Analytics has been a vital part of accounting and business since each first came about.
But new technologies are driving advancements in analytics, and expert accountants are taking note.
CPA and data scientist Shivam Arora shared his own journey toward recognizing the importance and value of advanced analytics, party in the hope that other accountants and business leaders will come to a similar realization.
Arora first recognized the value of artificial intelligence (AI) and machine learning (ML) while studying accounting and finance, when he took on a research project as part of his honor’s thesis.
The project required a regression analysis to relate Indian stocks on Indian exchanges to the same stocks on American exchanges.
This project proved to Arora just how powerful analytics could be, and after receiving a second master’s degree, his work has focused on the intersection of accounting/finance and AI.
Arora received the ACRP Graduate Research Award, which is a federal fellowship granted by the FAA.
He presented his research to the Aviation Economics and Forecasting Committee of the Transportation Research Board in Washington, D.C.
Arora has authored three scholarly research papers and is currently writing a book titled ‘Python for Accountants.’
His recent work has also included implementing AI at a large investment company for portfolio optimization and accurate reporting.
He continues to be an advocate for the use of AI and ML in accounting and business operations at large, and this is precisely what he discussed with us during our interview.
Throughout the interview, Arora made a convincing case for the widespread implementation of AI and data-driven analytics in accounting.
Can you tell us about the value that analytics can offer to accountants?
Analytics is tremendously important for accountants. It is currently an integral part of the profession but will be much more so in the future.
I think that the current definition of analytics in the accounting profession is somewhat outdated: it mostly revolves around performing basic statistical analyses in MS Excel and/or building simple visualizations.
However, the current state of analytics has been greatly influenced by an explosion in machine learning and more specifically artificial intelligence. CPAs need to know AI not only to implement it but also to understand what their clients have implemented. Take auditors: virtually every organization in the world has implemented AI in its operations, albeit to varying degrees.
Auditors need to understand AI to audit it. AI can help post journal entries, collect audit evidence, apply accounting standards, establish management forecasts, identify cost drivers, and automate various other accounting processes. Even something as simple as employing a programming language like Python to automate Excel tasks can over time offer thousands of dollars in savings. I think AI is not a choice to obtain value, it is a necessity to ensure survival.
Similarly, how can analytics benefit business leaders?
Very similar to the value it offers to CPAs, but broader. And I think that not only the leaders in the tech industry, but the leaders outside it are also gradually realizing the value.
Data-driven decision-making, as it is called today, is difficult to refute. The reason is obvious but very powerful: it is based on facts, on underlying data that the organization has gathered. It is devoid of emotions.
One of my professors in grad school used to always use a funny but true example, about an organization that determined an association between the sales of diapers and that of beer. This relationship, likely driven by “tired-from-work” dads on a night trip to the grocery store to buy diapers, is difficult for humans to discern, but also difficult to refute once it has been identified by AI.
When did you first recognize the real value of analytics?
During my senior year of college. I was an accounting and finance major and got involved in a research project when completing my Honors thesis. I had to run regression analysis to relate Indian stocks listed on Indian stock exchanges to the same stocks listed on US exchanges.
I was so mesmerized by the power of analytics that I decided to pursue a second master’s degree in grad school, eventually graduating with an MS in Accounting and an MS in Business Analytics. Since then, most of my work has been at the intersection of accounting/finance and AI.
Do you think there are already some top-level accountants who are taking advantage of cutting-edge analytics?
Definitely. For example, check out this article to see how accounting firms are using Natural Language Processing (NLP), a subset of AI.
Accounting firms realize the value of analytics in their business. However, more needs to be done to make ML a norm in the profession. I think that there is an underlying problem of advanced analytics being considered the exclusive domain of individuals in the tech industry.
Changes need to happen at the college education level, where aspiring CPAs should be provided exposure to advanced analytics, including ML/AI. Again, however, there has been visible progress in this area, even at the legislative level.
Do you think there are common misconceptions about analytics?
There likely are many. However, I think the biggest one in accounting is what I mentioned above: the perception that advanced analytics is outside the purview of an accountant’s scope of work.
Another misconception is that, even if analytics is in fact necessary for the profession, it is too complicated to learn and requires significant foundational knowledge. While that is partly true, I feel that many tools exist today that not only are extremely intuitive but also provide a background on analytical techniques in a lucid fashion.
For example, I am a big fan of the Python programming language because it is general-purpose. It can be used to create websites, and it can also be used as a calculator. I think that imbibing a general curiosity within aspiring accountants at the collegiate level is vital to ensure that the profession keeps pace with the advancement in analytics.
Will analytics in business and accounting continue to grow over the next five years?
Exponentially, no question about it. In fact, it will grow even if the profession doesn’t want it to, in my opinion, because of what’s called derived growth.
As their clients continue to invest massive amounts in AI, accounting firms will have no choice but to follow suit. That being said, I don’t think there is resistance in the profession. There has been a general sense of excitement.
Can you tell us about what you’ve been working on recently?
My recent work has focused on implementing AI at a large investment company for portfolio optimization and accurate reporting. I think that my work is bound to evolve in tandem with the profession.