Date posted: 06/03/2017 4 min read

Big data accounting - the predictive accountant

The rise of a new accounting paradigm – big data accounting.

In brief

  • The data scientist role leverages big data and analytics and can directly reduce the advisory capacity of accountants.
  • Big data is being leveraged to advance executive decision-making.
  • It is only a matter of time before a new accounting paradigm emerges in the form of big data accounting.

As Apple hurtles towards a US$1 trillion turnover and Airbnb breaks free of the shackles of the industrial revolution, the data scientist has emerged as the sexiest job of the century, according to the Harvard Business Review.

The data scientist role leverages big data and analytics. It has the potential to directly reduce the advisory capacity of accountants or financial specialists, diminishing the competitive advantage of accountants over other professionals through the abdication of responsibility for the big data that drives organisations.

In Australia, more often than not, the accountant retort is “my client and practice is too small for big data”. Ironically, the size of the data is the least important aspect of this type of data for advancing executive decision-making.    

Key executives and business owners, irrespective of the size of their organisation, are making decisions on big data. Businesses of all sizes generate a significant amount of non-financial unstructured information, such as GPS position data from mobile phones, temperatures from sensors, free-form text in questionnaires, website customer interactions, social media conversations and video from security cameras.

The hallmark of big data

The hallmark signature of this big data in this context is that it represents the non-financial information (NFI) occurring in between transactions. Since the Renaissance, humans have been diligently capturing and recording financial transactions using double entry bookkeeping and accounting systems, but the NFI is not collected or utilised.

The representation of the current business is transactions (sales and operational indicators), but the future situation depends on human empathy and relationships, represented by the likes of user-generated content regarding the use of brand products, ratings, reviews, one to one conversions, distress signals from customers and geolocation of customer activities.

But how does this impact the financial state of affairs? Consider a hotelier. She pays attention to rankings changes on TripAdvisor, as this impacts her future revenue. She could leverage that big data to anticipate a change in demand for rooms and take action, rather than waiting for financial statements from her accountant before taking action on the revenue discrepancy.

A wine business is another example to help illustrate the importance of this non-traditional information and the different NFI sources available to a business.

When American economist Orley Ashenfelter “ran the numbers” using big data, he discovered a formula for predicting the quality of wine that could be produced that took into account rainfall during both winter and harvest season as well as the average growing season temperature. Remarkably, this equation helped predict the “wines of the century” for the years 1989 and 1990.

This phenomenon of using data held outside of businesses to provide predictive capability in advance of actual events or publication of financials represent the democratisation of data.

Predicting the price of an Australian Grange Hermitage uses similar techniques and the Liquid Asset website provides a repository for both wine articles and data. Interestingly, the data for the predictions in hotel revenue and price of wine is to be found outside these existing businesses and accounting information.

In New Zealand, the ANZ Truckometer connects the non-financial information of road traffic density with the future state of the New Zealand economy. While counterintuitive, the ANZ light traffic indicator provides a six-month lead on GDP activity. According to ANZ, “traffic flows are a real-time and real-world proxy for economic activity”.  

The democratisation of data

Increasingly, this phenomenon of using data held outside of businesses to provide predictive capability in advance of actual events or publication of financials represent the democratisation of data.

The democratisation of data calls for professionals and consumers alike to gain access to data freely to help make data-driven decisions. By free we mean very little or literally no investment for the data. A great example is NSW Globe and the land and property information it holds. The NSW Globe website provides viewing and downloading of current and historic property sales information for free.

The data is available on an individual property, street, and suburb level. Combining this data in turn with Airbnb data sourced from third-party providers starts to provide a window into real-time property price impacts and short-term rental yields, rather than traditional multi-year rate of return calculations. 

Big data for competitive advantage

Whether chartered accountants can leverage big data to gain competitive advantage over other professionals will depend on their willingness to step forward and integrate big data into the financial performance measures they regularly provide to businesses.

The website of any business is a natural starting point. A decrease in online customer visits compared to a previous period is a potential indicator of a future drop in sales. Analysis of Google Analytics reporting helps provide visibility into sales well before a sales transaction entry is recorded by the business – or indeed lost to a competitor.

Big data has started creating ripples in business, and it is only a matter of time before a new accounting paradigm emerges.

This is where the NFI and financial accounting data can work together to better benefit businesses. It may not seem like an obvious move for an accountant to ask clients for analytics reports for their websites, but this is information that accountants should be leveraging to provide a more holistic service for businesses.

The task at hand for accountants is connecting the NFI with financial data as a means of predictive capability. The vision of a “predictive accountant” is rapidly moving towards reality as newer tools such analytics become available to professionals without requiring them to master data science. A single button press can automatically present a natural language story of the findings in the data.

Big data has started creating ripples in business, and it is only a matter of time before a new accounting paradigm emerges in the form of big data accounting.  

This article is part of an ongoing Working In Business column aimed at CAs working in finance departments of businesses. As part of this column, Acuity will be running a series by Suresh Sood PhD specifically on the rise of big data accounting and what it holds for the future of the accounting profession.

Want more on big data?

Read Big Data Equals Bigger Insights by Eric Au in the Chartered Accountants ANZ library now by following the link below. Big Data Equals Bigger Insights demonstrates the transformative power of advance data analytics within the accounting profession.