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Big Four Invest Billions in Tech, Reshaping Their Identities

Jan. 2, 2020, 9:46 AM

The Big Four accounting firms, through an unprecedented investment of billions into technology, are transforming not just how they operate, but also their very identities.

The tech crusade goes far beyond automating standard auditing and accounting work. Through a focus on artificial intelligence, data analytics, and massive tech training throughout their organizations, the biggest players in accounting are making tech part of their DNA.

“We haven’t become a pure technology firm,” Christian Rast, KPMG LLP’s global head of technology & knowledge said in a recent phone interview. “We are a professional services firm, but technology is core to our future.”

Narayanan Vaidyanathan, head of business futures at the Association of Chartered Certified Accountants, said in an interview Dec. 6 that new technology was fundamentally changing the nature of accounting.

“Many of the routine jobs will go,” Vaidyanathan said, “as areas such as invoice processing are automated. However, many more jobs will be created as accountants and auditors have a wealth of more information available to them: they can now check all of a company’s transactions in real time, with data analytics allowing them to spot trends and anomalies.

“That means accountants will be expected to become business advisers not just number checkers. They need to be on top of technology and train staff to use it.”

Sometimes that could put the big accounting firms in direct competition with the tech giants, which could take over several parts of the finance function.

A survey of 150 large companies in the U.S. and U.K. published earlier in 2019 by Source Global research, a consultancy, found that a third of them were already delegating their audit processes to save money, with another 44% thinking of following suit. About 45% said that this would mean more parts of the audit going to technology firms.

Three Firms: $9 Billion Pledge

KPMG’s December announcement that it would make a $5 billion, five-year investment in technology stems from a 2015 strategic decision to make automation and artificial intelligence central to its future, Rast said.

In September, PwC, also known as PricewaterhouseCoopers LLP, said that it would spend $3 billion on technology and training over the next four years, with Ernst & Young LLP announcing a $1 billion, two year technology investment in 2018. Deloitte LLP hasn’t released an investment figure but is seeking to carve a niche as a leading provider of automation services to law firms and legal offices.

KPMG’s investments center around three areas, according to Rast: developing new cloud-based technology, creating new products, by itself and through outside firms, and training its staff to use the new technology. It has been steadily building up its global capability in all three areas since 2015, with a network of international centers to develop new products, train staff, and foster tech collaboration between KPMG and its clients.

“The technology for audit and consulting are very much linked,” Rast said, explaining that the firm was concentrating on AI and data analytics that could be used both for audit work and to sell to consulting clients (for example, to automate some legal functions such as document searches). “We adapt the technology to our markets: in audit the concentration is very much on improving thoroughness rather than cost saving—we can check all of a company’s transactions now rather than relying on sampling.”

KPMG also announced a partnership program with Microsoft to develop cloud technology to underpin KPMG’s specialist products.

KPMG and EY are both tapping India’s pool of well educated and relatively cheap labor force to develop technology for global use.

Srinivasa Rao, EY’s global vice chair of Global Delivery Services, said the firm could grow its staff in India by 50% over the next year, from around 50,000 today, with around half of the new staff from technology backgrounds as it develops AI and analytics products in the country.

“Really this is aimed at emerging markets,” Rao said, “giving them access to things like machine learning that they can adapt for their own tax or audit products, which often have local requirements.” India will become the firm’s second largest office worldwide, Rao said, after the US.

It feeds into a broader technology drive by EY, which in 2018 announced a two-year, $1 billion tech investment program globally, on top of investments made at a local level. Concentrating on blockchain and automation projects like KPMG, the firm is creating a global technology strategy to rationalize its activities.

One example is Riverside Law, Rao said, a technology-led U.K. law firm that EY acquired in 2018. Through the firm, EY bought the rights to use automation technology that can be sold to legal clients worldwide.

Closing the Skills Gap

PwC declined to be interviewed, but in September it announced a program to spend $3 billion over the next four years, primarily on training all of its 276,000 staff worldwide to exploit new technology.

“The skills gap is an issue that goes to the heart of our purpose and we have the scale and experience to make a measurable impact,” Bob Moritz, chairman of PwC’s International Network, said in a statement announcing the move.

Deloitte LLP hasn’t published a figure for global technology investment, but Bruce Braude, chief technology officer (CTO) at Deloitte Legal, emphasized that it is spending heavily, and that it regards technology as central to the growth of his own division.

“I was hired in July as Legal’s first CTO,” Braude said. “Each of our divisions has its own CTO so that we can work together to offer clients a technology-led solution—traditional lawyers would give a yes or no answer to whether an action was legal, whereas we can combine with other parts of the firm to offer an entire solution, as well as advising legal offices over areas such as automation.”

Digital is becoming core to accounting well beyond the biggest firms, Richard Anning, head of the technology faculty at the Institute of Chartered Accountants in England and Wales, said in a phone call Dec. 10.

“There are software developers now selling packages that can be used by smaller firms, allowing them to use artificial technology and data analysis for audits,” Anning said. “That means they are offering clients more business advice, looking at trends in the data for things like sales.”

Anning said that the ICAEW would introduce the use of such technology into its professional exams within the year.

To contact the reporter on this story: Michael Kapoor in London at mkapoor@correspondent.bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Vandana Mathur at vmathur@bloombergtax.com

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