|How the Internet of Things will impact CPAs
The IoT has the potential to revolutionize the way businesses gather data—and, in the process, transform many aspects of accounting and auditing.
Even as many public accounting firms and other organizations are working to transition their operations to the cloud, or considering whether to do so, a new technological challenge looms just over the horizon: the Internet of Things (IoT).
The IoT has the potential to revolutionize the way businesses gather data—and, in the process, transform many aspects of accounting and auditing. As with cloud computing, public accountants need to understand what is coming so that they can adapt to the changes the IoT will bring, including new opportunities for advisory services in big data and analytics.
What is the Internet of Things?
Understanding what the IoT is and how it will affect businesses is necessary to understand its impact on accounting firms and other organizations that employ CPAs. Wireless technology already allows devices including mobile phones, tablets, and computers to communicate with the internet from almost anywhere. But now, devices not traditionally considered “smart,” such as appliances, car diagnostics, HVAC systems, and wearable fitness monitors, are using sensors to capture data and transmit it to the internet.
In the relatively near future, almost all devices will be equipped with sensors and internet capability. Internet connectivity also means that devices have, or will have, the ability to provide updates on their use to manufacturers. Do you want to know how often a customer turns on your product every day? Or how many times it is used before it breaks? Or how many devices that customer has in her house? The IoT will one day provide that type of invaluable market intelligence to CPA firms’ corporate clients.
But those aren’t the only implications for companies. By allowing for more real-time capture of relevant information for business planning and resource allocation, the IoT enables businesses to improve processes, reduce costs, and manage risks. It allows companies to gather behavioral information on customer usage and buying preferences to increase revenues. Warehouse shelves are being equipped with weight sensors that detect when inventory gets too low and automatically create electronic reorder messages that create and send purchase orders to suppliers. Sensors on delivery trucks track when the trucks start, stop, and back up, and which parts are about to break down—data that operators can use to plan routes and schedule maintenance. Companies have even developed sensors for cows that tell farmers when the animals are sick or ready to breed.
How the IoT will change CPA firms
The IoT has implications for all CPA firms, but its effects will be especially apparent in the world of auditing. As the IoT will change the sources of transactional data flowing into billing, enterprise resource planning, and accounting systems, it will alter the way audits of these transactions are carried out. CPAs must still ensure that transactions are properly monitored and controlled, but the methods and internal control design are changing. Instead of going to the bookkeeper for client information, for instance, CPAs will automatically receive data from a digital system. Because the IoT provides real-time visibility into transactions, controls, and exposures in processing systems, it will increase the need for continuous auditing. It will also allow for greater visibility into risks, making for quicker assessment and remediation, and will require real-time interactions with management throughout the year. If a sensor sends a warning or error message in real time, companies and their CPAs can respond immediately.
Auditors aren’t the only CPAs who will be seeing changes. The rise of IoT means that most accountants will need to become more tech-savvy. Doug Sleeter, CPA/CITP, founder of the Sleeter Group and an expert on technology in the accounting profession, said that the IoT will bring “accounting closer to IT” and that professionals from both fields will need to work together to determine what kind of data to collect and how best to do it. CPAs will be expected to advise their clients on how to redesign their systems to accommodate the IoT. They’ll increasingly need to become data specialists who can help clients use critical analysis to increase their return on investment.
The IoT brings new opportunities for business development
The IoT will also bring CPAs new opportunities for client service in the areas of business process design and data analysis. Clients will need CPAs to help set up accounting and recording systems, such as dashboards that aggregate data received from the IoT.
CPAs may also be hired to provide opinions on the security of the IoT. “Consumers and industry want assurance that information and systems will be private and not hacked, or they won’t use them,” said Rick Richardson, CPA/CITP, CGMA, managing partner of technology consulting firm Richardson Media & Technologies LLC. When the IoT takes off, CPAs will be asked to give their professional opinions on “the systems that third parties rely on, unlike today where we are only asked for assurance in special circumstances.”
How to prepare for the IoT at your firm
Although the IoT is growing in importance, it has yet to reach critical mass. For the IoT to work, objects must be redesigned and manufactured so they are internet-enabled. Experts indicate that, for this to happen, technologies must improve and become cost-effective enough to gain wide acceptance. David Cieslak, CPA/CITP, a technology expert and principal with Arxis Technology, believes that the IoT will become a major factor in business in about 10 years, while Richardson expects the size of the market and number of devices to expand exponentially by the end of this decade. Sleeter said most firms are not changing audit methodologies yet, but he urges firms to educate themselves about the IoT now so they will be ready when clients implement IoT technologies. He expects it may be up to 10 years before the IoT is embedded into typical CPA firm and client interactions.
Though adapting to the IoT may sound daunting, some firms may be better prepared than they realize. Many large accounting firms have growing IT consulting practices that combine specialized IT knowledge with CPAs’ business acumen. In a short period of time, most firms also have adopted the use of relatively new devices (smartphones and tablets) and applications (social networks, digital documents, portals for sharing information, electronic fund transfers, collaboration tools for communications, and cloud-based software and storage). James C. Bourke, CPA/CITP/CFF, CGMA, partner in charge of firm technology at New Jersey-based regional accounting firm WithumSmith+Brown, said that firms are well on their way to successfully leveraging technology that will better prepare them for the IoT. “They are not just using the Internet to do audits but are using the electronic highway to connect all their resources to do their engagements and tax returns,” he said.
There’s still ample time to get ready, Richardson says. “The cloud is not there yet, and there are other things CPAs need to do before they can react and respond,” he said. Richardson suggests that CPAs look at how to structure questions to improve business analytics for clients using Big Data as a revenue opportunity. Cieslak recommends taking a clean piece of paper, as if starting a new accounting practice today, and creating a vision and transition plan for your firm on how to organize differently to use Big Data, the cloud, and the IoT.
Work your way up to the IoT by gaining experience with the technologies it relies upon, experts say. “Since you have time, be a smart user first,” Richardson said. “Gain experience from your firm’s effective use of secure communications with clients, tax return delivery through emails and portals, Citrix and ShareFile, private networks versus the Internet.”
In the end, firms need to educate themselves about the IoT now to better prepare for the future.
“You can’t hold yourself out as a consultant if you are not familiar enough with the technology your clients need,” Cieslak said. “Become an educated user and true adopter, and then you will be able to recommend technology to clients.”
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