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How will IoT benefit the accounting profession?

(Image credit: Image Credit: Melpomene / Shutterstock)

The fancy definition of IoT often confuses us, and merging IoT with accounting does not seem like much of an application. Cloud computing has already shown its massive impact on the accounting industry and proven itself to revolutionize it. But what about IoT?

IoT is an emerging technology in the field of Finance and Accounting. Let us start with understanding what IoT exactly is?

What is the Internet of Things (IoT)?

The Internet of Things (IoT) is changing a lot about the world we live in. From the way we drive to how we make our purchases, we are surrounded by machines implementing IoT. In a more relatable way, the Internet of Things is that ‘smart’ word that you can use to call every device like if it is a smartphone, smartwatch, smart TV, smart home or any internet-enabled device.

IoT is a network of devices (home appliances, vehicles etc.) that contains sensors, actuators, microcomputers (raspberry pie, Arduino, jetson etc.), embedded software and connectivity which allows these things to interact, connect and communicate.

In simple words, it is the sophisticated sensors and chips in the physical things surrounding us and transmitting data. The data helps us understand and control things together.

But the question that arises here is how do these devices share a large amount of data and how do we put that collected information to work. Here, IoT provides a platform so that these things can work together. The process starts with connected devices (such as home appliances, smartwatches, vehicles etc) securely communicating with IoT platforms. The platform integrates several devices and analyses that data to share valuable information. That information addresses the industry-specific needs and improvements.

According to the McKinsey Global Institute, IoT has the potential to generate $4T to $11T in economic value by 2025. This fact explains the popularity of IoT in industries. Now let see how IoT can impact accountancy?

IoT impacting the Accounting Industry

Based on the attention and possible applications with IoT can help in growing businesses by a better understanding of customers and improving the product. But how accountants and CPAs can lay hold of IoT?

The real-time data collection could help accountants to improve budget accuracy, cost planning and forecasting. With the ability to gain control over real-time data and actions, risks become easier to manage. Through earlier identification of possible issues could help in minimizing losses from frauds. Also, protection responses can be prepared timely.

The most common and basic accountancy-IoT benefit is automated transaction processing. Along with the use of barcodes for recording sales and inventory, RFID improves the level of accuracy, security and automation.

Benefits of merging accounting with IoT

Let us dig into the potential advantages of Accountancy-IoT further.

1. Assets Tracking

Fixed assets, vehicles and inventories can be confirmed along with their locations tracked automatically. Companies can use RFID tags and hand-held scanners to confirm the items of stock in a warehouse, this facilitates automated stock checking.

For geographically dispersed assets, the broadcast of GPS coordinates can monitor asset location. This increases the chances of catching thieves. Also, in the case of migration, this will reduce costly production downtime.

To drill down into detailed financial data, companies can use asset-tracking information into their Enterprise Resource Planning (ERP) and Data Warehouse. Now, audits can be carried out more cost-effectively as locations are more precise and issues will be more obvious. Moreover, the use of RFID tags cut the cost by reducing manual error, losses and causes of theft.

2. Improved Asset Utilization

This includes buildings, infrastructures, vehicles, machines and stock through improved usage data, process improvements and asset sharing. For example, by tracking where people mostly spend time or work, companies can analyses the use of space and can even reallocate it appropriately.

Slow-moving stock can be monitored and noted if needed. The tagged stock enables finance to check the appropriate inventory valuation methods (like a specific item, average cost, Last in first out i.e., LIFO etc). A better understanding of asset lives can be used to improve depreciation, value-in-use and resale calculations. Also, IoT generated data on assets, costs and revenue can be used for goodwill assessments.

3. Cost Saving

Improvements in information quality enable accountants to better use the cost methodologies (absorption costing, standard costing, activity-based costing, throughput costing etc.) at their disposal. For example, sensors can be placed to monitor machine run-times and labor activities to help with more accurate and timely absorption costing. And with the help of IoT, you can automate the labor data collection. Moreover, using sensors to measure the actual energy usage of machines can reduce energy costs. IoT can be used to monitor usage patterns and maximize the time available to charge batteries and off-peak electricity while maintaining a continuous energy supply.

For preventing expensive manufacturing, alarms can be sent at the time of machine failure or in danger of failing due to overheating or excessive vibrations. Also, unnecessary check visits in factories can be avoided using remote monitoring and sensors. There are many more opportunities to be provided for improving cost management. The real-time data is also used for dynamic pricing based on supply and demands.

4. Quality and Traceability Improvements

IoT is being used across a range of industries to improve product and service quality. Companies can use RFID tags and digital imaging to trace supply chains and prevent adding of lower-quality items. While dealing with fragile products or goods, sensors can monitor for any mishappening or refrigeration failure. IoT also enables better tracking for expiry dates on goods with less risk of manipulations.

5. Quantified Employees – Health and Safety

IoT can be used to monitor employee well-being and improve staff health. People working in factories or under hazardous conditions could be monitored with sensors. By this method, people could be examined for their blood pressure level, heart rate, the oxygen level in the body along with environmental conditions like humidity, temperature, pressure etc. Also, implementing facial recognition helps to ensure work done by employees.

Moreover, IoT makes employees track their efficiency during the day. Monitor their work during the day and at what time they are most productive. This collected data could also be sent to the senior employer in real-time who can track the performance accordingly.

6. More effective Revenue Analysis

Even after product delivery for additional services or maintenance, sellers can monitor product usage. Also, having data collected from manufacturers selling to wholesalers and retailers can help finance departments to match costs more accurately and R&D investments with the value consumers are placing on individual features of the product. So, the trends in product usage can be identified more quickly and accurately.

7. Forecasting Improvements

Forecasting improvements can be made from better actuals and greater details of the product. Forecasting is often extrapolated or assumed based on past performance. With more accurate and timely data, forecasts can be made frequent for lower levels also. In addition, IoT enables a better understanding of the causes of finances and performance which can help in building or improving driver-based forecast models. Also, such forecasts can improve the revenue tax system.

8. Improved Risk Management

Generally, IoT has very few implications for the liabilities. However, it can be used to better manage guarantees and warranties. Breaches of terms such as failure to maintain oil level in machines can also be monitored and analytical models can be used to help organizations predict claim levels. On a macro-level, IoT can help organizations for better understanding and respond to extreme weather conditions or climate change.

Accountants are often heavily involved with risk management in the company. The IoT provides real-time and additional data that can help accountants identify, understand and manage risks. It is obvious that with these drastic changes with technologies, accountants are likely to see several challenges arising from IoT.

9. Better Decision-Making and Business Performance

Bringing things together provides greater opportunities. This is the level where accountants and CPAs can make great deals. They are responsible for creating strategies to grow business in future. Accountants who can combine the range of IoT collected data with financial information have better chances of addressing the root cause of the issues. Priorities can be set for improvements by analyzing data on asset utilization, cost, quality and risk. Companies can work with lean/six sigma continuous improvement programs. Using IoT, digital twin, CCTV and augmented reality, it is easy to fully visualize processes within and between organizations. This may improve efficiency and fasten the time to deal with the problems.

In addition, IoT data can be analyzed and combined to help businesses make better strategic and investment decisions. The process of planning and budgeting can also be enhanced with improved data quality.

So, IoT has immense potential to transform the management of accounting and increase the ability of finance departments to support their businesses. Now it is on you, how you want to implement IoT with your accounting skills.

Elena Smith, writer, Sagenext