The role of data analytics in modern accounting
Posted 12 hours ago by Alison
Data has proven its value across multiple industries in recent years. From media and entertainment to healthcare and manufacturing, businesses that embrace data and analytics tools have been proven to increase their efficiency, better serve customers and boost revenue.
Data can be equally valuable in accounting, with professionals who can understand, translate and analyse financial data increasingly in demand as their impact on business outcomes becomes ever clearer.
What is data analytics in accounting?
As its name suggests, data analytics is the process of analysing raw data and extracting meaningful information. When it comes to data analytics in accounting, its value is in the actionable insights that can be gained and the impact understanding the important aspects of data can have on strategic decision-making. Accountants specialising in data analytics can manage, analyse, and mine multiple data streams to discover granular details that can be used to answer questions, identify patterns and make predictions.
On a practical level, this could include helping tax accountants quickly assess complex tax concerns to make more confident decisions, identify patterns in spending, or anticipate trends. Data analytics can also help manage risks and identify process enhancements to improve efficiency.
The impact of data analytics in accounting
There are several key ways in which data analytics can help clients and ensure accountancy firms are delivering the best possible service. This includes:
Evaluating business performance
Accounting data analytics can help when it comes to evaluating overall business performance. By monitoring financial data such as revenue or production numbers, an accountant can highlight if a company is meeting its goals, if performance is stagnant, improving or declining, and even if it will continue to be viable in the long term.
Risk management
Identifying and managing risk is a vital part of data analytics in accounting. This will include analysing potential risk areas, using predictive analytics to make decisions around specific risks, and analysing the risks associated with funding needs and investment opportunities.
Planning for the future
Data analytics can help in several ways here. For example, historical sales numbers, employee retention patterns, organisational spending, and equipment lifecycles can all help a business better plan for its future needs. Analysing past performance and looking at current trends can also uncover opportunities for growth and diversification or identify a competitive advantage that may otherwise have been missed. With the insight that data analytics can provide, a company can make decisions that will benefit its bottom line. Additional data points to consider include purchasing behaviour, market trends, inventory management and customer orders.
Identifying business improvement opportunities
Looking at past sales figures and forecasts along with operating costs can highlight areas where a business isn't performing as it hopes and where improvements may be possible. Adding cash flow into the mix can also lead to accountants identifying places where a company can reduce losses or invest profits more wisely.
Improving the client experience
Overall, an accountant skilled in data analytics will generally improve the client experience. This could be through offering tailored, personalised and accurate insights that impact business performance or delivering real-time insights and results that allow businesses to respond more quickly to situations. This helps businesses deliver a better service to their customers without the distractions that come from being in a precarious financial position.
Key tools used in accounting data analytics
So now the benefits of data analytics in accounting are clear, how do you deliver this service to clients? The key is to make sure you have the right tools and can fully utilise them.
Accounting software
Central to any effective data analysis setup, accounting software lets users record and access real-time financial data in seconds. It also helps automate tasks, reduce errors, and improve efficiency. The ability to create reports, view dashboard overviews of critical metrics and use categories to track and report across divisions, departments or people make this an essential tool.
Spreadsheets
Tools such as Excel can also have a role to play in data analysis, offering a way to perform complex calculations quickly and view data in a format that is easy to understand.
Data mining tools
With so much data out there, being able to extract the value without having to wade through unnecessary information is a must. This is where data mining software that can identify patterns in large data repositories comes in. It can identify potential fraud, better organise accounting data and even predict audit opinions on financial statements.
Business intelligence tools
Business intelligence tools enable accountants to extract actionable business insights from a data set. They help clean and model data and deliver easy-to-understand visualisations, such as graphs, charts and maps, that can offer clear insights and identify areas needing attention.
Major challenges faced in implementing data analytics in accounting
While data analytics in accounting undoubtedly offers clear business benefits, it's not yet being implemented on as wide a scale as expected. This is because several challenges associated with data analytics in accounting still need to be addressed.
Lack of expertise
Data analytics is complex and requires skilled, knowledgeable professionals to implement it effectively, and many accountants don't have the skills needed. One way to overcome this skills shortage is emphasising the importance of analytical ability during the recruitment process.
Time constraints
Even those professionals with the necessary skills can struggle, however, as data collection and analysis takes a fair bit of time and effort that they may not have available. Investing in the right tools and systems is critical to enable accountants to use their time as wisely as possible.
Inaccurate data
The quality of the data accountants are working with will directly impact the quality of the analysis they can carry out. If there are errors in the data, perhaps due to manual entry of numbers, data analysis could lead to a business making the wrong decisions. Again, tools such as accounting software can help to reduce this risk, eliminating the need for manual data entry and automating some tasks.
Budget issues
Implementing data analytics takes investment, whether that's in the right people or the right tools. And, as its benefits may not be visible immediately, it can be challenging to justify the spend. Adequately funding your data analytics setup is essential; however, costing it, including ongoing software costs, is critical. Monitoring the impact data has on your business, whether in terms of improved efficiency, better decision-making, or better customer outcomes, will help you see the positive side of your investment.
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