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The Impact of Data Analytics on Accounting
• How much of the accounts receivable balance will be collected? (which will
impact the Allowance for Doubtful Accounts and Net A/R)
• Is any of our inventory obsolete? Are customers still interested in it? If not, write
it off.
• Should our inventory be valued at market or cost (applying the lower-of-cost-or-
market rule)?
• Is our goodwill correctly valued, or has it been impaired? Due to conservatism,
do we need to write it down or write it off?
• Is our property, plant, and equipment overvalued in the current real estate
market?
The Impact of Data Analytics on Accounting
• Another way that businesses are controlling risk is through scanning the
environment (i.e. social media) to identify potential risks and opportunities
to the firm.
• For example, using data analytics effectively can allow a business to
monitor its areas of business and better understand opportunities and
threats around them.
• You can discover things like...Are their competitors, customers, or
suppliers facing financial difficulty that might affect their interactions with
them?
The Impact of Data Analytics on Accounting
How does How does one help the other? the other?
What is cognitive ability
Cognitive ability is considered our general intelligence level and provides us the
ability to think abstractly, comprehend complex situations, problem solve, and
gather and retain information from our life experiences (Plomin, 1999).
When our cognitive abilities are developed at an advanced level, the process of
learning is more straightforward for us. In contrast, when cognitive abilities are not
as developed, the learning process is more challenging (Bhat, 2016).
What is cognitive ability
The cycle of growth for cognitive development starts when an individual is around
two years old and moves through a series of ups and downs in performance levels,
which continue into early adulthood (Fischer & Bidell, 2006).
Brain and human behaviors research indicate that the capacity to engage in
reflective judgment through advanced levels of abstract thinking does not emerge
until early adulthood.
What is cognitive ability
Fischer’s (1980) model of cognitive skill theory (Skill Theory) added a background
to how complex reasoning is developed.
Skill Theory outlines the professional maturation of individuals and how an
individual’s environment contributes to the development of skills.
The developmental levels of Skill Theory occur as the brain conducts re-
organizations of behavior.
What is cognitive ability
This reorganization of behavior facilitates the use of new higher-order cognitive
ability levels built upon combinations of previously constructed lower-order
cognitive abilities.
As individuals develop complex reasoning, their developmental range will fluctuate
between functional and optimal skill levels based on their environment.
An individual must solidify those less complex cognitive skills, and then they will be
able to develop more complex cognitive skills.
What is cognitive ability
Reflective judgment requires an individual to coordinate multiple views, so this skill
cannot develop until adults can engage in abstract thought (Fischer & Pruyne,
2003).
Individuals move through periods when their skills grow at a faster pace because
they are in an environment that supports optimal performance
During their functional performance, they are not pushing the limits of their
cognitive ability (optimal performance), and they grow slowly or do not progress at
all (Fischer, 2008).
The connection to data analytics
During data analytics assignments, students are presented with open and ill-
structured problems, which students will face in real-world situations (Chin & Chia,
2006).
Because of this, students will need to engage in higher levels of cognitive ability,
such as applying (using the information in a new way), analyzing (identifying
relationships), and evaluating (using the information to make judgments)
The connection to data analytics
The use of advanced data analytics during audits or financial statement reviews
can help accounting firms provide better strategic guidance to their clients.
In the realm of auditing, which is a core function of accounting, auditors have been
evaluating data for decades to help them understand their client’s structure and
financial transactions
The connection to data analytics
Research has found an association between cognitive ability and performance on
data analytics assignments. This research helps to highlight the importance of
focusing on classroom activities that promote the growth of students’ cognitive
abilities.
Allowing accounting students to engage in data analytics in the classroom is
helping to build a pathway for success in the accounting world.
Building future accountants with strong cognitive ability will positively impact an
area critical to the future success of the accounting profession.
Understand why increased cognitive ability and
more robust use of data analytics are critical to the
future of the accounting profession
• The need for strong cognitive ability and data analytics within Certified
Public Accountants (CPA) is driving significant changes in the higher
education curriculum. To help test these skills, a new Uniform CPA
exam will be released in 2024 (Bakarich et al., 2021).
Accountants need to be able to:
• Articulate business problems.
• Communicate with data scientists.
• Draw appropriate conclusions.
• Present results in an accessible manner.
• Develop an analytics mindset.
As well as be comfortable with:
• Data scrubbing and data preparation
• Data quality
• Descriptive data analysis
• Data analysis through data manipulation
• Define and address problems through statistical analysis
• Data visualization and data reporting
How does higher education help