Advanced data analytics is fast transforming every aspect of finance. It’s already having a profound effect on bond markets, financial analysis, and everyday business operations. Here is a look at the effect of advanced data analytics in the field of accounting.
Activity Based Cost Accounting
Activity-based cost accounting refers to the tracking of expenses, and not just in broad categories like labor costs, material costs, utilities and capital expenses. Instead, it breaks down costs into much smaller categories. For example, a business could track labor costs to the fraction of an hour for many different projects by assigning each project a labor charge number. The same is done for materials and runtime for equipment.
This allows businesses to see exactly which products are demanding the most time, which ones are requiring the most overhead labor, and which products are seeing the most wasted time or generating the most scrap. Data analytics tools allow accountants to generate these reports far faster while drilling down to specific areas quickly. Villanova University offers a master’s degree precisely for this skillset.
Faster Auditing
Data analytics makes it possible to have data inputs screened according to logical rules and flag unusual entries. Data analysis tools also make it easier to scan for inconsistencies like employee time theft, for instance. These same tools make it possible to arrange mass corrections of entries when required. Tools like this are taught in the Villanova University's Online master of science in analytics program.
Data analytics can be used to identify potential fraud, such as regular payments just below reporting thresholds. While reporting will not always identify actual fraud cases and legitimate activities may get flagged, it can identify many likely cases for investigation that are quickly weeded out. Now auditors focus more on proving or disproving a case over looking for potential cases.
For formal auditors, data analytics let them analyze the books and verify compliance in inventory management, payment practices, and labor billing.
Customer Analysis
Customer data analysis is becoming routine for businesses. Who is buying more of a product? Who is buying less? What are the purchases that signal someone is shifting their interests or has changing needs? What are the demographics of the highest volume customers? This in-depth analysis allows businesses to know who to target to keep engaged, who to give targeted advertising to in order keep them buying, and which customer segments you may want to stop serving.
Risk Analysis
Risk analysis and risk mitigation is a common specialization for accountants, driven by businesses that proactively want to plan for the future and minimize the chance they fail. Just as data analytics allow businesses to better understand the behavior of customer segments and their trends over time, businesses can use the same analysis tools to track financial trends over time. Now you can see if a profitable customer segment is slowly declining in numbers, purchase intervals or profitability. You can see how dependent your business is on profits from a specific product line or service and then either bolster it or improve the profitability of other segments.
Conclusion
Advanced data analytics is facilitating the work of accountants in more ways than one and we can expect it to keep changing the field for years to come.