Shailesh Haribhakti writes on quantum auditing and accounting, the new horizons
Disruption is rampant in all aspects of business. Supply chains are transforming like never before; the productivity of human resources, training, upgrading of skills, distribution of tasks and remuneration are all being rethought; and Manufacturing 4.0 makes manufacturing look like an ML-AI challenge. All of this completely disrupts the way accounting and auditing should be done. Banks and financial services organizations are chained with their constituents in a symbiotic way that begs the question: should accounting be entirely system-generated? At least for most transactions, it becomes a real possibility.
Attempts are underway to intensify this transition to perform automatic cross-validation of all transactions, feed them into tax systems and determine tax assessments. These trends have taken off. Large economies are moving towards fiscal determination, low rates and full compliance. The exchange of information becomes pervasive and the ultimate beneficial ownership is traced. Choices based on ratings become the default mechanism. It is the areas of judgment such as derivative and option accounting and the creation of provisions against uncertain future events that are now transferred to quantum experiments.
Let’s take a close look at an unexercised option. The data flow underlying the transaction and the outcome of the fund’s deployment is constantly changing decision-making, as these micro-trends intersect with macro-trends in the debt and equity markets. Accounting, and therefore auditing, is heavily influenced by the interplay of data from data flows external to the organization and the challenge is to monitor and report in real time. Quantum algorithms will have to be written to describe these interactions and they must continually draw on ML-AI systems that influence changing decisions.
Add to these dimensions the need to bring in six capitals instead of just financial capital! This ESG requirement launched the search for an ERP for ESG! Each input-output relationship between two interacting parameters must be monitored and the impact on six capitals: physical, human, brand, innovation and environmental fully visible and reportable. The ESG ERP will need to be supported by the “Netflix” of sustainability, as the results need to be clearly demonstrated and by a set of TEDx discussions and communication strategy for all board members and individuals.
The industry of capturing and processing datasets will grow by leaps and bounds. This is why quantum algorithms will have to be written to learn from these fluid, interactive and complex data sets. The task of the accounting profession will be to create simulations of the external macros affecting each company and to correlate the change with what can be anticipated internally. This would then be tested against the derived accounting results to algorithmically determine whether the discrepancies mask fraud, error, or other distortions that are forcibly attempted.
So what is the form of new age accounting? Bankers will take care of the accounting for all day-to-day transactions: purchases and payments from suppliers, sales and collection of accounts receivable, payroll and the purchase and sale of fixed assets. This activity will be integrated into the working capital financing activity. All transactions will be encrypted and the public-private key infrastructure tightly connected to electronic signatures will automate data storage, retrieval and reporting.
All non-routine transactions, benchmarking and sustainability reporting will be supported by quantum algorithms. The same will be true for all judgment processes where the external and internal data sets must be multiplexed. The blockchain will be the infrastructure and SAP and Oracle, along with all current ERP vendors, would have a complementary ESG ERP. The annual reports would be produced automatically as a simulation and the CEO and chairman of the board would add the potential for change and innovation as inputs to indicate future direction.
New age audit
So what is the form of new-age auditing? Integrated audit services will be provided in the domains, led by highly specialized IT organizations. ML-AI would be continuously deployed to uncover frauds, unexpected patterns and errors. These would be corrected immediately. The idea of a periodic audit will be obsolete and only the continuous audit oriented towards correction will prevail. To test the impact of deployed quantum algorithms, auditors should write global test algorithms that would generate simulations around the algorithms used and test a posteriori the basic assumptions made in the algorithms used.
What would emerge is a set of integrated, double-filtered reports suitable for global decision-making. Reporting standards would have been harmonized and applied consistently across all quantum and RPA processes deployed. External and internal algorithms would be executed in order to discover information capable of detecting all frauds, errors and distortions to finally guarantee results that all information users can trust.
Role of ICAI in the transition: Massive member retraining at a rapid pace to get all the skills required to imbibe. Setting up several forums where experiences, ideas, issues and issues can be discussed. Make fraud-free and timely reporting the main element of its efforts. Integrated reports to be adopted taking into account global standards.
Role of regulators and standardizers: While regulators would like to detect quality deviations and lack of adherence to standard and expected processes, they would also be interested in ensuring that professionals are compensated fairly to achieve fair results. Also, while the bars keep rising, the profession responds by innovating and meeting user expectations. A symbiotic relationship would thus be established. Standard setting will need to accelerate towards a course of uniform and global standards for reporting on the six capitals in an integrated manner.
Role of each in the profession: Keep an open mind and completely curious at all times. Learn from every forum and every window of opportunity available around the world. Take the courage to experiment, innovate, take risks and meet the demands of the new world.
Conclusion: The train of maximum and irreversible change in our profession has already left the station. We have to decide in which class we want to ride. Accept change and gain a lot or stagnate and perish. It is the difficult choice that awaits us.
The writer is a Mumbai-based business manager. He is a certified public accountant and accountant and writes regularly on Indian economy and public policy.
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Posted on: Tuesday October 05, 2021, 2:30 AM IST