Automation Can't Replace Accountants

Government accounting is changing, but we'll still need smart humans in charge.
October 2018
(Shutterstock)
By Justin Marlowe  |  Columnist
Endowed Professor of Public Finance and Civic Engagement at the Daniel J. Evans School of Public Policy & Governance at the University of Washington

Not long ago one of my millennial graduate students asked me, “What exactly do accountants do?”

“They track and report financial activity,” I replied.

“But isn’t there an app for that?” he asked. “Or an algo? Or a bot?”

“Absolutely not,” I said. “There’s no substitute for an accountant’s expert professional judgment.”

But the truth is more complicated.

Apps, bots and other tech are already replacing several professions, including marriage counselors, foreign language instructors and paralegals. They’re also making their way into government accounting, and may mean big changes in how states and localities tell their financial stories.

Think for a moment about what government accountants actually do. A typical city or county performs millions of transactions each year -- from paying employees to collecting taxes to selling old fleet vehicles. Accountants apply a standardized set of principles to determine how each transaction will affect that government’s cash, investments, debt liabilities and other key components of its finances. At the end of the fiscal year, they prepare financial statements that summarize the financial activity according to those same principles.

In other words, accountants are interpreters. They translate a mountain of financial information into accessible, uniform reports. Ideally, those reports are uniform enough to allow comparisons across governments. So if financial reports are based on predictable principles, why can’t a computer do the interpreting for us? 

In a way, that’s already happening. For about a decade the Securities and Exchange Commission (SEC) has required publicly traded companies to do financial reporting through extensible business reporting language (XBRL), a standardized, digital way to represent a company’s finances. Every time a company reports a piece of financial information, the computers that run its accounting system “tag” it with a series of markers. Those markers define that information and describe how it interacts with other financial information according to a standardized set of concepts maintained by a nonprofit, third-party moderator.

The end result is a uniform, XBRL-tagged, computer-readable body of financial information that publicly traded companies can submit to the SEC. Investors, analysts and others can then take that information and produce customized digital financial reports that meet their unique needs. XBRL is not as cool as an app or a bot, but it has ushered along a transformational change in corporate financial reporting. 

That transformation is taking root in state and local government. Earlier this year, Florida Gov. Rick Scott signed legislation allowing the state to establish an XBRL framework for local government financial reporting. Instead of preparing independent financial statements and then shoehorning them into the state reporting system, localities will instead submit XBRL-tagged information directly from their computers to the state. That could save millions of hours and produce much more uniform and transparent financial reports. Several other states are exploring similar legislation, which could lead to standardized information useful to the U.S. Census Bureau, credit rating agencies, bond investors and other stakeholders.

To that end, the State and Local Disclosure Modernization working group, comprising government CFOs, accounting academics and technology leaders, has convened to promote XBRL take-up in governments. This is against the backdrop of the Digital Accounting and Transparency Act, passed in 2014, which encourages a similar transformation for federal financial reporting.

Does this mean the end of government accountants? Not at all. XBRL makes such accountants more valuable than ever. Every government will need someone to build XBRL into its existing financial systems and to help elected officials understand and respond to the barrage of questions that new stakeholders will inevitably ask once they slice and dice the new numbers. Critics also point out that XBRL will be far too expensive and complex for many small jurisdictions.

So there’s no bot to replace government accountants. But there’s a few that might make them more valuable.