How Robotic Process Automation Is Transforming Accounting
Jul 14, 2021 | By John Siegel
Accounting, though sometimes tedious, is essential. But that doesn't mean the repetitive processes need to be done the same way they always have. Today, the space is being transformed by the introduction of a new player: Robotic process automation.
RPA is a computer-coded software that emulates human actions, and it has many applications in the accounting world. Specifically, RPA software mimics how humans interact with other technologies. This means that RPA software must be able to:
- Understand what’s on the computer screen
- Navigate the software, program, or system
- Extract and use the data that it sees
- Determine what action should be taken next
- Make keystrokes to complete those actions
RPA is not considered to be artificial intelligence or machine learning; it is rules-based. The software will only know what to do next if it has been programmed to understand what’s next in the workflow. This means that RPA technology is the perfect replacement for humans who perform repetitive tasks. For example, RPA software can perform the following business processes:
- Read and evaluate resumes
- Process vendor invoices
- Read information from (or transcribe information into) a template
- Respond to customer service or help desk queries
- Process insurance claims
- Consolidate and organize external data, like searching for the best deal for a cleaning service
- Collect statistics on social media engagement or website usage
This technology can be used in all areas of business, but RPA technologies are especially helpful when performing accounting functions.
What is Robotic Process Automation in Accounting?
The accounting department is often seen as the backbone of a business because without financial reports, team leaders cannot know how or where to improve. To produce useful financial data, the accounting department must record transactions on a regular and consistent basis. RPA is the perfect tool to employ for these repetitive tasks.
Although it is always wise for a human to oversee automated technology, here are a few ways RPA projects can help in the accounting department:
RPA for Bookkeeping
Many basic bookkeeping functions can be fulfilled with RPA technology, and that’s because bookkeeping is a rules-based process. Consider the following:
- Accounts Payable
When you receive a bill, you first ensure that it’s valid and then approve it for payment. Only after you approve payment can you cut the check and record the entry. RPA solutions can perform each of these tasks for you (and is smart enough to do them in the right order).
- Accounts Receivable
Many accounts receivable functions use the same if-then decision-making process. An RPA solution could be created so that when you receive payment, the program matches the invoice to the purchase order, finds the outstanding receivable, deposits the payment, and records the entry.
When an employee submits expenses for reimbursement, RPA software could be programmed to verify the expense, weigh those costs against predetermined allowances for that employee/event/client, approve reimbursement, and record the journal entry.
- Cost Allocation
When employees incur expenses for a project, it’s somebody’s job to allocate those expenses to the appropriate accounts. With the right setup and programming, RPA technology can do this for you.
RPA for Investing
An RPA bot can help CFOs and members of the management team make better investment decisions by compiling investment options into a template that is organized and weighted by whatever management values most. And once management makes their selection, an RPA bot can track how successful those investments have been. It might even be able to suggest better-performing selections for the future.
RPA for Reconciliation and Analytical Procedures
Reconciliations are important, but they can be time-consuming and repetitive. Fortunately, automated RPA software can download bank statements, read those statements, compare balances to what’s on your books, troubleshoot common divergences, and flag discrepancies for you to review.
RPA for Financial Statement Preparation
If bookkeeping functions are up to date and accurate, financial statement preparation can easily be automated. RPA software can begin creating reports once month-end close accounting processes are complete. Automatically and instantaneously, this software can produce as many versions of the financial reports as needed. For example, RPA bots could create financial statements customized for:
- Auditors: Auditors might want to see a three-year comparison of income and expense.
- Tax Accountants: The report can be generated using tax-specific account groupings to help with tax filings.
- Management: Management might want to see financial results compared to their budget.
RPA for Forecasting
Forecasting can be tricky. Forecasting relies on assumptions, estimates, and imperfect data. But RPA software can still play a part in forecasting. It can:
- Process historical data
- Identify trends in the data
- Calculate variances from industry benchmarks
- Compare results to competitors’ reports
A member of your team can tell the RPA bot what it wants it to do, and the software will perform those tasks quickly, efficiently, and accurately. But most importantly, RPA is without bias. It can be difficult for management to keep bias out of their estimates. If the data they’re given is clean and free from assumptions, they can make better financial decisions.
RPA for Analytical Procedures
RPA can be a great help when analyzing data. Systematically reviewing large swaths of data is challenging and time-consuming for us, but it’s a breeze for RPA technology. For example, RPA bots might be able to:
- Compare two sets of data
- Find outliers in a data set
- Calculate variances and ratios
- Generate graphs
- Show trend lines
Analytics are such an important aspect of decision-making for management teams who oversee the finance function of a business. Asking a bot to perform these calculations will ensure your team gets accurate, reliable information.
RPA for Dual-Purpose Audit Tests
If your CPA is on-site performing an audit, they may employ RPA technology to help with some of their testing procedures. Dual-purpose audit tests, which test both the accuracy of the numbers and the effectiveness of your business’s internal controls simultaneously, can benefit from RPA technology. Consider the reperformance test. When reperforming a transaction, your auditors ascertain whether the result they came up with ties with what’s in your general ledger. These tests can often be done by RPA bots, allowing your auditors to spend time on less-regimented testing procedures.
RPA for Tax Reporting
Although tax laws can be complex, the rules are almost always drafted using if-then logic.
- “If I make between $X and $Y per year, my marginal tax rate will be Z%.”
- “If I have less than 100 employees, I am eligible for this tax credit.”
- “If I held this asset for 12 months or more, the gain from its sale will be long-term capital gain.”
This makes tax reporting a great area to employ RPA technology. Consider sales taxes, for example. Each month, RPA technology may be able to generate sales tax returns for you to review or it may be able to organize that data in a manner that a third-party service can use to generate returns on your behalf.
This area is especially important right now because, in the past couple of years, states have been passing new sales tax laws that require out-of-state businesses to collect and remit sales taxes in their state. Businesses are overwhelmed with the new filing requirements. Being able to rely on RPA technology to generate tax forms or organize tax data is almost a necessity.
RPA for Cloud-Based Applications
Cloud-based software is all but ubiquitous in accounting, but not all businesses have been able to transition their full suite of software to the cloud. RPA can help make that transition. For example, if your accountant wants access to your financial reports but your ERP system is desktop-based, RPA software can run reports and upload them to the cloud for your accountants to review.
It’s easy to see how beneficial it would be for a software robot to perform these functions. Not only would RPA solutions free up your staff’s time for more important, value-added tasks in your organization, but the results also are more likely to be accurate. While you shouldn’t eliminate human involvement, allowing a robot to perform simple and repetitive tasks will remove human error from the equation.
What is the Future of Robotic Process Automation?
RPA implementation is only growing in popularity. If your business has already adopted RPA in your accounting and finance departments, you should expect RPA to be adopted in other departments – and soon. Customer service is an obvious next step (bots can often handle first-level queries), as is human resources (for employee onboarding or training), but the opportunities are endless.
In fact, one of the greatest benefits of RPA is when it can be used alongside other technologies. Combining artificial intelligence with RPA’s rules-based thinking will be powerful. Intelligent automation will be a higher value technology than RPA alone. For example, RPA can easily fill out a tax report, but if the tax form changes, its rules must be reprogrammed. Employing AI to read a tax form and change RPA rules based on its discoveries will open up a whole new world of accounting automation.
As RPA use grows, we should pay close attention to how it provides a higher level of service to our accounting departments, and we should be prepared to incorporate those new technologies into our business models.