In the recent past, the word ‘big data’ has been quite a buzz. But do you even know what big data is?
The definition of big data varies across various spheres. However, in general terms, big data is the collection of large and complex data that is hard to be analyzed using any traditional database or tool.
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It is also often referred to as data analytics or analysis.
Today, we have access to an unprecedented amount of data. Quite surprisingly, about 2.5 quintillion bytes of data are produced daily.
As per the IMA report, 62% of companies globally claim that big data plays a significant role in deciding the future of business.
The advancement in technology has enabled us to quickly analyze and derive new insights from the data. But what role does it play in accounting data analytics?
Insights from big data in accounting are an excellent opportunity for businesses to create strategies for their future planning.
Sectors like manufacturing, retail and services, and more were already trying to capitalize on big data to increase their work efficiency and assess risk factors. However, it has now spread to the accounting and financial sectors too.
Role of Data Analysis in Accounting
The rise of big data is the real game-changer. As per a survey conducted, 59% of employers agree that it will become necessary for finance and accounting managers to have data science and analytics skills by 2022.
Gone are the days when accounting professionals were only responsible for making and filing entries.
The finance team is now also responsible for extracting insights from financial data to help strategically plan business moves and drive operational efficiency. It’s safe to say that bookkeeper has now evolved into a strategic business partner.
Before the big data, finance departments used to only analyze the data using software or the known techniques to calculate profitability and return on investment. This could be done using traditional tools such as spreadsheets.
However, now they are required to analyze semi and unstructured data from other departments with the help of predictive analytics software.
Data Analytics for Accounting | Accountants as Data Scientists
An accountant is accustomed to organizing and summarizing data to give an overall view of the company’s performance. They summarize the details of each transaction, which qualify them to understand data analytics skills better.
Besides, while drawing the company’s performance status, they can easily study the statement and see the larger context.
In other words, they can make decisions after drawing insights from data analysis. They understand the context of your business from depth, which allows them to reach a business implication.
Most importantly, they understand the different types of data analysis involved –from descriptive to predictive and prescriptive analytics. They can easily jump from descriptive analytics to predictive ones and provide necessary information for making key business decisions. In essence, they have the mindset of a data scientist, studying your business data and reaching a conclusion.
Importance Of Data Analytics in the Accounting
The financial sector is one of the most data-intensive sectors in the global economy. So the impact of big data in accounting will be naturally enormous.
Data-driven Audits
Source: nsktglobal.com
One of the best examples of the impact of accounting data analytics is to see how it is changing auditing.
Auditing is now much more than the analysis of the income statement and the balance sheet. Moreover, in the past, an auditor might have had to manually scan through big files to monitor for risks. However, the advent of technology and data analytics has revolutionized how auditing is done. An auditor can now easily assess a large volume of unstructured data, such as emails, formal company records, and more by using technology.
Risk Identification and Management
Companies have to regularly identify and assess the risk factors that affect their business performance.
Risks in financial services are generally associated with mergers and acquisitions, fraudulent activities, supply-chain risks, and much more. The advantage of big data analytics in accounting is that it can help significantly improve risk management by analyzing customer behavior, predicting shifts in economic trends, and much more.
Some of the examples of risk management include liquid risk management, credit risk management, card fraud detection, and more.
For instance, by analyzing the card transaction patterns, which include the amount, timing, location, and more, an accountant can identify fraudulent transactions and block the card.
In the case of liquid risk management, big data can give deep insights into the incoming and outgoing cash flow. The insights can be used to optimize liquidity management, which can be a great help for the overall management of the bank.
Similarly, banks can reduce credit risk by analyzing transaction history, public information like annual reports of companies, and more. Based on these analyses, banks can improve credit models for both individual and corporate customers and help them better manage the collateral of credits.
The sooner the accountants are able to identify these risks; the better is the chance of mitigating them.
Provide Real-Time Reporting
Another significant impact of accounting data analytics is the advent of cloud technology and real-time reporting tools.
Integrating big data and cloud technology has enabled accountants and auditors to provide real-time insights to their customers. They aren’t limited to analyzing financial records on a monthly, quarterly, or annual basis. With the availability of big data in real-time, accountants can now provide timely insights.
Besides big firms, even small firms are trying to leverage the benefits of big data in accounting. Companies like Xero are providing cloud accounting software to small businesses to help them tap into the possibilities of big data in accounting.
Increase the Efficiency of Acquisition
We often resort to mass marketing campaigns to promote business offerings. However, in today’s time, every marketing channel is overloaded with campaigns. So how do you make your campaign effective?
Big data can help target the right set of audiences through the right channel and the right message. Using big data, you can easily segment prospects based on the existing customer base. It allows you to target the right audience. And based on the segmentation of the prospect/target audience, you can determine the best media channel for the marketing campaign. It could be via email, radio, social media platforms, and more.
Besides, it can help you with the personalization of messages and identifying influential customers that can help spread awareness about your financial services.
Improve Client Experience
The role of big data in accounting is not limited to creating future strategic planning but also optimizing customer relationships.
Data analysis in accounting gives you a clear view of the customer information, including their family information, bank details, history of their transactions and inquiries, and more. These insights can help you build an in-depth conversation with them, leading to a strong customer relationship.
Furthermore, you can create targeted offers for your existing customers. This will help you enhance your customer loyalty. Analyze their spending habits or buying behavior, and partner with popular retailers to offer incentives. You can also create a premium service for your high-value clients and provide attractive offers to retain them.
4 Big Challenges of Data Analytics and How to Fix Them
There’s no denying that data analytics in accounting has a lot to offer. It has helped large enterprises grow revenue and optimize their performance.
However, when it comes to accounting data analytics, there are a set of challenges that still need to be addressed.
Lack of Expertise
The first and foremost challenge is that most accountants are not trained in studying and analyzing data. This is why several firms struggle with data analysis.
However, this challenge can be easily mitigated by providing the right training to your accountants. Emphasize the analytical ability during the hiring process so that an accountant today focuses on upskilling their analyzing capabilities.
Inaccuracy of Data
Source: business2community.com
When data entry is done manually, there is a high risk of error. This can lead to faulty analysis, resulting in some bad decisions.
That’s why it’s essential to resort to a centralized database whereby all data from different sources are stored. And with the help of an application, data gets analyzed, allowing accountants to derive some insights from the same.
This will ensure that the information imparted is corrected without imposing any risk to the future of the organization.
Lack of Support
There needs to be proper coordination amongst all departments for the proper collection of data. If the organization’s support is missing, it can be difficult to generate actionable insights.
Accountants and risk managers will be clueless without support from the top to lower-tier employers and employees. Executives need the ability to act on this data. By emphasizing the value of accounting data analytics, the benefits it brings to the table – they are more likely to cooperate. Communicate value to efficiently achieve the trust of various stakeholders involved.
Visual Representation of Data
For a proper understanding of data, there’s the need to present data in easy-to-grasp visual formats. It could be in the form of pie charts or graphs. Building these visual formats manually is impossible – pulling data from multiple sources and putting it together. More so, when a large amount of data is involved.
Thus, there’s a need to implement data analytical tools that automatically import data from multiple systems and generate reports at the click of a button. Most advanced systems even offer real-time analytics views to make some immediate decisions.
However, implementing a data analytical tool might have another challenge – budget.
Inadequate Budget
Another challenge involved in accounting data analytics is budget. Data analytics tools can prove to be costly, and at the same time, employees aren’t skilled in using these modern applications. Thus, getting approval for this substantial purchase of accounting software gets difficult.
Accountants need to measure the return on this investment and make a strong business case to get approval.
Latest Trends in Global Accounting Data Analysis
A lot has been said about the importance and challenges related to accounting data analytics. It’s time to look at some of the trends associated with global accounting system.
Accounting software comes equipped with various tools that help with various accounting and financial functions, including accounts payable, ledger maintenance, billing and invoicing modules. With the advancement in technology, modern solutions come with AI-driven data analytical tools – enabling you to collect, store, and organize data to derive meaningful insights for smart business decision-making.
Here are some stats involved.
Trends of Big Data Analytics in Accounting
The growth of the global accounting software market has been on an upward trend since 2010. The actual numbers have surpassed the numbers projected for the growth of the market every year. The year-on-year growth has been phenomenal because of the increasing need of firms to automate routine accounting tasks and bookkeeping so that financial and accounting professionals have more time to focus on decision-making and scientific analysis of financial data.
Deployment Practices
The popularity of on-site or on-premises accounting software has dropped significantly. Nearly 70% of the accounting software used today is cloud-based or web-based. An increasing number of companies are choosing to shift from on-premise to web-based cloud accounting software for better collaboration, connectivity, accessibility, and security.
Advanced Functionalities
Artificial Intelligence, machine learning, and advanced analytics are finding increased application and will soon be in wide use, as is the case with most other software.
Industry-wise Popularity
In established fields such as retail and manufacturing, accounting software is becoming increasingly important for better inventory management and point-of-sale transactions. Small and medium enterprises are also witnessing considerable growth in their usage of accounting software.
With automation, more firms want to save on manual labor and cut out mundane, repetitive tasks. And in tasks like bookkeeping and record-keeping, accounting software has been immensely helpful to users.
However, security threats and cost inefficiency remain the major threats to accounting software worldwide. Due to an increasing number of cyberattacks, accounting software builders have to beef up their security offerings, in order to provide a robust accounting solution to firms as the software handles sensitive financial data.
Cloud and mobile-based applications have been the most widely accepted trends for accounting software in the past year. Quickbooks, Freshbooks, Zoho Books, Sage, and Odoo remain the top sellers in the accounting software market, their popularity driven by adapting to the cloud model.
Here’s a detailed infographic for an easy understanding of global accounting software usage.
Final Words
Big data in accounting is all about creating values. Accountants and financial professionals are designing the movement of data, external as well as internal, for the betterment of the organization. However, everything comes with its own challenges.
As more and more data is becoming accessible, its value can depreciate rapidly. Furthermore, only access to this technology and information is not enough. Companies will need to make sure that it is properly implemented and used. For that, professionals need to develop the skills necessary for the transition from an accountant to being a data-savvy planner or analyst.
Of course, it would mean imbibing a completely new mindset and skills. The sooner these firms embrace the shift in big data, the better they will be able to capitalize on the opportunities that accounting big data analytics will bring.
A Chartered Accountant having 10 plus years of experience in corporate finance working as VP Finance with Appitsimple Infotek Pvt Ltd. I have strong interests in preparation as well as analysing financial statements of corporates!
