AI Will Increase Demand for Accounting

Plenty of people talk about AI as a threat to accountants’ jobs. There is widespread fear that technology advancements will make many roles redundant. McKinsey estimated that 12 million people will have to find new jobs by 2030 because of the impacts of AI and automation.

This concern is understandable. AI seems to be making surprising progress on a monthly — and sometimes weekly — basis. The technology’s ability to handle tasks like data entry, calculations, and even some advanced analysis quickly and accurately does seem to imply that fewer accountants will be necessary to get the work done.

But is this the whole picture, or is there a different perspective we are missing? If history serves as a guide, there are reasons to believe that exactly the opposite could happen.

Underlying Misconceptions

The fear surrounding AI in accounting primarily hinges on a few key misconceptions.

First, a task or role do not necessarily equal a job. While it's true that AI can process data at an unprecedented pace, and therefore automate certain tasks, a person’s job is often more than a narrow set of tasks. There could be many aspects of jobs that are not automatable, in which case AI merely becomes another tool someone’s toolbelt.

Second, people may overestimate the amount of accounting tasks that are purely quantitative and easily automated. They may fail to recognize the complexity and variety of work done by accountants. Tasks such as financial planning, interpreting regulations, negotiating contracts, and managing large projects often involve nuanced judgments and teamwork that go beyond the scope of current AI capabilities.

However, even if we assume that many of a team’s tasks can be automated, and headcounts on many teams can indeed be reduced, that doesn’t necessarily result in few accountants overall.

Increases in efficiency can set off a chain of events, producing surprising outcomes.

Jevon’s Paradox

Jevon’s Paradox is an observation that increased efficiency of a process often results in more demand for that process. Efficiency, counterintuitively, leads to more total consumption of resources.

During the Industrial Revolution, as steam engines got more efficient and needed less coal, people thought that the overall consumption of coal would go down. Instead, the opposite happened. Consumption of coal went up. The reason was that as steam engines became cheaper, businesses used those engines more heavily and for more purposes.

During the Data Revolution, as accounting teams require fewer personnel to produce the same deliverables, people expect need for accountants to go down, but the new efficiencies in accounting would more likely result in more accounting activities performed over more aspects of businesses.

The trend in modern business is that stakeholders want more information, not less. Complexity increases. The evidence can be seen in new compliance reporting on ESG, better financial planning and budgeting, more precise cost accounting, better quality assurance, new audit requirements and assurance procedures, new tax regulations.

Freed from the monotony of repetitive data entry tasks accountants can invest their time in these areas requiring more judgment. Furthermore, by developing skills complementary to AI, such as data analysis, cybersecurity, and understanding AI mechanisms, accountants can remain indispensable while increasing their footprint as trusted advisors.

Illustrating the Point

Let's use an overly simplistic example to illustrate the point. Imagine an accountant can perform 20 transactions per hour, and that accountant works 2,000 hours per year, completing 40,000 transactions per year. Then the accountant starts using AI in 2024 and gets a boost in productivity of 20% and can perform 48,000 transactions per year. Assume also that year after year, the accountant continues using better AI systems, further increasing productivity over time.

Example data: Accountant Using AI for Productivity Gains

As the accountant becomes more and more productive over time, the cost per transaction is cheaper. As the cost for accounting tasks becomes cheaper, more businesses more reporting and analysis.

Jevon's Paradox: As Efficiency Increases, Consumption Increases

The power of Jevon’s Paradox is what happens next. Demand for diversified accounting services kicks off a feedback loop.

The AI-Accounting Flywheel

As accounting with AI becomes more efficient and accessible, it increases in both demand and sophistication, leading to higher value and more investment in the field. The cycle then repeats, each time elevating the level of expertise and technology in accounting. Operational accounting roles may see a decrease in demand due to automation, but the overall field grows, especially in areas requiring high-level, specialized skills.

Accounting with AI creates a feedback loop of investment and value

Here is the process broken down:

1. Increased Efficiency through Technology: Start with increased adoption of AI and automation technologies in accounting, which increase the efficiency of standard accounting tasks.

2. Decrease in Operational Costs: This efficiency leads to a decrease in the cost of performing operational accounting tasks. As these tasks become cheaper, the barrier to accessing accounting services lowers.

3. Expanded Use and Demand for Accounting Services: With lower costs, more businesses and individuals find it feasible to use accounting services across more areas of businesses. This might include small businesses that previously couldn't afford comprehensive accounting services or larger businesses expanding the scope of services they utilize.

4. Diversification of Accounting Roles and Services: As demand increases, there's a push towards diversification and focus on more complex services. Accountants move beyond routine, low-value tasks to more complex, strategic advisory roles.

5. Increased Need for Specialized Expertise: This diversification leads to a greater demand for accountants with specialized skills and knowledge. These roles are more technical and strategic, focusing on areas like financial analysis, compliance, risk management, and strategic planning.

6. Higher Value and Compensation for Specialized Roles: As these specialized roles add more value to businesses, the compensation for such roles increases. This attracts more professionals into the field and encourages existing accountants to upskill.

7. Reinvestment in Technology and Skills Development: The high value of complex accounting services leads to reinvestment in further technological adoption and in developing the skills of the workforce, returning to the first step but at a more advanced level.

This virtuous cycle not only elevates the role of accountants but also potentially leads to higher job satisfaction.

Embracing Change and Preparing for the Future

The path described above is by no means certain, but it’s also not the first time that technology has threatened the accounting profession. There have been historical examples where technological advancements were initially thought to replace accountants, but these predictions turned out to be incorrect.

• In the early 20th century, the advent of mechanical calculators was believed to make accountants obsolete. The calculators reduced the time required for a core part of accounting work. However, rather than replacing accountants, calculators became a tool that improved their efficiency and accuracy.

• The introduction of spreadsheet software in the late 1970s and 1980s (like VisiCalc and later Microsoft Excel), led to similar concerns. It was thought that computers could automate much of the routine number-crunching and data analysis, potentially eliminating the need for many accounting jobs. Instead, computers and spreadsheets enhanced the accountants' ability to analyze complex data sets, perform more sophisticated financial modeling, and provide more strategic financial advice.

• In the 1990s and 2000s, the implementation of ERP systems integrated various business processes and aimed to streamline operations, including accounting functions. While these systems automated many processes, they did not replace accountants. Instead, they shifted the focus of accountants towards more strategic roles, such as interpreting financial data, internal auditing, and compliance.

These threats, over time, mean that the role of accountants has experienced volatility, rather than stability. And the accounting profession as a whole adapted, even though many individuals along the way were certainly disrupted. In fact, the role of the accountant in many aspects became stronger and elevated as a result of these changes.

Things that become stronger as a result of volatility have been described as Antifragile by Nassim Nicholas Taleb. As a matter of fact, some of the earliest written records were lists of commodities, similar to an inventory. Accounting is ancient, and has survived many changes because it is better conceived as measuring and report business results, rather than any specific set of tasks.

Regardless of the tools for measuring, stakeholders want to know the results. Accountants will be the name given to the people using various tools to make it happen.

A New Era for Accountants

The integration of AI in accounting isn't a sign of the end of the profession. It’s an indicator of upcoming transformation — and it won’t be the first time. By redefining their roles, accountants can unlock greater potential and achieve greater efficiency and strategic influence.

People who embrace this change will not only secure your place in the future of accounting but also lead the charge in shaping a more dynamic, innovative profession.