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Accounting trends of the future -a behavioral analysis

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Journal of Applied Research in the Digital Economy, Accounting trends of the future – a behavioral analysis

Accounting trends of the future

– a behavioral analysis

Dirk Beerbaum
Aalto University School of Business

June 2020

Abstract
The academic accounting literature usually pursues a backward view. Accounting topics are
explored considering past implementation in the economic practice in a “look backward”
approach. This is very much criticized outside academia, as academia may thereby miss the
practical relevance due to this, as companies contrary need to incorporate forward looking
information and they have to identify trends impacting them. The introduction of IFRS 9 as of
2018 has demonstrated that prospective forward view becomes more important an it is very
probable that in the future accounting standard boards will continue to in academia is said to
therefore fail to treat real practical business issues on time as for lacking the intention to perform
any predictive statements. Accounting is the language of business, however, the landscape of
business is changing dramatically at breakneck speed with a technological disruption ongoing in
the wake of the artificial intelligence, algorithms and robotics introduction into our contemporary
economy. This paper intends to follow a prospective approach and future-oriented direction in
attempting to discuss future topics in accounting. The paper serves to support the integration of
novel economic growth features derived from the new economy that are not accounted for in
neither standard economic growth theory nor accounting standards.

Keywords: Accounting, Accounting standards, Agile organizational model, Information

overload, Algorithms, Artificial intelligence, Behavioral finance, Digital Accounting, Big data,
Blockchain, Distributed Ledger Technology, future, preponderance, robotics, trends, XBRL,
ESEF, Sustainability

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Journal of Applied Research in the Digital Economy, Accounting trends of the future – a behavioral analysis

1 Introduction

According to Beerbaum et al. (2019) the accounting domain cannot operate in a silo and
isolation of changes to the business. As accounting is the de-facto language of business,
accounting will be inevitably impacted by changes in the business (Beerbaum and Puaschunder,
2019c). Digitalization is one of the trends, which is one of the most often cited impacting any
business (Beerbaum and Puaschunder, 2019b), but new accounting rules as IFRS 9 require to
incorporate any information and any trend relevant for the company (Beerbaum and Piechocki,
2016). This forward looking information requires accounting more and more to discern and look
into those trends (Beerbaum and Piechocki, 2017). This implies a large challenge for the
accounting profession (Boghean and Boghean, 2011). Whereas the going concern analysis is
already an incremental part of the audit, the process-oriented audits include business process
analysis and business trends (Grasegger and Weins, 2012). Accounting however is not the key
driver of such trends and is located in the reporting supply chain after new product development
(Piechocki, 2007).

The structure of the article is that in a first step Wagenhofer’s model of Financial
Accounting is explored (Wagenhofer, 2003). This sets the scene of the conceptual study on the
trends. In a next step, the different trends are explored. The article ends with the summary of
main conclusions.

2 Financial Accounting in theory

The author is of the opinion that specifically the digital transformation as one main trend
will not create new principles, rules and aims for the accounting discipline. Precisely, the
framework on economic and accounting is not related directly to technology (Beerbaum, 2020a).

The accounting information flow or the financial supply chain is described in Figure 1 on the
next page.

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Journal of Applied Research in the Digital Economy, Accounting trends of the future – a behavioral analysis

Figure 1: The accounting information flow

Source: Wagenhofer (2003)

The accounting information flow begins with the recording of transactions and business
events in the accounting ledger of the entity. This information is transferred into the
consolidation and reporting of business units, which depends upon the legal structure and
adhering to the principles or rules set by the relevant accounting regime is condensed into a form
of group accounting.

3 Behavioral finance related to accounting

Since the end of the 1970ies, a wide range of psychological, economic and sociological
laboratory and field experiments gave proof human beings do not always follow rational
choices(Beerbaum and Puaschunder, 2019a). Neo-classical axioms of profit maximization fail
to explain how human behave. Human beings were rather found to use heuristics in the day-
today decision making (Beerbaum and Puaschunder, 2019b). These mental short cuts enable to
cope with information overload in a complex world (Beerbaum and Puaschunder, 2019b,
Beerbaum and Puaschunder, 2019c).

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Journal of Applied Research in the Digital Economy, Accounting trends of the future – a behavioral analysis

4 Trends in Accounting

Electronic Reporting – Extensible Business Reporting language (XBRL)

Extensible Business Reporting Language (XBRL) is assumed as a benchmark related to

interactive business disclosures (Beerbaum, 2015). In the academic literature, there are many
articles which conclude that it is possible for XBRL to enhance transparency. Many accounting
experts expect to revolutionize corporate disclosures, since it enables corporate disclosures to be
aggregated, transferred, analyzed faster and in more detail, and enhances transparency(Alles and
Debreceny, 2012, Beerbaum, 2014).

Disclosure overload

Disclosure overload (Johnson, 1992,p. 101) is a term that refers to “information

overload” in connection with the issuance of financial reports such as annual reports for year-
end. Information overload is an issue that has however been treated in various articles and
publications within academic research covering more than fifty years (Beerbaum and Piechocki).
Researchers came to the conclusion that the quality of the decision is proportional to the
information perceived, but only to a limited point Eppler and Mengis (2004). For management
research, the main focus for the theory of information overload has been accounting Schick et
al. (1990). Information overload is associated with excessive information, which prevents
someone from making a decision (Beerbaum, 2016).

Blockchain

Blockchain is regarded as a revolutionary or an incremental change technology

(Beerbaum, 2020b). According to the academic literature, many authors mention blockchain
accounting as a business case (Beerbaum, 2020b). According to the this literature, blockchain
enables major efficiency gains by Distributed Ledger Technology (DTL) and elimination of
traditional intermediaries such as auditors or banks (Beerbaum, 2018). Blockchain implies an
opposite concept compared to ownership ledgers based on classical double-entry (Yermack,
2017, Deloitte, 2018). Blockchain could make accounting information more trustworthy and
more timely available, as firms could keep their financial records in blockchains (Potekhina and
Riumkin, 2017); and blockchain can transform current auditing practices (Dai and Vasarhelyi,

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Journal of Applied Research in the Digital Economy, Accounting trends of the future – a behavioral analysis

2017). It is very surprising that even in a classical economic handbook from Keynes blockchain
in an early form of interpretation can be traced back. The “Master-Economist”, who “must
possess a rare combination of gifts. He should combines the roles of a mathematician, historian,
statesman and philosopher—in some degree” (Keynes, 1924) that different skills need to be
combined, while for blockchain and XBRL it is particularly interdisciplinary software
(Beerbaum, 2020a).

Big Data

In the digital age, to study the trade-off between information sharing and privacy has
grown its importance. Social media revolutionized human communication around the globe. As
never before in the history of humankind, information about individuals is available at such
extent referring to unprecedented data conservation and computational powers (Beerbaum,
2019c). The big data era, however, also revealed huge opportunities to benefit from information
sharing and big data generation (Puaschunder, 2017, 2019h,i). The so-called beneficial or
nudgital society was recently started, shedding light onto the undescribed hidden principal and
agent between social media user’s agent and social media providers principals, who can benefit
from the information shared by social media users. Social media users provide private
information in their wish to interact with friends and communicate to public. The social media
big data holder can then reap surplus value from the information shared by selling it to marketers,
who can draw inferences about consumer choices. The big data can also be used for governance
control purposes, for instance border protection and tax compliance control. In addition, social
media tools have become large-scale factories with unpaid labor (Puaschunder, 2017). For
instance. The numbers are striking, Facebook accounts for the largest social-network site with
nearly 1,490 million members, who upload over 4.75 billion pieces of content about their lives
and that of others daily. The accuracy of this information also appears questionable, with about
83.09 million accounts assumed to be fake. It is unclear, what will emerge out of this big date.
So, although we live in the age of big data, yet to this day, no utility theory exists to treat the
internal conflict arising from the individual preference to communicate and the value of privacy.
The amount of big data stored each second has reached an all-time high in the digital era. Internet
privacy is the ability to determine what information one reveals or withholds about oneself over
the internet, who has access to personal information and for what purpose one’s information may
be used. Privacy laws in many countries have started to adapt to changes in technology in order

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Journal of Applied Research in the Digital Economy, Accounting trends of the future – a behavioral analysis

to cope with unprecedented constant information surveillance possibilities, big data storage
opportunities and computational power peaks. For instance, Microsoft reports that 75 percent of
U.S. recruiters and human-resource professionals use online data about candidates, often using
information provided by search engines, social-network sites, photo and video sharing tools,
personal web appearances like websites and blogs, as well as Twitter (Puaschunder, 2018,
Beerbaum and Puaschunder, 2018).

Agile approach

There is a trend towards enterprise agility (or business agility), which is confirmed in
business practice and in academic research (Beerbaum, 2019b). Agile has its origin in project
management methodology and specifically in software development (Martin, 2002). Agile
approach is opposite to the waterfall view a continuous change view, which incorporates many
incremental changes. From a scientific method approach, agile would qualify as an inductive
approach, while waterfall follows a deductive methodology (Creswell, 2013). Waterfall assumes
that once all requirements are clearly stated. They are ready for an IT-implementation (Ruël et
al., 2010).

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Journal of Applied Research in the Digital Economy, Accounting trends of the future – a behavioral analysis

The below figure 3 further clarifies the differences between agile and waterfall viewpoint
While waterfall approach works in array of plan, design and build phases and only starts to build
once design is clear without restriction. However, agile works with iterations of so-called sprints,
in which an output-oriented approach leads to many small deployments.

Figure 3: Waterfall versus Agile viewpoint

Von Rosing et al. (2014)

In business practice, enterprises aiming at agility implement enhanced autonomy and a

real culture of entrepreneurship. They seek novel approaches – such as radical transparency and
openness, lateral connectivity, and trust with cross-functional teams, and prototyping with quick
feedback and adaptation loops. Generally speaking, agility is frequently seen as a concept that
extends adaptability and flexibility to include speed and scalability (Beerbaum, 2019a).

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Journal of Applied Research in the Digital Economy, Accounting trends of the future – a behavioral analysis

Artificial Intelligence

Artificial intelligence is “a broad set of methods, algorithms, and technologies that make
software ‘smart’ in a way that may seem human-like to an outside observer” (Noyes, 2016). The
Oxford Dictionary provided the definition for artificial intelligence as “the theory and
development of computer systems able to perform tasks normally requiring human intelligence,
such as visual perception, speech recognition, decision-making, and translation between
languages.” Artificial intelligence covers the capacity of a technical device to execute similar
tasks performed by human beings.

Current value-based accounting requires the adequate calculation of cash flows, the
appropriate number of years of the remaining lifetime with the appropriate discount rate.
Artificial intelligence can help in performing complex valuation tasks e.g. for complex structured
products (Beerbaum and Puaschunder, 2019a).

As the most novel trend, artificial intelligence, robots and algorithms are currently
disrupting the economy and employment patterns (Puaschunder, 2019g). With the advancement
of technologies, employment patterns will shift to a polarization between artificial intelligence’s
rationality and humanness. Robots and social machines have already replaced people in
accounting. These replacements include tasks, which are frequently done and can be standardised
such as accounting close, reconciliation between systems.

Sustainability Reporting

The EU supports the development of a classification system (‘taxonomy’) on what can

be considered an environmentally sustainable economic activity. To overcome the climate
change challenge, a consensus has a pivotal role to enable to invest in climate friendly
investments, which do not turn out to be a false labelling. The global architecture of climate
finance is important part of a sustainable finance architecture. Additionally, disclosure regulation
is planned that institutional investors integrate ESG (environmental, social and governance)
factors into their investment-decision making process. In the absence of a globally integrated
financial and non-financial framework, this paper tries to put emphasis back on decision-

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Journal of Applied Research in the Digital Economy, Accounting trends of the future – a behavioral analysis

usefulness of the investor and a Sustainability Taxonomy considering the transparency

technology Extensible Reporting Mark-up language (XBRL).

8 Conclusions

In today’s economy, robots and algorithms are taking over human decision-making tasks and
entering the workforce, however further trends exists, which accounting needs to consider.
Accounting is impacted by many trends. (1) Extensible Business Reporting language
(XBRL), (2) Information Overload, (3) Blockchain/Distributed Ledger Technology, (4) Big
Data, (5) Agile organizational model, (6) artificial intelligence and (7) Sustainability
Reporting. Those trends were analyzed pursuing a behavioral view to assess impact on
accounting. Today’s digital accounting revolution may be completely novel as – for the very
first time in a historical line of economic disruptions and market innovations – this time
decision making will be in the hand of uncontrolled computer algorithms. This insight led
to the use of Wagenhofer’s model applied to financial accounting. Blockchain applying
distributed ledger technology has tremendous impact on the inputs to valuation, as
accounting-related transactions will be transferred to the Blockchain. Valuation will be
improved, blockchain compose of detailed information. Big data permits to perform
valuation more accurately, as providing the basis for forward looking information.
Standardsetters increasingly require incorporating all available information into valuation
(e.g. IFRS 9 Expected Credit Loss Calculation), for which availability of big data simplifies
valuation. Agile methodology will become the dominant method on change projects. Agile
organizational set-up will transform corporations of which accounting departments
cannot set-up silos. Time to market and the speed, with which accounting close, but also
reporting performed is going to change. Many accounting-related tasks will be substituted
by robots with artificial intelligence, as working more accurately, lower costs, 24/7 and
with less issues. Complex accounting valuation tasks will be executed by intelligent
machine programmed for accounting tasks. As never before in history, automatization may
enrich the accounting standards in very many novel ways regardless of national borders –
but only if also be safeguarded by ethical imperatives.

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Journal of Applied Research in the Digital Economy, Accounting trends of the future – a behavioral analysis

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