Technology-Based Assurance (TBA)

I have a proposal to make. My research in auditing has been driven by my obsession with TBA. I have been on numerous seminars with the Big Four and have read a treasure trove of documents on TBA. Here is the disconnect, large accounting firms have stated that the audit/accounting professions need for accountants and auditors will remain the same going forward. Nonsense.

The reason accounting firms say there will be no change in the number of professionals in the data-centric world of now, is that their business model would have to change. Audit/Accounting firms business model is that money flows up to the partners. Audit professionals, for the years 0-3 in their career, are billed out at $120 to $140 an hour. Entry level accounts from universities generally start at $60,000 to $65,00. The excess of that money goes for infrastructure and partners. Do the math, the operating profit margins earned by accounting firms is similar to investment banking, which are in the 30% to 50% range. Taking 30% X $120 = $36 per hour for all the professionals within a partner's domain. How large of a disconnect to you need in making a determination between value creation and value capture.

Accounting firms have neither have the means or the will to disrupt their business model. When you are are successful you adopt their skill-sets of professionals above you so that you can fit the organizational hierarchy until the cycle is complete. That is how accounting firms have operated in the US and the world since the 1800's. Think of the tale of Ebeneezer Scrooge in Dicken's "A Christmas Carol". Hasn't changed at all. Partners (owners) capture an outside amount of the value created by their employees.

The economic difference in the present time and into the future, compared to the past, is that information technologies are dramatically changing all company's business models. Their are only two professions that are presently operating in industrial era business models. These are professional service firms and colleges and universities. (Academe in the world operates under the model of the 1500's. Say that to yourself out loud.) In the words of Bob Dylan The Times The-Are a Changin'. In my view, evolutionary theory has been distorted to men only the survive. Painfully wrong. It is those that adapt that survive. It applies to animals, humans, and organizations, and will never ever change.

Here is my request. Technology-Based Assurance and Accounting is in the here and now. Here is, in my view, the future for Acct/Audit professionals. Robotic Process Automation will be programmed with smart contract software that embed machine learning into the software robots. Think of a system with a centralized robot called the general ledger and the income statement and balance sheet accounts all having being subsidiary robots. Note, that since the software consists of machine learning that uses predictive analytics to produce outputs is the exact same thing that we do now. Using models to predict outcomes. The acct/audit process does not change it is the technology that changes. Acct/audit processes can can be somewhere between 95% to 99% effective and efficient. In fact iPath and Blue Prism do that right now. They lack the audit/acct knowledge to construct a general ledger and an audit plan. I have emailed them both and asked to partner with them and they weren't interested. Their loss. That is where we come in as professionals. There is zero doubt that we could build both the data platform and the machine learning software. The biggest obstacle I encounter from both my academic professional contacts is that large accounting firms are working of this and disrupt themselves. Not even remotely true. General Motors announced that they are going all electric in 2035. Tesla's market cap is greater than all the world's automobile companies. Enough said.

I have taught accounting, auditing, strategy, and entrepreneurial management. I all those courses at the Carlson School of Management at the university of Minnesota as well as developing and conducting 100's of Executive Education Seminars I have had one and only one focus. Everything in business has laser like focus on the business model which is the firm's customer value proposition, that is it, there really is nothing else. All business activities follow that concept. To do otherwise, doesn't just welcome failure it opens the door and invites failure to be part of the decision-making.

Accounting and Audit professionals have a unique gift that has been bestowed upon us by our diligence of effort and the focus on how businesses function/work. No other function does that for the business. Accounting is the art and science of designing information systems that are both effective Doing the right thing. And efficient, doing the decision, the right way. It illogical and potentially harmful if we assume the machine learning and artificial intelligence will not dramatically alter the business ecosystem for professional accountants, particularly for the employment opportunities going forward. The absolute best empirical research done on this profound truth is this. Acct/Audit employment will decrease by 94% in the near future. That is what you are presently doing. The argument is always, we will need professional acct/audit professionals "professional judgement". Problem is that term means what ever you want it to mean. In addition, no empirical research that doesn't use academic and business leaders, who have an almost insurmountable conflict of interest disputes than truth. Audit professionals know it means one thing, for somewhere north of 95% of the preparation and audit of financial statements involve acct estimates, upon which we use our model to forecast. Machine learning which is presently available can do the same thing. What we need presently is acct/audit professionals to merge to technology acct/audit frameworks. The organizational/information systems design for business will incorporate one fact, a single professional will be equipped to understand the software programs that will be by produced by information technology professionals of 15 to 20 audit/accounting professional employees. An audit professional or company manager does about 5.

Those startling transaction cost are incorporated as costs in the customer value proposition. Over the last 30,000 years of civilization there has been one immutable law of economics. Organizations that reduce transactional costs with sellers WIN, because they adapt, to the customer value proposition, deliver the most value so the lowest perceived cost. Here is what I am requesting. I would like to develop, with like minded souls, technology-based assurance and accounting software systems that are fully automated. The services that could be renders to organizations are limited only by our imagination.

In you interested in this concept in any way, writing articles, books, or in any other medium, or what I believe has the most value-add for service users--developing systems and modules that they can adopt. As they say "my tractor ain't getting no traction". Welcome colleagues.