John Stokdyk compares this year’s crop of technology predictions to last year’s and opens the book on what is likely to be a very unpredictable year.
Just as many of us fail to live up to our New Year resolutions, the predictions pundits put forward to fill space in January frequently fail to pay off as expected.
As one of the guilty parties, I thought it would be a useful exercise to look back at what people including me were saying last year and to assess how sound their advice is likely to be as we face a year that is going to throw all kinds of turbulence into the political, economic and technological mix.
MTD: Not quite full speed ahead
Both Making Tax Digital (MTD) and the General Data Protection Regulations (GDPR) were safe bets for forecasters last year, and featured prominently in my technology round-up of 2018.
Even though we warned people not to take their eye off the ball last year, many luxuriated in the temporary respite from MTD compliance deadlines. With all eyes turning to April 2019 for the official opening of the new VAT filing regime, Chancellor Philip Hammond gave large organisations, charities and scheme users an extra six months to prepare in Budget announcements deferring their first mandatory MTD filing until the first VAT period after 1 October 2019.
One of the reasons for the delay is that HMRC had to switch people away from MTD and other non-essential work to focus on preparing for Brexit. The department also encountered difficulties retaining freelance contractors after the new public sector off-payroll IR35 rules came into force.
Small VAT-registered businesses were invited to join the public MTD trials in October, just before the Chancellor’s announcement, so the system will officially go live as planned for most firms on 1 April, with only five months’ testing. The one thing we can predict is that accountants and software developers will spend plenty of time discussing MTD in the year ahead, but continuing Whitehall uncertainties mean that the MTD roadmap is almost as opaque as our plans for leaving the European Union.
Machine learning and rise of the AI assistant
It looks like we reached peak hype on artificial intelligence in accountancy during 2018 and have lapsed into a hangover period of unfulfilled expectations amid the general gloom of early 2019.
As we noted last year, AI has already become a daily fact of life for people using accounting systems. Xero’s Damon Anderson and Jamie Shulman, a founder of Xero’s Hubdoc subsidiary, were banging the AI drum in their New Year predictions, explaining that Xero was completely rebuilding its invoicing feature around machine learning tools that would automatically recognise and complete invoices based on previous entries.
Similar AI enhancements are going into Hubdoc and products from other stables including Sage, QuickBooks, Receipt Bank and Pandle, which automatically suggest or assign expense categories or account codes based on learning from previous transactions.
A team of analysis from Hg Capital’s technology team published their own predictions in a recent paper on advanced automation. The current moves in accounting software confirm their theory that AI innovation is infiltrating core applications rather than creating new, separate AI products and brands. In the tax and accounting field, they wrote, “We expect a wave of product augmentations to come forth, primarily powered by advanced automation.” Just to mark their cards, Hg is one of the investors in IRIS, which signed up to a partnership with Mindbridge in September to market its audit analysis program as IRIS Ai Auditor.
As well as picking up back end processing work, AI is also feeding into front-end client encounters in the shape of robot assistants such as Sage Pegg and QuickBooks Assistant. Responding to the technology habits of younger business people, the most common operating environment for these bots is via chat messaging systems such as Slack, Chatter, FaceBook or WhatsApp.
We have to give credit to Receipt Bank’s Isobel Moulder for flagging chat assistants in her 2018 predictions, but as I wrote in my round-up of the year, most of the action took place on stages at the big vendors’ trade shows rather than in real life.
The AI trend remained flat among practitioner entrants to our 2018 Accounting Excellence Awards, with a couple of firms building chat assistants into their websites to help support and direct visitors to the right content. As I asked in December, do encounters with those creatures enhance your interactions with potential suppliers? Or do they rekindle the revulsion we used to feel at the sight of Microsoft’s “Clippy” Windows assistant? I’ll leave readers to draw their own conclusions, but even for cynics like me the writing is on the wall; AI assistants will become a fact of internet life in 2019.
When the bots do take over, it may be worth repeating Isobel’s 2018 advice: “Accountants can still serve as the essential bridge between data-processing AI and business owners, but only if they keep up with the changes that accounting trends are bringing.”
Forecasting: A look into the future
At the risk of turning into a conceptual hall of mirrors, we’re going to conclude this predictive review with a look at forward-facing software tools.
Since castigating the myth of the strategic CFO in 2017, I’ve revised my opinions over the past 18 months. Feedback from our software survey last year indicated that after almost 10 years of incremental growth, the proportion of forecasting, planning and analysis applications was rising among survey participants.
The growth rate for forecasting tools is nowhere near as spectacular as the MTD-fuelled boom in cloud accounting software, but respondents using forecasting, planning and analysis (FP&A) software has grown consistently, going up from 8.5% of the accounting software population in 2017 to 11% in 2018.
We’ve noted in previous articles that while accountants pursuing the advisory model led the profession in embracing forecasting tools, their progress is still tentative and can be derailed by things like MTD preparations. The slack is being picked up by accountants in mid-size and large businesses, who showed a 50% jump in usage last year.
Figures from Robert Half indicate that financial planning analysts are in short supply, with 40% of CFOs reporting it was one of the hardest roles to fill. As a result, analysts can command salaries of up to £80,000pa in the current market. As automation and digitisation accelerate, good data skills will become even scarcer within finance.
Clouds on the horizon
The growth in forecasting tools was accompanied by a noticeable surge in cloud us among mid-size companies. Accounting Excellence Software Award winner AccountsIQ was the most prominent among suppliers, but even discounting their user population from our sample, finance teams running old client/server accounting systems are getting the chance to research and move across to cloud systems – as their practice colleagues have been doing for the past 10 years.
This is an interesting signal of a potential culture change. As we have seen with the forecasting skills shortage, technology poses new demands and mindsets. So as they make the transition, we might also be seeing the demise of the old “data gatekeeper” attitude within finance.
Management accountants who get their hands on cloud tools will be able to devise new systems where collection, reporting and budgeting are more robust and automated. Line managers won’t be able to destabilise the reporting infrastructure and if they’re able do more “self-serve” queries, the finance team won’t have to spend so much time chasing around to answer colleagues’ queries.
That will make time for more analysis to spot opportunities and threats, and spending time helping frontline managers realise the power of good financial information and planning.
But when it comes to technology, the hardest thing to predict is human behaviour. There were similar signs of growth in the technologies to support forecasting and the “finance partner” model back in 2007-8, but when the crunch came finance teams went to the back of the queue when it came to investment. Their priority was to cut costs and keep cash coming into the business and those day-to-day imperatives haven’t changed much since the financial crisis.
The uncertainties of Brexit loom over all the predictions about new technology such as 5G mobile, fintech/open banking and blockchain in 2019. Already many businesses have scaled back their plans – with motor manufacturers reporting an 80% drop in investment in the UK over the past three years. If negotiations hit a roadblock and the UK leaves Europe with no deal on 29 March, the green shoots of new technology growth we spotted last year are likely to wither in the economic disruption that ensues.
In comparison, last year’s predictions were a piece of cake. The one lesson we can draw is that with so much uncertainty in the air, good accountants should be anticipating the potential impacts on businesses and looking into the logistics and tax impacts of different scenarios, for example where supply chains or access to talent might be affected, and what the cost and growth implications would be.
Brexit is an opportunity for accountants to demonstrate their strategic value and to put some of the profession’s grand aspirations into practices by engaging with business clients and internal teams to plan collaboratively for contingencies that lay ahead. Wouldn’t it be great if the profession had the skills, determination and tools to take on that challenge?
About John Stokdyk
AccountingWEB’s Head of Insight has been with the site since 1999 and likes to spend his time studying accountants’ technology habits. When not nerding out, you can find him exploring obscure indie music and searching for the perfect organic sourdough loaf from his base in Brighton, UK.