Accounting Horizons American Accounting Association

Vol. 29, No. 2 DOI: 10.2308/acch-51069

2015
pp. 397–407

How Big Data Will Change Accounting

J. Donald Warren, Jr., Kevin C. Moffitt, and Paul Byrnes

SYNOPSIS: Big Data will have increasingly important implications for accounting, even
as new types of data become accessible. The video, audio, and textual information made
available via Big Data can provide for improved managerial accounting, financial
accounting, and financial reporting practices. In managerial accounting, Big Data will
contribute to the development and evolution of effective management control systems
and budgeting processes. In financial accounting, Big Data will improve the quality and
relevance of accounting information, thereby enhancing transparency and stakeholder
decision making. In reporting, Big Data can assist with the creation and refinement of
accounting standards, helping to ensure that the accounting profession will continue to
provide useful information as the dynamic, real-time, global economy evolves.

Keywords: Big Data; financial accounting; managerial accounting; video and image
data; audio data; textual data.

INTRODUCTION

A
ccounting records are historically financial in nature and consist of data aggregated and
used to prepare financial statements for internal (e.g., management) and external (e.g.,
investors and creditors) users. Database systems brought capabilities to collect and
evaluate both financial and nonfinancial data types. Presently, Big Data offers an unprecedented
level of potential relative to the provisioning of diverse, voluminous datasets and sophisticated
analyses. The rising importance of Big Data will significantly impact accounting. This will be
reflected in how data are accumulated and recorded, how management uses data to attain
organizational goals, and how reporting elements are processed and assembled.
Accounting records are ‘‘records of financial transactions, or of events expressed in monetary
terms, made for the purposes of accounting’’ (Accounting Dictionary 2014). Although such records
are historically physical, they are now almost exclusively digitized. For example, in 2000, about 25
percent of all stored information was digital, whereas currently more than 98 percent of this
information is electronic (Cukier and Mayer-Schönberger 2013). Data streams fueled much of this

J. Donald Warren, Jr. is an Assistant Professor at University of Hartford, Kevin C. Moffitt is an

Assistant Professor and Paul Byrnes is a Ph.D. student, both at Rutgers, The State University of
New Jersey, Newark.

We thank Miklos A. Vasarhelyi, the manuscript review team, and the editorial staff of Accounting Horizons. Their
insightful comments and guidance substantially improved the quality of this paper.
Submitted: January 2015
Accepted: February 2015
Published Online: February 2015
Corresponding author: J. Donald Warren, Jr.
Email: jdonwarren@aol.com
397
398 Warren, Moffitt, and Byrnes

shift because automatic sensor devices and machine-to-machine communications continuously

generate data.
In conjunction with this phenomenon, organizations collected more data during the past two
years than in the previous 2,000 years (Syed, Gillela, and Venugopal 2013). The bulk of these data
are unstructured and often derived from sensors and social media. Organizations leverage these data
to improve business performance and profitability. Indeed, firms that incorporate data and related
business analytics effectively achieve 5 to 6 percent gains in productivity (Brynjolfsson,
Hammerbacher, and Stevens 2011). In fact, Big Data can be viewed as a corporate asset analogous
to brand image (Brown, Chui, and Manyika 2011). Accumulating and evaluating Big Data are
rapidly becoming key elements in establishing and maintaining a competitive advantage (Bughin,
Livingston, and Marwaha 2011).
Big Data collection and analysis are expanding at an exponential rate. This unfolding
phenomenon has implications for the evolution of financial and managerial accounting practices. In
the following sections, we discuss new types of data that comprise Big Data and consider how they
could impact both managerial and financial accounting. We then address limitations and risks
attributable to Big Data and offer concluding observations.

DIFFERENT TYPES OF BIG DATA AS A SUPPLEMENT TO EXISTING

ACCOUNTING RECORDS
Big Data consists of datasets so voluminous they cannot be reasonably analyzed using database
management systems or traditional software programs. Furthermore, Big Data consists of structured
and unstructured data (about 90 percent is unstructured) and includes soft information such as email
messages, social media postings (e.g., blogs, tweets, Facebooke entries), phone calls, website
traffic, and video streams (Syed et al. 2013). Given the increasing presence of unstructured data, in
this paper we consider the different data types that exist and how they supplement and enhance
traditional financial information.
Because of Big Data technologies, companies can leverage any computational technique that
generates information from data to make huge datasets useful for decision making. Data of interest
can include unstructured video, images, audio, and textual files. In the following sections, we
describe information that can be generated from these data types and how this will augment
financial information.

Video and Image Data

With the ubiquity of video and image capture devices, visual data are more prevalent than ever.
The use of these data to augment accounting records is quickly becoming a reality as video and
image storage, processing, and analytic techniques mature.
Evolving approaches that derive objective information from video increase the feasibility of
video-enhanced accounting records, particularly as they relate to internal controls. A recent
Metaxas and Zhang (2013) meta-analysis describes algorithms that detect entry into restricted-
access areas, count objects, analyze scenes, monitor vehicles, and detect emotions. These methods
can add important information to accounting records including (1) surveillance footage to reveal
when and how many times a restricted-access area is entered, (2) workplace video to track worker
productivity (e.g., who is spending too much time around the water cooler), (3) video of inventory
to assess real-time quantity changes to measure throughput and identify bottlenecks, and (4) video
of the condition of property, plant, and equipment as an additional component to address potential
impairment issues.
Interview video data could also be a source of accounting information. Analyzing periodic
interviews of management and the board of directors to extract content, emotion, and deception

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would provide nonverbal information about business and audit risks. In fact, these nonverbal
components of interviews can be more valuable and relevant than the verbal content (Guffey 2006).
Interview video data, combined with vocalic and linguistic elements, creates a more complete
picture of executive intent and potentially gives insights about a company’s health. To collect
interview data efficiently, the process could be automated (Pickard, Burns, and Moffitt 2013).
Increasingly sophisticated computer algorithms process and interpret static images. Accurate
object detection and semantic segmentation of images (Girshick, Donahue, Darrell, and Malik
2014) help computers automatically categorize and interpret images. Algorithms for object and
scene recognition (Torralba, Fergus, and Freeman 2008), crowd-sourced training of object detectors
(Vijayanarasimhan and Grauman 2014), and emotion detection (Cowie et al. 2001) contribute to
this process. Similar to video data, these methods could extract valuable business data from images
including objects and scenes that appear in company-related images uploaded by customers, the
demographic breakdown of product users featured in those images, and the condition and use of
company products found in images. Image analyses could generate useful business insights,
including but not limited to knowledge concerning product usage tendencies, and accurate
assessments of corporate image. Indeed, business disclosures that incorporate supplemental
nonfinancial information, including video and images, can even enhance the perception of
investment quality (Basoglu and Hess 2014).

Audio Data
Audio data related to business activities could also enhance accounting records and the quality
of financial information. Potentially important audio sources include quarterly conference calls,
shareholder and board of directors meetings, customer calls, internal employee phone calls,
microphones placed on company premises for surveillance, and audio from video sources
mentioned in the previous section.
Supporting the aforementioned assertions, Mayew and Venkatachalam (2012a) analyzed audio
from quarterly earnings calls to detect cognitive dissonance in the speech patterns of chief executive
officers. Their research showed a positive relationship between vocal cognitive dissonance markers
and the likelihood of restatements attributable to irregularities. In a related study (Mayew and
Venkatachalam 2012b), positive and negative affective states in earnings conference calls
significantly correlated with stock returns. Recently, vocalic measures have been included as
independent variables in assessing trust (Elkins, Derrick, Burgoon, and Nunamaker 2012), as well
as the interactional synchrony between deceptive interviewers and interviewees (Tower, Jensen,
Dunbar, and Elkins 2013). Other applications of audio analysis include crime detection
(Radhakrishnan, Divakaran, and Smaragdis 2005), event identification in audio streams (M. Xu,
Maddage, C. Xu, Kankanhalli, and Tian 2003), and mood detection (Lu, Liu, and Zhang 2006).
With these audio data streams, Big Data can provide additional evidence to support accounting
records. For example, audio interviews with construction engineers during the construction phase of
plant assets offer additional evidence of their value and estimated period of benefit. This would help
future accountants understand the basis for valuing these long-term assets and assist them in
addressing potential impairment issues. Also, enhanced analysis of audio data from customer phone
calls could yield additional customer satisfaction and product quality information and ultimately
improve estimates for warranty liability.

Textual Data
Textual data include nonfinancial or soft documentation. Some significant repositories of text
are SEC filings, emails, web pages (including corporate documents found on company websites),
news media, and social media. Social media is one of the largest and fastest-growing collections of

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relevant textual data. For example, the number of Facebook participants, Twittere users, and public
blogs as of 2013 was 700 million, 250 million, and 156 million, respectively (Syed et al. 2013).
Data from these sources will be instrumental in assessing and improving business performance.
Email data are already mined to mitigate occupational fraud losses in the United States. These
losses reached an estimated $652 billion in 2009 alone, and dissatisfied employees were the primary
contributors (Holton 2009). U.S. fraud losses continue to climb, rising to an estimated $1 trillion in
2012 (ACFE 2013). In seeking measures for reducing fraud attributable to employees, text mining
of email messages identifies disgruntled workers and predicts and addresses organizational fraud
risk (Holton 2009). More importantly, this method unearths pertinent information not revealed in a
traditional fraud audit. Fraud Triangle Analytics (a fraud discovery method) applies the principles
of the fraud triangle in analyzing email messages to detect employees with the opportunity,
motivation, and rationalization to commit fraud (Torpey, Walden, and Sherrod 2009).
As companies extract and integrate information from video, audio, and textual data with
traditional financial data, they enhance their abilities to evaluate and predict business performance
for managerial accounting purposes. For instance, customer satisfaction is an important element of
product and company value, and advanced analytic techniques can measure satisfaction levels.
Customer feedback on websites and social media (e.g., positive words and phrases), customer
telephone complaints and inquiries (e.g., vocal stress and tension), and Internet video reviews posted
by customers and bloggers (e.g., frowns and other negative gesturing) could add to a customer
satisfaction analysis. Finally, employee satisfaction is measured using similar types of data.

THE EFFECT OF BIG DATA ON ACCOUNTING

Managerial Accounting
Managerial accounting refers to the use of information generated from accounting records to
help managers carry out their duties. One significant task for management accountants is to create
systems that align organizational goals with the behaviors of management and employees. These
behavior-regulating devices are known as management control systems (MCSs) (Malmi and Brown
2008). They are distinguished from information and decision support systems that help managers
make decisions.
Research shows that managers will change their actions to achieve incentives tied to behaviors
(Ullrich and Tuttle 2004). Thus, when creating measures and associated incentives, managers must
consider whether the incentives are aligned with corporate goals. One MCS that aligns metrics with
company goals is the Balanced Scorecard (BSC) (Kaplan and Norton 1996). This system identifies
financial and nonfinancial measures for behaviors that best fit with business objectives. How
statistics from organizational units compare with the identified measures and associated goals
constitutes management performance. As a result, the BSC and other MCSs identify positive
(negative) management behaviors and then reward management for doing (avoiding) them.
Big Data can play a role in MCSs by discovering behaviors correlated with specific goal
outcomes, which would prompt the creation of corresponding performance measures. For example, the
BSC collects data in four areas: financial, customer, internal business process, and learning and growth.
Within each area, Big Data can identify new behaviors that influence respective goal outcomes. For
instance, web use while at work may be tied to learning and growth goals, internal emails may correlate
with the effectiveness of internal business processes as well as customer service quality, and customer
service quality may be related to vocalic cues mined from customer service calls.
In general, Big Data analyses can facilitate the discovery of important measures to be
incorporated in MCSs. Companies can use metadata, such as the amount of time spent on a
telephone, to track productivity. In sales, greater phone use might indicate higher productivity,
whereas the converse could be true in manufacturing. Employee computers can also be monitored

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to generate activity logs that contain data on web use, click streams, and time spent using
productivity software such as MS Excelt. Companies can also monitor employee telephone calls,
emails, and in-office behaviors. Furthermore, companies can track what employees do with
company resources away from the office including vehicles, cell phones, and P-Cards. Big Data
could convert MCSs into comprehensive monitoring and control systems (CMCSs).
A possible drawback of CMCSs, or increased employee monitoring in general, involves
backlash attributable to economic, legal, and ethical issues (Martin and Freeman 2003). Also,
excessive tracking could suppress employee creativity and/or motivation. If employers constantly
micromanage employees, then they may fear showing originality or initiative. Hopwood (1972)
demonstrated that monitoring through performance evaluations could be detrimental to morale and
productivity if the wrong constructs are measured. For example, in the minds of managers, profit-
based measures were much more ‘‘fair’’ than budget-oriented indicators. Indeed unfair (as perceived
by managers) performance measures can cause negative behaviors including management avoiding
difficult problems, making decisions that inflate profits (or reduce costs) in the short term, and
causing harm to the company in exchange for short-term gains.
The goal of monitoring and performance evaluations should be to improve productivity.
Consequently, academic research has focused on identifying measures that will properly motivate
workers (Carmona, Iyer, and Reckers 2014). Big Data may hold the key to discovering new
motivational measures and identifying harmful ones. Association rule learning is a technique for
discovering correlations in very large datasets, such as relationships between good management
performance and variables previously not considered. For example, the tone of emails and phone
conversations made on company equipment could be indicators of employee morale. The number
of emails sent by managers could be a proxy for productivity, and video-captured body language of
customers could be a proxy for customer satisfaction. The more data that is captured, the greater the
opportunity to discover useful knowledge.
Budgeting represents one area of management control that has branched out from traditional
data sources and embraced new methods of control. Traditional budgeting activities have been
criticized for being too inwardly focused, stifling creativity and hampering competitive edge in an
information economy (Bourmistrov and Kaarboe 2013). Because of the problems linked with
budgeting, many companies are doing away with traditional methods and implementing so-called
beyond budgeting techniques (Bourmistrov and Kaarboe 2013). Beyond budgeting is the use of
alternative sources of information for operational planning, performance evaluation, communication
of goals, and strategy formation. It is enabled by new information streams, such as those available in
enterprise resource planning (ERP) systems (Hansen and Van der Stede 2004). Big Data, including
additional streams of data outside ERP systems (e.g., climate, satellite, census, labor, and
macroeconomic data) could be used to enhance beyond budgeting practices. Companies could also
use internally generated data, including the nontraditional accounting data discussed above.
Big Data could aid management accounting and MCSs in particular. Before this can be done,
however, data repositories must be transformed into actionable information. This middle layer
between data and packaged information is where the roles of statisticians and data analysts (also
known as data scientists) lie. For management accountants to use Big Data, those with expertise
must first understand, mine, transform, and analyze the data. While accumulating data has proven to
be easy and sometimes incidental to other activities, management cannot reap the benefits without
additional resources.

Financial Accounting
In the United States, financial accounting is mainly concerned with preparing financial
statements in accordance with generally accepted accounting principles (GAAP) and subsequent

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dissemination of information to external stakeholder groups (Accountingverse 2014). This branch

of accounting is distinguished from managerial accounting in that it provides financial information
produced in alignment with a set of standards (e.g., U.S. GAAP in the United States) to
stakeholders outside of the organization. Big Data could significantly influence the future of
financial reporting and the evolution of generally accepted accounting principles.
The forms of Big Data discussed in this paper (i.e., video, images, audio, and text) complement
traditional financial information and can provide improved transparency and usefulness for decision
making. For instance, relative to fixed assets, ERP systems can augment records with video clips
and other types of multimedia. In this way, the user obtains a more comprehensive view of each
asset’s condition, features, and characteristics. This improved transparency not only assists in
meeting stakeholder needs, but also provides benefits to auditors addressing pertinent assertions
about fixed assets. For example, an auditor seeking to test the existence assertion relative to fixed
assets would face a less-challenging task if each asset record were complemented with pertinent
audio, video, and textual information. Using Big Data technologies, these data can also be analyzed
in the aggregate via data mining to detect outliers or other irregularities, thus assisting auditors,
management, and other stakeholders.

Reporting of Off-Balance Sheet Assets

Balance sheets omit several intangible items of significance because their values are difficult to
determine objectively (Kieso, Weygandt, and Warfield 2013). Such off-balance sheet assets include
the customer base, human resources, commitments, product quality, vendor base, company
reputation, and so forth. Because these assets differentiate organizations and deliver competitive
advantages, information about these items is clearly of value to organizational stakeholders. As of
2004, U.S. company investments in intangible and tangible assets were at comparable levels (Lev
2004). However, many countries are experiencing faster investment growth in intangibles relative
to physical assets, fostering an increase in the ratio of off-balance sheet to on-balance sheet items
(Organization for Economic Cooperation and Development [OECD] 2013). This creates a situation
in which traditional financial statements are declining in relevance, thereby becoming progressively
less useful for decision making.
At the firm level, attempts could first be made to understand the general nature and
characteristics of a given intangible of interest. This is precisely where Big Data can help. For
example, key indicators associated with a target asset could be accumulated, processed, and
analyzed via data-mining algorithms. The resulting information would have immediate value
potential and could be subsequently disseminated to stakeholders. In the short run, this information
might be largely qualitative and therefore supplement the notes to financial statements. In this way,
stakeholders would have some access to increasingly important off-balance sheet intangible signals.
Ultimately, as data collection and analytical processing evolves, substantially quantitative valuation
methods could be developed for these soft assets, allowing them to appear in the actual financial
statements. Big Data could play a vital role in this process. Moreover, it could affect the evolution
of accounting practices, thus influencing the manner in which reporting takes place.

Fair Value Accounting

Financial reporting is adopting a fair value orientation (Lee and Park 2013). For more than a
decade, the Financial Accounting Standards Board (FASB) and the International Accounting
Standards Board (IASB) have been working to converge U.S. GAAP and International Financial
Reporting Standards (IFRS). This effort is controversial, especially given the conflicting positions
in application of fair value accounting under certain conditions. For example, key differences
persist in addressing fair value accounting for property, plant, and equipment. Although IFRS

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allows for a fair value approach and associated revaluations, U.S. GAAP mandates property, plant,
and equipment be reflected at historical cost and prohibits the use of fair values except in cases of
impairment. When impairment occurs, U.S. GAAP requires each affected asset be revalued to the
impaired lower value (Grant Thornton 2014).
Big Data can help address the disparity between U.S. GAAP and IFRS fair value accounting
and help create a global set of accounting standards. One potential method for facilitating this
process entails the use of long-lived Internet software agents.1 The function of these agents would
be to collect information to assist in the valuation of otherwise hard-to-value assets by using
extensive automated Internet search methods running over extended periods of time.
The design and implementation of long-lived Internet agents have been examined (Warkentin,
Sugumaran, and Sainsbury 2012; Kauffman, March, and Wood 2000). These are described
generically as software programs that assemble data useful in various decision-making routines.
Agents operate continuously or periodically to collect and evaluate designated data from the cloud.
As agents retrieve, process, and accumulate information, it is stored for subsequent analyses.
Because agents operate frequently and generate all available information related to a phenomenon
of interest, the sizes of the corresponding datasets can quickly become excessive.
In the fair value accounting (FVA) estimation context, agents search all relevant web-based
information to maximize Levels 1 and 2 fair value estimates with objective, observable, and current
market data. If each company had this method of access, then agents could function with a
standardized process in generating information for making FVA estimates.
In extending this idea, data service firms specializing in providing fair value information about
assets and liabilities might emerge in the marketplace, similar to current valuation firms that provide
appraisal and estimation services. At one extreme, these entities would establish service agreements
with companies to provide regular data and/or estimates for all assets and liabilities, and such
contracts might also provide for actuarial-oriented assessments in cases where Level 3 assessments
are necessary. At the other extreme, these organizations would generate data in a one-time instance
for a single asset or liability. In addition, auditors might use these services in confirming the
reasonableness of established fair values in a fashion similar to how auditors enlist independent
experts in making basket asset valuations. Regardless of how the information acquisition process
unfolded via Big Data, subjective assumptions in FVA estimates would be mitigated.
For example, consider the impact FVA would have on depreciable assets. Currently,
depreciation schedules reflect the change over time in value of such assets based on their estimated
useful lives and presumably match the manner in which these resources contribute to revenues.
However, various depreciation approaches (i.e., straight-line, accelerated methods, or units of
production) are available. Furthermore, selecting a depreciation method is a discretionary
accounting decision and varies among organizations. Although straight-line is the most common
method (Merritt 2013), it often does not properly reflect the change in asset value over the benefit
period. Vehicles in a truck fleet might be replaced based on years of service or number of miles
driven, and the straight-line approach could be selected in either case to recognize the costs of the
vehicles over their useful lives. However, this will typically not reflect how vehicle values change
over time. In particular, there is a negative relationship between vehicle age and decline in value.
Specifically, a new truck naturally incurs the greatest decrease in worth during the initial year and
progressively lower decrements in value in subsequent years. A vehicle operated less frequently
tends to maintain a relatively higher value, suggesting that a metric based on mere passage of time
is not a good estimator of value change in such instances. FVA could resolve this problem by

1
Agents in the software context are computer programs that mimic human actions. Long-lived Internet agents operate in
the cloud and can be equipped to collect, process, validate, and disseminate large volumes of data of varying data types
over an extended period of time (Kauffman et al. 2000).

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eliminating the need for and use of depreciation schedules that are often arbitrary. With FVA, the
value of a vehicle is simply modified in each reporting period in response to relevant marketplace
variables.

BIG DATA LIMITATIONS AND RISKS

High-quality sensors, exponential increases in storage capacity, and sophisticated algorithms
have given rise to Big Data and its increasingly broad applications. However, for each company, the
usefulness of the data is limited by quantity, quality, and accessibility. Many organizations cannot
apply Big Data techniques simply because the entities cannot overcome a limiting factor, such as
lack of data (quantity), irrelevance or data from questionable sources (quality), or insufficient
expertise in extracting information (accessibility). Because of this, one of the first action items for
businesses that wish to include Big Data in their accounting records is to identify the data, assess
their suitability for the task at hand, and decide whether the analyses should be outsourced. Failure
to properly perform this process could diminish the quality of the accounting records and
underlying confidence in the financial results.
Apart from the responsible handling of Big Data, companies that are defendants in lawsuits
must also consider the possibility of adverse litigation outcomes, not unlike what currently happens
when a plaintiff’s expert arrives at a different value for damages. These latter experts would have
access to Big Data archives in arriving at potential damages. Accordingly, the e-discovery issue
presented via Big Data could lead to potentially increased liability for organizations. The
complexity of Big Data’s use in computing damages may create confusion on the part of either a
judge or a jury in understanding the underlying assumptions for determining amounts to be awarded
to plaintiffs. As with any change in the valuation model, this is a legitimate concern and will need to
be addressed as the rise of Big Data continues.

CONCLUSION
In this paper we have described how video, image, audio, and textual data can change
accounting; specifically in the areas of budgeting and MCSs, supplementing original
documentation, and offering additional evidence to justify the values at which transactions are
recorded (see Table 1). Moreover, such data may provide a rich historical perspective of the
decision processes implemented in measuring asset values.
In addition, we have argued that Big Data can supplement financial statement assertions by
management. Assertions such as ‘‘existence’’ and ‘‘valuation’’ can be augmented by nontraditional
accounting data. These data can enhance documentation to improve an accountant’s confidence
level in these assertions. As U.S. GAAP continues to move toward a fair value model, the
‘‘valuation’’ assertion can likewise be augmented by these data. Since valuations are subjective and
dependent on quantitative and qualitative data, supplemental data could provide historical evidence
for the basis of arriving at a fair values.
With Big Data, the convergence between U.S. GAAP and IFRS might be accelerated, helping
to construct a global accounting regime with fair value accounting as a key cornerstone. Through
the use of intelligent agents operating in the cloud, all valuation-relevant data pertaining to assets
and liabilities could be captured, processed, and disseminated globally.
As technology has advanced, so has the process of accounting for financial transactions.
Accounting records have evolved over time from handwritten books of original entry, to electronic
accounting machines, to present-day ERP systems. Big Data is yet another technology paradigm
that will change how financial transactions are supported. It will enhance measurement processes
through new forms of evidence to support management’s accounting for transactions.

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TABLE 1
Summary of Big Data Benefits
Area/Domain Big Data Can Assist in Addressing
Audio Asset security/surveillance, employee productivity, individual characteristics
such as integrity, mood, deception, etc.
Video and Image Nonverbal communications, manufacturing process productivity, asset
security/surveillance, employee productivity, object recognition
Text Fraud, customer satisfaction, sentiment, employee satisfaction
Managerial Accounting Management control systems, budgeting, manufacturing process issues,
employee productivity, customer satisfaction
Financial Accounting Asset valuation, accounting record completeness and accuracy, accounting
estimates, reporting transparency, fair value accounting issues, convergence
of accounting standards, evolution of accounting standards, audit efficiency
and effectiveness

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June 2015
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