Virtual Reality and the CPA: A secret way to success?

This past summer I started biking. Although I had a bike when I was young, I never really got into it.

Now that I live in Hamilton, Ontario, the street that I live on actually ends and then becomes a trail complete with paved roads that are great for biking.

And it's been amazing. Although I (try to) go to the gym 2 to 3 times a week, it's something else to force yourself to go up a steep hill. And yes I had to get off the bike and walk it. But just the first time ;).

But alas, summer is coming to an end. What can I do? Will virtual reality come to my rescue?

As it turns out, my local gym has a solution that just may fit the bill. Although no it does not offer VR helmets, they do have a simulation mimics going out on the trail - video game of sorts. There are different courses to choose from. 

It also offers you the ability to login and tracks your progress as illustrated in this video. :

Although not totally virtual reality, it is a good illustration of how a "real world" activity can be simulated through technology. As I want to keep up my biking in the winter, the experience does give you some of the feedback that you would experience when biking. For example, when you go up a hill it does feel tougher to pedal. And it is an immersive experience as you focus on the course instead of the regular gym experience where you kind of bored.

Why am I writing about this on a blog about CPA and tech?

The experience made me reflect on how such a simulation can be leveraged by the CPA profession for the purpose of education.

As we move up the automation curve, one of the looming challenges will be reimagining the training of a CPA. For example, let's say testing cash becomes completely automated due to easy access to banking data; how do CPAs learn to test accounts for completeness (e.g. subsequent disbursement testing), testing outstanding cheques, etc. That is, if junior auditors are no longer needed to do these routine tasks, then how do they get their experience?

Virtual reality and augmented reality may be the answer.

My colleague, Eric Barsky, trying out VR at the 2019 CPA One Conference in Montreal.

In Canada, the business case has been the chief tool to test CPAs in the Common Final Exam (CFE) and the UFE (Uniform Final Exam; as it was called when I wrote it). The idea is that the case simulates a business experience to enable CPAs to test their knowledge before going out into the real world. Consequently, adding technology to the mix may give examiners the ability to test CPAs in ways that were not possible before. For example, immersive technology could simulate an inventory count, client interactions or site inspection that was not possible before.

Too advanced?

Well, other industries are already trying this approach out. As noted in this July 2019 CIO article:

"Accenture is enabling inexperienced caseworkers to receive training simulations through VR headsets. The content uses immersive storytelling and interactive voice-based scenarios to help caseworkers hone their people and decision-making skills. The goal, DuBoff says, is to get new staff up to speed with real-world scenarios as quickly as possible. And it beats hiring consultancies to help coach new hires. VR/AR training will top $8 billion by 2023, according to IDC."

A key advantage that CPAs have is that we as a professional body have the natural ability to form a network. By contributing resources and time to this network - for projects such as "immersive training" - can give a unique value to the profession. Just imagine being able to put on a VR helmet and actually experience what it's like to interact with challenging situations - in a way that goes beyond a static case.  Although it seems like the stuff of Sci-Fi, the fact others are already doing is a good indication that this is an innovation worth exploring. 

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else

GM Layoffs: Towards a people-free economy?

Why is Fox News afraid of upsurge socialism in America?

And it’s “not a Democratic Socialist, just a straight-up socialist”!

One reason is that they see – regardless of their uber-Capitalist stance – corporations engorging themselves on the wealth of the nation. Specifically, Fox Business analyst, Chris Payne commenting on GM’s decision to lay off nearly 15,000 workers said:

“And again, it's not like they're in dire straits. Now, they're trying to get ahead of things, they want a big fat cash flow. But this is why, I think, capitalism in and of itself is in a lot of trouble in this country…Because these companies keep posting record earnings and they keep firing people. They keep posting record earnings and they buying back billions of dollars of their own stock. The American public is going to get hip to this and my fear is that they're going to end up electing, not a Democratic Socialist, just a straight-up socialist because of these kind of shenanigans. They should have saw this coming a long time ago.”

What does this have to do with automation? 
The interesting aspect about the layoffs, from a technology perspective, was that it was mostly white-collar workers that were impacted - 8,000 workers according to New York Times.  The article went on to say:

"The cutbacks reflect a transformation underway in both the auto industry and the broader U.S. economy, with nearly every type of business becoming oriented toward computers, software and automation."

According to this clip from the CBC's the National, Goldman Sachs slashed its cash equity from 600 to 2, but gets the same amount of work done because those traders have been replaced with 200 computer engineers. Furthermore, the expectation is that between 1.5 to 7.5 million white-collar jobs will be lost due to automation.


But what does all this have to do with a people-free economy?

For that, we have to go back an exchange that is said to have happened at a Ford plant:

"Henry Ford II showing Walter Reuther, the veteran leader of the United Automobile Workers, around a newly automated car plant. “Walter, how are you going to get those robots to pay your union dues,” gibed the boss of Ford Motor Company. Without skipping a beat, Reuther replied, “Henry, how are you going to get them to buy your cars?"

The Capitalist economic system is a system that maximizes the freedom of ownership by focusing on investments. Everything else is secondary. Sometimes people in society can impose a cost on the Capitalists that forces them to accommodate them. However, the Empire inevitably Strikes Back. For example, the concessions made to labour unions in 1930s (that upheld Capitalist beliefs) was temporary. Once Communism was dead, these unions were destroyed through the Volcker interest rate hikes in the 70s, globalization and the non-enforcement of labour laws (meaning the government let the companies commit illegal acts).

However, given this, people should realize that the right number of workers at a company is zero. That is, if one can get more output from investment in machines instead of HR, there is no law or other mechanisms that will force a corporation to hire people.

Check out what Andy Puzder, CEO Carl’s Jr, told Business Insider after visiting the fully automated fast food chain Eatsa:

“With government driving up the cost of labor, it's driving down the number of jobs…You're going to see automation not just in airports and grocery stores, but in restaurants… They're always polite, they always upsell, they never take a vacation, they never show up late, there's never a slip-and-fall, or an age, sex, or race discrimination case.”

All doom and gloom or can innovation lead to hidden jobs? 

A good example of how innovation can lead to hidden jobs is the advent of recorded music. Recorded music, courtesy of the phonograph, would disrupt the piano. Prior to that time, pianos were the chief source of musical entertainment. Families would cluster around the piano and one of the relatives would play music. However, with the advent of the phonograph sales of pianos fell falling from their peak production of 400,000 pianos in 1905, while currently, production is a fraction at about 32,000. But what jobs did the phonograph – and the recording industry more broadly – create?

According to the same Freakonomics podcast, approximately 600,000 in total (200,000 in radio and TV broadcasting, 300,000 in motion-picture and sound recording and another 100,000 in the repair of electronic equipment).

Although this is likely a good way to think about the future, it is important to remember that the underlying economic system has no consideration for people. It's cold hard logic is about generating cash for the shareholders - even if it means laying off everybody. But it seems like the best way to do this is with the combination of man and machine - for now.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else

Can Blockchain really offer a way out of the Brexit quagmire?

For those following the continuing Brexit crisis in the UK, there have been many issues not least of which is solving the "Irish border" issue. If you need more context on this issue, see the following video by Vox Atlas which does an amazing job of summarizing the issues in about 7 minutes:


What does this have to Blockchain?

Well, it seems that blockchain was identified as a possible solution for this situation. I came across this idea from an article in CCN, which stated the following:

"According to Phillip Hammond, UK’s finance minister, the best way to ensure trade across the Irish border remains frictionless after Britain leaves the EU lies in the use of blockchain technology.

“There is technology becoming available (…) I don’t claim to be an expert on it but the most obvious technology is blockchain,” Reuters reported Hammond as having answered after being asked what the government was proposing to do to ensure smooth trade after Brexit."

I followed the Reuters link but it didn't add much context to the quote; how can blockchain offer any relief from the issues related to the customs union and hard border?

But then I found an article on FT, which stated the following:

"It is safe to say technology used at the border is a red herring, as even the best database can't poke its nose inside a lorry. Here, for instance, is one of the IT experts quoted in the Irish Times calling the idea of technological solutions to the border question “complete nonsense”...

Wired also looked at tech solutions for dealing with 6,000 heavy goods vehicles per day crossing the border, and decided that they were “untested or imaginary”. Blockchain as a border solution is both.

So what inspired Hammond to jump on the blockwagon? It might have been a “white paper” literally called “Blockchain for Brexit”, released last week by Reply Ltd, a consultancy which promised a “solution that could save global businesses billions of pounds through seamless border checks and virtually infallible tracking systems for their goods”."

Although I have commented that blockchainthusiasts need to be careful about overstating the capabilities of the blockchain (such as replacing the need for financial audits), we can hardly blame blockchainthusiasm here. Rather it's the Wizard-of-Oz trick of hiding behind the magic curtain. But this time it's not a magic trick but rather the complexity of technology that some are attempting use to gloss some key issues that have emerged in the aftermath of Brexit.

Technology at the end of the day is just a tool fashioned by human beings and is not God. It can't magically solve complex business problems let alone extremely complex political issues that have been simmering for centuries.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else

CPAOne: AI, Analytics and Beyond

Attended the CPA One Conference almost two weeks ago in Ottawa, Ontario. Given that my space is in audit innovation, I attended the more techno-oriented presentations. Here's a summary of the sessions that I attended:

"Big data: Realizing benefits in the age of machine learning and artificial intelligence": The session was kicked off by Oracle's Maria Pollieri. The session delved deep in the detail of machine learning and would have been beneficial to those who were trying to wrap things around thing more from a technical side. She was followed up by Roger's Jane Skoblo. She mentioned a fact that really grabbed my attention: when a business can just increase its accessibility to data by 10%; it can result in up to $65 million increase in benefits.

The next day started with Pete's and Neeraj's session on audit automation, "Why nobody loves the audit". They want over a survey of auditors and clients on the key pain points of the external audit. It turns out that these challenges are actually shared by both. For example, clients lack context on "the why" things are being collected, while auditors found it difficult to work with clients who lacked such context. On the data side, clients have hard time gathering docs and data, while the auditors spent too much time gathering this information. From a solutions perspective, the presenters discussed how Auvenir puts a process around gathering the data and enables better communication. This will be explored in future posts when we look at process standardization as a key pre-requisite to getting AI into the audit. 

The keynote on this day was delivered by Deloitte Digital's Shawn Kanungo, "The 0 to 100 effect". The session was well-received as he discussed the different aspects of exponential change and its impact on the profession (which was discussed previously here). One of the key takeaways I had from his presentation was how a lot of innovation is recombining ideas that already exist. Check this video he posted that highlights some of the points from his talk:



Also, checked out the presentation by Kevin Kolliniatis from KPMG and Chris Dulny from PwC, "AI and the evolution of the audit". Chris did a good job breaking down AI and made it digestible for the crowd. Kevin highlighted Mindbridge.ai in his presentation noting the link that AI is key for identifying unusual patterns.

That being said, the continuing challenge is how do we get data out of the systems in manner that's reliable (e.g. it's the right data, for the right period, etc.) and is understood (e.g. we don't have to go back and forth with the client to understand what they sent).

Last but not least was "Future of finance in a digital world" with Grant Abrams and Tahanie Thabet from Deloitte. They broke down how digital technologies are reshaping the way the finance department. As I've expressed here, one of the keys is to appreciate the difference between AI and Robotic Process Automation (RPA). So I thought it was really beneficial that they actually showed how such automation can assist with moving data from invoices into the system (the demo was slightly different than the one that can be seen below, but illustrates the potential of RPA). They didn't get into a lot of detail on blockchain but mentioned it is relevant to the space (apparently they have someone in the group that specifically tackles these types of conversations).


Kudos to CPA Canada for tackling these leading-edge topics! Most of these sessions were well attended and people asked questions wanting to know more. It's through these types of open forums that CPAs can learn to embrace the change that we all know is coming.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else

RPA and the Accountant: A path out of the mundane?

One of the latest hype technologies is Robot Process Automation (RPA).

My first question when coming across this, is what is the difference between this and cognitive computing? 

As can be seen by these videos, it's more about "dumb" automation instead of "smart" innovation: where routine tasks are handled by the system instead of a person. This is in contrast to something like IBM's Watson, which attempts to understand language and offer probabilistic judgments as to what is the right answer to a question like it did on Jeopardy!


The first video (produced by Deloitte UK) does a great job of actually showing us how RPA can automate the process of extracting information/documents from email and the generating invoices through the company's ERP:

The strength of this video (produced by EY) is showing us the business case for RPA:

The idea is that RPA can automate routine tasks, instead of offshoring. In other words, it brings the world of automation onced reserved for the assembly line to the back office.

As described in this Deloitte publication, it puts RPA as the first step towards a cognitive enterprise - automate the task and then bring cognitive, AI, machine learning, etc., into the process to make it smarter.

To use a maturity model approach, RPA is the first level in bringing together the necessary data and processes to actually train the algorithm to make it smarter.

What does this mean for auditors and accountants?

For accountants, the back office is going to require less people in terms of executing these mundane tasks.

However, this doesn't necessarily mean that jobs will be lost.

As with the advent of cloud computing, the enterprises will have to determine whether such talent can be used more effectively to improve the quality of financial reporting and work on the back log of finance projects that haven't been attended due to staff working on these low-value tasks. That being said, the problem of meeting quarterly targets to feed investors insatiable desire for profits is something that can't be ignored when discussing whether management will choose profits over better processes.

For auditors the story is a little different.

The reality of the profession is that it can't retain talent because people find the work unsustainable: it's hard to shutdown your personal life for a third of the year or more to meet the needs of clients during busy season.

RPA and automation could make the profession more sustainable, as these mundane tasks could be handed to a system instead of a junior. This is similar to the "race with the machine" concept I mentioned in this post, when referring how Watson is helping doctors treat cancer.  Auditor could then focus on more value added tasks, such as assessing aggregate risks, industry trends, etc. Such insights will improve audit quality and give clients better understanding of business and audit risks, making the work more interesting for both auditors and auditees alike.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else.

Algorithms stayed the chaos during Brexit storm: Can they help with auditor judgment?

The recent Brexit crisis hit the markets hard with the various stock indices plummeting and investors fleeing for the safe haven of gold, which went up "by $59.30, or 4.7 percent".

Amid this  chaos, some investment strategies fared well - thanks to the use of robots.

According to the WSJ article, "Who Made Money in the Brexit Chaos? Machines, Not Humans",  machines were immune to the fear, uncertainty and doubt that plagued markets (italics, highlight mine):

"This fund category, sometimes called commodity trading advisors, or CTAs, uses customized trading algorithms to spot market trends and place bets on futures and other derivatives. Most of the models didn’t factor in British election polls, bookmakers’ odds or the political-tea leaf reading that swayed other investors looking for an edge. In the weeks leading up to the Brexit vote, the trading models at many of these firms adopted a defensive pose. They favored high-quality government bonds, gold and safer currencies like the yen, while mostly avoiding riskier bets like oil and emerging markets.

That positioning paid off after Brexit caused the pound and more volatile assets to plunge as Thursday’s results came in. Société Générale’s CTA Index gained 1.5% on Friday. AQR Capital Management LLC, Fort and Welton Investments Partners LLC were among the big gainers... A key to CTAs’ success, their managers say, is that their models can tune out noise around market moving events—like an election or crucial economic data—that are important to investors but can be difficult to accurately forecast."

The article also quoted Lara Magnusen, portfolio strategist for Altegris’s main fund, who said (bold mine):

"Our models aren’t going to be affected by the same sentiments a human would be"

I thought that this was interesting as it illustrates how the machines can be seen as a way to provide an anchor when people are getting caught up in an emotional frenzy. Think of the implications for the world of audit and assurance, where professional judgement are made to determine what accounts, transactions, etc. are risky and should be tested. Imagine an audit algorithm that can be as an independent monitor that vets judgments of the audit professional - in a "race with a machine" scenario (for more on this idea see the Ted Talk below with MIT professor Eric Brynjolfsson). This could potentially improve auditor judgment, stakeholder confidence and audit quality.

Initially, I think this would be a way for audit firms to reduce the level of uncertainty associated with reviews from the PCAOB, CPAB and their equivalents in other jurisdictions. This would especially be the case if such audit oversight bodies would "bless" such algorithms and be able to ensure that the firms applied such judgment consistently, e.g. by having access to the "audit logs" produce by such programs.

The next - and more controversial step - would be to argue that independence rules can be relaxed in light of such automated oversight. To be honest I think there's a low likelihood of such an idea making traction with regulators in the near future, given that Europe has sought to require mandatory rotations of auditing firms. But it is something that should at least be contemplated, especially when automation becomes commonplace and attitudes may change towards how algorithms can play nicely with humans.

GoldmanSachs on Blockchain: Insights into Audit & Accounting Automation

As noted in this Business Insider article, Goldman Sachs (GS) published a report on blockchain that identifies a number of scenarios where the technology can save billions. The BI article extracted the following use cases from the 88 page report:

• Better authentication of individuals partaking in the sharing economy: Leveraging the "smart identity" functionality of the blockchain, peer-to-peer sharing businesses sites (e.g. Airbnb) can give both the customer (e.g. the renter) and the supplier (e.g. the home owner) greater assurance that the customer is really who they say they are. The GS report also links the identity to smart contracts that facilitates automated performance based payments 
• Accounting system for renewable energy power generation: Where individual homeowners are generating wind or solar power, the blockchain can be the natural accounting system to manage the "debits and credits" transferred back and forth between the energy producer and the network. It also enables payment transfers as well. 
• Reducing back end administration for title insurance: The actual GS report notes how the vast majority of the cost associated with title insurance can be reduced by about 30% using blockchain to manage the underlying property records. Other interesting notes is that they attribute part of the decline to improved actuarial risk calculations due to "greater historical transparency". 
• Improving accuracy and timeliness of trading various securities: The financial services industry usage of the blockchain is quite straightforward - replace the chaotic world of spreadsheet accounting with the streamlined world of blockchain - it is a database technology after all. NASDAQ use of Linq was featured in this DUPress article and can also be found here. The GS report goes into much more granular detail as to the different scenarios on how the back-end system can be improved resulting in less verification issues and improved trading times.  
• Better authentication of customers aka KYC (Know-Your-Customer): As noted in the BI article, "Like with the Airbnb example, Goldman envisions identity data stored on a blockchain that could help finance firms easily and quickly check new customers as part of "know your customer" regulation — a bit like a digital passport."

I went through the long report and extracted the following accounting automation insights:

• Blockchains can reduce spreadsheet funk. Sharing spreadsheets has become the norm in the financial world for being a flexible way to send quantitative information along with context and some formulas here and there; it's how we auditors often get data from the client when asking for a breakdown of an account we are looking into as a part of the audit. It's also error prone. Blockchain, in a sense, is a "napster-esque" way of sharing financial information that ensures a common data structure between the sender and the receiver thereby eliminating the manual verification/handling of spreadsheets (see pages 3 and 10).
• Blockchain can enhance "assurance", where it's not feasible for auditors to do so. On page 16 the report discusses the role of smart identities in assisting the sharing economy. It talks about how required digitally signed user reviews will have greater data integrity as it could reduce the risk of self-inflated reviews. Although people rely on such reviews to buy books, rent hotels, etc., there is risk of fraud where the seller will inflate reviews or pay people to do so. However, with a blockchain enabled smart identity there's a higher level of assurance that the end-user can place on the reviews as it harder for the site owner to fake the reviews due to fact the review is digitally signed. Of course no audit firm would have audited such reviews. But I think that's the point: the blockchain technology fills an an assurance need that auditors couldn't, simply because the delivery of such a service wouldn't be profitable. 
• Blockchain automation will reduce the need for back-end clerical staff (aka accountants): When looking at the application of blockchain to the title insurance industry (see pages 33-39), it notes how 75% of the industry premiums relate to headcount costs. GS puts the reduction in clerical staff by 30% and a 20% reduction in variable expenses (e.g. commissions, marketing, etc.). Blockchain - without AI enhancements - will automate accounting work as part of the automating knowledge work trend. This is of course more clerical tasks, but blockchain will likely result in less headcount within the finance department. 
• Role for third party assurance reports in a permissioned blockchain: The consensus mechanism in the permissioned blockchain is quite different than it's public counterpart, which relies on the proof of work (POW). (See the Khan Academy video, below for the POW and the blockchain section in this post) This is not the case for permissioned system which require the consortium who set-up the blockchain to determine how they will work with each other. This could require auditors to provide assurance over the implementation of blockchain similar to what the SOC report does for cloud computing companies. The report discusses how (see page 29) on how the blockchain will enable "Smart Grid Blockchains" to essentially acts as the record keeping and payment system of energy exchanged by the household owner who has windmills, solar panels to the power grid. But how do we ensure that this being calculated properly? Well, that's where the Processing Integrity Principle of the SOC3 assurance report comes in. It could provide assurance that the blockchain-accounting-payment system is processing the data in complete, accurate and timely manner.  
• Greater visibility, means greater opportunity for audit analytics. One area of cost savings associated with a blockchain enabled title insurance industry is that actuaries will be better able to assess risk  because of "greater historical transparency and immutability into the property registration system" (see page 38). Consequently, where a material amount of transactions are on a blockchain auditors will have (1) easier access to the data (not a trivial matter by any means!) and (2) can run better analytics to identify irregular transactions and (3) enable better ways to assess estimates. 
• Value versus hourly billing: In a number of the use cases identified (e.g. title insurance, settling equities, KYC; see pages 38, 51, 75) noted how the gains (read: headcount reduction) from blockchain enabled automation are expected to be passed on to the customer. Why is this relevant to audit? Audit firms could be expected to hand over automation windfalls to the client and further reduce fees. On the one hand, the more automated the audit, the potentially less fees that audit will capture. On the other hand, regulators may want the auditors to do more with the budget that has been freed up. So the revenue, profitability of highly automated audits will depend on how the regulators re-draw scope in light of such advances. 

Despite having the reputation as a great-vampire-squid, the GS report is quite useful for those working in the blockchain space in identifying the potential for this exponential technology.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else

AI-as-a-Screenplay Writer: Computer overlords strike again?

Normally when I discuss artificial intelligence on the impact of work, it's in the context of the automation of accounting and auditing work (A3W). However, a story that's been circulating for past few days in my Google alerts is the story of the movie Sunspring. Unlike most movies it's not written by human being, but rather it is written by a computer.

Ars Technica, who hosted the online debut of the movie, noted that the script was "authored by a recurrent neural network called long short-term memory, or LSTM for short. At least, that's what we'd call it. The AI named itself Benjamin."
The movie is really odd to put it nicely. However, it does comes across as one of those art movies that (also) don't make any sense. The song in the movie is also generated by the machine.

However, this is not the first time that algorithms have been trained to be artists. Chris Steiner in his book "Automate This: How Algorithms Came to Rule Our World" notes that Emmy,  an algorithm, "produced orchestral pieces so impressive that some music scholars failed to identify them as the work of a machine". In a piece he authored for the Wall Street Journal he notes "analyzing only the script, an algorithm from Epagogix, a risk-management firm that caters to the entertainment industry, predicts box office grosses. Epagogix broke into the business when a major studio allowed the firm to analyze script data for nine yet-to-be released films. In six of the nine cases, its predictions were spot-on. Algorithms have since become an essential tool in Hollywood."

If the chaotic world of creative works can be automated by algorithms, then I think the predictable, routine world of debits and credits can't be too far behind.