Big Data: The Most Important Asset in the 21st Century
In his latest book, historian Yuval Noah Harari talks about the 21st century:
In ancient times land was the most important asset in the world...In the modern era machines and factories became more important than land...In the twenty-first century, however, data will eclipse both land and machinery as the most important asset.
Harari is referring to big data.
What is big data?
According to NetVersity, big data is a "huge volume of data that cannot be stored or processed using the traditional approach within the given time frame." It includes information collected from:
- Social media
- Voice recordings
- MP3 audio files
- Medical records
- Instant messages
To qualify as big data, the data in question must exhibit characteristics known as the four V’s. Ernst & Young describes the four V’s as:
- Volume: the amount of data being created is vast compared to traditional data sources.
- Variety: data comes from different sources and is being created by machines as well as people.
- Velocity: data is being generated extremely fast - a process that never stops, even while we sleep.
- Veracity: big data is sourced from many different places; as a result, you need to test the veracity and quality of the data.
The size of big data can range from gigabytes to terabytes, petabytes, and even exabytes. Researchers at Statistica expect the annual revenue from the global big data market in 2019 to reach 49 billion U.S. dollars. Forbes estimates that "more than 150 zettabytes, as in 150 trillion gigabytes of data, will need analysis by 2025."
Big data examples
Netflix is one company who has unlocked the value of big data. Their success is based on an algorithm that collects personal data and then outputs tailored recommendations to every individual user. Big Data Made Simple explains:
Netflix spent $100 million on 26 episodes of House of Cards, as they were confident the show could be marketed successfully to their audience. They knew it would appeal to the fans of the original British House of Cards and the built-in fan bases for director David Fincher and actor Kevin Spacey.
Another company who successfully leveraged big data is Point Defiance Zoo & Aquarium:
Since 65% of our costs are payroll expenses and most of our staff work flexible hours, we can now use data to accurately predict how many employees we need to have on hand each day … So if it's nice in the morning, but going to rain in the afternoon, we could adjust staffing based on the weather patterns.
How does big data affect accounting?
The challenge for accountants is to rethink data. According to the CPA Practice Advisor, "big data impacts nearly every aspect of auditing, tax, accounting, and advisory services. Accounting firms have access to a goldmine of data. The question is how firms can tap into that unexplored value and revenue that's right under their noses."
In theory, it's a good idea to collect, merge, and analyze structured and unstructured data to gain insight on clients. However, the CPA Journal lists some challenges that auditors face when integrating big data into audit.
Big data challenges
Some challenges in integrating big data into audit:
- Data incompatibility: big data is usually unstructured information, which lacks a common identifier. Auditors need to spend time to determine what information is relevant.
- Security related to data storage: auditors need to address confidentiality to both clients and regulators because aggregate big data includes sensitive information.
- Talent training process: big data integration depends on the competence of the people managing it. Auditors need to learn how to use new software, develop strong data analytic skills, and understand how to manage and store big data.
- Level of user-friendliness: the time it takes new and current auditors to learn how to use big data software.
- Information overload: too much information can impede an auditor's predictive ability by limiting information processing.
Benefits of big data
However, if auditors and firms succeed in integrating big data into audit they can:
- Enhance the sufficiency, reliability, and relevance of audit evidence.
- Allow for population-based audits.
- Increase prediction accuracy.
- Strengthen data analysis techniques against fraud.
- Allow auditors to collect and analyze information outside of financial statements, such as online reviews or news reports.
In summary, accounting firms have the capability of leveraging big data. The question remains: how will firms unlock the value of the most important asset in the 21st century? Interested in reading a similar CaseWare blog? Check out Big Data and Audit - The Future for Auditors.