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Accounting News Roundup: KPMG Teams With Watson and PwC Gigs | 03.08.16

Auditing Firms Count on Technology for Backup [WSJ]
This is an excellent report from Michael Rapoport on auditing firms using artificial intelligence, most notably, KPMG's partnership with IBM that was announced this morning.

KPMG LLP and IBM (NYSE: IBM) today announced plans to apply IBM's Watson cognitive computing technology to KPMG's professional services offerings.  The agreement, including a focus on auditing services, builds on several recent successful KPMG initiatives demonstrating the promise of cognitive technologies in transforming the firm's ability to deliver innovative and enhanced business services.

"The cognitive era has arrived," said Lynne Doughtie, KPMG LLP Chairman and CEO. 

For the machines, that is!

You can read that press release if you like, but let's go back to the Journal article:

Among other benefits, the technology helps automate labor-intensive, relatively menial tasks, such as tallying a client’s inventory. Until a few years ago, auditors did that task manually, armed with little but calculators and clipboards.

Not only can computers review nearly all a client’s transactions, instead of just a portion, they can see patterns in oceans of data that might be invisible to human auditors. They can determine whether a company records lots of sales just before a quarter ends, or pays lots of bills just afterward, timing that might inflate its results. They also can see if multiple, unusually big transactions involve the same person, a potential sign of fraud.

“Now you know exactly where to dig in and dive,” said Randy Leali, Ernst & Young’s global audit transformation leader.

There are worries, of course. Like, what does this mean for the ol' pre-AI auditors? It could "[spur] changes in the skills that auditors need, in what kind of auditors are hired and how they are trained." Or it could attract new people! But then auditors might become too reliant on technology rather than their own judgment. Oh! And then there's the cybercriminals, of course.

For big audit firms and their clients, this development is exciting because it breathes life into a staid service. People have griped about the cost and ineffectiveness of audits for years, so throw in some Watson and the whole thing gets interesting again. (I'm hoping for "Auditor Watson" commercials.) But what about fraud? What about audit opinions that go beyond tepid "reasonable" assurance?

Some say the new tools might have helped stop frauds like those at Enron Corp. had they been available then. “If these tools had been around 15 years ago, could some of the things have been prevented? You bet,” said Michael Gallagher, a managing partner at PwC.

This is nice, but all the fancy schmancy technology in the world won't fundamentally change audits unless firms transform the true nature of assurance. That is, meeting the expectations of the public and investors, which is — right or wrong — to detect fraud and give us the warmest, fuzziest feelings imaginable. People haven't thought too highly of audits in a long, long time and the technology could make AUDITING GREAT AGAIN. But if KPMG trots out Watson just to count inventory and test 100% of loan portfolios, this is little more than window dressing.

PwC launches online market place to tap into ‘gig economy’ [FT]
In humans-working-for-accounting-firms news, PwC wants people looking for gigs:

The firm, which is the largest of the Big Four assurance and advisory firms by revenues, has launched what it calls “Talent Exchange”, an online platform that directly connects independent professionals with PwC teams. Freelancers register, upload their CVs, then apply to work on the firm’s client projects — from IT implementations, to product life cycle management, to anti-money laundering.

Basically, it's PwC's version of Craigslist without all the used bicycles and casual encounters. Newly deified global chairman Bob Moritz gets rhetorical about it: "the question is, how do I quickly scale up my own technology and recruitment processes to change, so I can bring third-party independent contractors to the table, as opposed to full-time hires?"

As the Big 4 becomes more and more reliant on services that are not accounting in nature, they'll adapt processes that the people they seeking are accustomed to. Since lots of creative and technology work is project-based, that means retaining people on a temporary basis. And since over 50 million people in the US are now freelancing, it seems silly to not use them just because they don't want a full-time job.

Previously, on Going Concern…
We welcomed Blake Oliver as a new contributor. He explained why accountants suck at marketing in his debut.

In other news: