Big data has had far-reaching effects on the accounting industry, and these effects are probably not exclusive to accounting.
As with so many other aspects of Big Data, there is no shortage of “what if” stories of how Big Data might impact the accounting profession. As a result, the accounting profession has adapted to reflect the reality that the vast majority of data is accumulated for uses other than traditional bookkeeping and financial reporting. Even now, the accounting industry is seeing Big Data’s effects.
Customers and accountants alike can benefit from this exciting new development. The chance is to create more effective channels of communication with the public, shareholders, management, regulators, and customers.
I’ll discuss how the advent of Big Data will change the face of accounting in a few key ways here. In addition, I will discuss the limitations of conventional financial statements, define Big Data and Big Data analytics, and describe how one enterprise is leveraging Big Data to create ground-breaking financial statements that would have been impossible without it.
Why Big Data Will Change the Accounting Profession
Let’s look at some examples of how Big Data has already impacted the accounting profession.
In the US, the Securities and Exchange Commission has a rule requiring companies to maintain records of all their activities to protect against future manipulation of the price of the stock. This requirement has led to companies recording the “audit trail” for their internal systems. For example, if they use an invoice to pay an employee, they have to track how it got to the employee.
This has to lead to a tremendous amount of accounting information being recorded and analyzed by companies.
There is also a rule in the US that states that companies must prepare an annual report. The annual report contains various statements, including how the company is doing and its financial results.
Many companies now have accounting software that generates the required statements for each period.
For accounting software to generate reports for internal management or financial purposes, it requires lots of data. This data typically comes from accounting systems such as the general ledger, the cash management system, and from customer relations systems, including credit card systems.
For Big Data, the data set can be much larger and can include much more data. One of the biggest challenges in Big Data is the volume and speed of data.
Accounting reports are created based on a series of data inputs. Each set of data inputs is typically recorded in an accounting system, analyzed, and then used to generate a report.
Big Data has the ability to do this more quickly and in less time. As a result, companies can now gather all their accounting data in one place. Doing this can reduce the time it takes to produce an annual report.
Big Data Reporting
There are two issues that arise with Big Data reporting.
- Many companies find it difficult to interpret the information as the data set is too large.
- Some of the data is irrelevant or can be misinterpreted as it is not relevant to the company’s operation.
Companies are recognizing that if they are going to do something like report financial results, they need to be able to trust the results. By doing so, they can reduce the potential of misinterpreted reports.
Big Data is a new way to provide financial reports, and as such, companies are faced with many challenges when interpreting Big Data to generate financial reports. One of the big issues is that Big Data can present a lot of data.
Because of the volume of data that companies collect, they want to understand how each part of the data is relevant to them. This is where companies find it difficult to interpret the data.