“Rise of the Robots” – It’s Time for Accountants to Be Afraid

By | 10 months ago

“They’re coming – for your job.”

That’s the ominous message for everyone benighted enough to believe in job security under the Big Audit model, as delivered by Martin Ford in last year’s Financial Times business book of the year, Rise of the Robots.

Ford’s book brings focus to the question posed here at Going Concern in July, about KPMG’s partnership with Watson, IBM’s cognitive learning technology platform:

What happens when the cognitive technology realizes that the bright human beings aren’t so bright?

As a quick tour of the field increasingly occupied by the machines, “Robots” opens with a survey of the speed and spread of industrial robotics deployment – according to Ford’s source, the International Federation of Robotics, some 230,000 industrial robots were installed in 2014, with an estimated annual growth rate of 15% projected through 2018.

For additional context, these four pieces of recent news:

  • Walmart’s June announcement that it is testing flying drones to handle its massive warehouse inventories – the goal to do “in a day what now takes employees about a month.”
  • The use by a Lowe’s store in Silicon Valley of a prototype inventory checker built by Bossa Nova Robotics, that uses computer vision to recognize bar codes on shelves and a laser to show items out of stock, “automatically perform(ing) a task that humans have done manually for centuries.”
  • The agreement of the British government, announced in July, to cooperate with Amazon’s exploration of drone delivery of packages of up to five pounds –- 90% of its sales.
  • PwC’s announcement in May of the launch in Poland of a commercial drone division – its leaders observing, with a complete lack of either irony or self-awareness, that “the addressable market value of drone powered solutions is over $127 billion.”

They’ll come first for audit staff, and eat upwards

As for the effect on the current audit services model? Walmart’s drones and Lowe’s robots are doing the very counting and data gathering that has traditionally done by squadrons of audit staff – and without quibbling about “quality of life” or gossiping about promotions or dissecting the latest pay raises at the rival firm down the street.

Across the profession, the transformational loss of the staff jobs to be displaced should be plain – hiring, team structure, professional training and development at the firms; career choice-making for students; and reduced inputs to the university faculties and professional societies that depend for their own survival on large numbers of aspiring new entrants to the profession.

The simple data-gathering by today’s robots will shortly explode in scope, however, with such opportunities as the surveying of crops and forests, wind farms or arrays of solar panels. Profoundly, at that point, expanded machine capability will cut to the heart of the dialog on independence and scope of practice, and so will challenge the very legitimacy of the Big Audit model.

That’s because a drone or a robot gathering crop data, say, will also be able to measure for weeds or pests, irrigation needs or hail damage. A drone viewing a field of wind turbines will assess efficiency ratings and needs for maintenance, and the timeliness of blade repairs or replacement.

Those machines and their valuable data will then be wrapped inextricably into the core of a company’s operations, performance and strategy. Which in turn means that it will be impermissible under the rules of “independence” for an audit firm’s Advisory personnel to provide those functions to audit clients -– a serious drag imposed by obsolete constraints on the profession’s incentive to invest in and grow such a capital and knowledge-intensive business (however well-founded the PwC ambitions in Poland).

And the Advisory practices are aiders and abettors

Implications for the large firms’ business models? They are rushing headlong to expand their Advisory practices into the world of Big Data, robotics, technology and artificial intelligence — as reflected in the Big Four firms’ latest average annual revenue growth in Advisory/Consulting of between 7% and 18%, and an average growth rate differential of 9% over their rate of audit practice growth.

What may be most threatening — those moves will most likely only accelerate the timetable for human displacement. And they clearly under-appreciate the pace at which structural pressures and cross-practice tensions will stress the fragility of the current business models.

As will follow in this multi-part review of Ford’s book, it becomes even more complex. For when the Big Data revolution succeeds in making obsolete the sampling-based audit techniques that have sustained the audit model all these decades, it will at least be uneconomic –- and may well be literally impossible -– for an audit firm to build and deploy assurance-oriented tools, at the level of data capture and analysis sophistication sufficient to “test” the output of these new-era capabilities.

At that point, it’s not so much that “the machines have won” -– because their benefits to company management will be massive and compelling -– as that the notion that any value is delivered by an outside “independent” third-party assurance provider will be drained of the last dregs of whatever usefulness survives in today’s “pass/fail” report.

And if that idea raises the anxiety level among those still committed to the current Big Audit model -– it should.

Due up next week: Do you think your professional judgment is sustainable above that of a machine? Ford says to think again – because the algorithms already are. 

Jim Peterson was a senior in-house lawyer with Arthur Andersen for 19 years, leaving in 2001 to pursue his own practice and to write about the accounting profession – in the International Herald Tribune and now on his blog, Re:Balance. His book, “Count Down: The Past, Present and Uncertain Future of the Big Four Accounting Firms”, was recently published by Emerald Books.

Image: iStock/Valeriy Kachaev

 

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