greater responsibility for data analytics, the report identified “analysis and advisory skills” as one of the key skills that a forward-looking CFO needs in his tool-kit.
It further noted that “CFOs of the future will need analytical skills to enable them to find the areas where efficiencies can be gained.”
However, one key obstacle to raising data analytics capabilities in the accounting function is the global shortage of talent in this area.
A recent study by The Association of Accountants and Finance Professionals in Business and the recruitment firm Robert Half made clear that companies in North America face a huge challenge in hiring accounting and finance professionals who also possess requisite skills in both data analytics and accounting and finance.
In Singapore, the situation is no different, with the 2016 Harvey Nash/KPMG CIO survey recently identifying data analytics to be the most in-demand skill in Singapore for the second year running.
One way for CFOs to overcome the talent shortage is for hiring managers to look to assemble teams that, as a whole, possess all the requisite skillsets rather than try to look for all those skillsets in a single individual.
The creation of such multi-disciplinary teams would allow a group of individuals, each possessing specialized skills in data analytics, accounting and finance, or other technical areas, to work together to effectively execute the broader data analytics strategy.
Overall, there is a need for a greater push from accountants to embrace data analytics in all aspects of their work.
Whether in applying data analytics to provide more value in their current scope of work or in working with multi-dimensional teams to execute broader data analytics strategies, the accountant must expect to play a leading role as companies continue with their drive to incorporate data analytics into the way they run their businesses.
About the Author
Clarence Goh is Visiting Assistant Professor of Accounting (Practice) at the School of Accountancy, Singapore Management University.