11 minute read
Evaluation of Accounting and Auditing Framework within the Quantum perspective
by kwedamedia
We are in a period where we witness the destructive effects of technological innovations in many sectors, different lines of business, and professions.
There are a wide variety of innovations and approaches enabled by technology, such as artificial intelligence (AI), Blockchain, machine learning, big data analytics, cloud computing, and automation.
Although all of these are important, Quantum theory remains one step ahead and is described as the "queen of disciplines" in the literature (Ron 2023). In this context, this study evaluates the
field of accounting and auditing, and its framework within the quantum perspective, which are amongst the basic elements of social sciences and a major part of the world of economics and finance.
Prof. Qadir (1978) was the first to use the concept of “quantum” in the field of social sciences (Qadir 1978). The quantum implementations in accounting and auditing can be said to date back to Prof. Qadir’s 1978 paper, and incorporate findings from the developing fields of quantum cognition and quantum social science. In this respect, Prof Qadir argued that the money system is best viewed and analysed as a “quantum system” in its own right, with its own versions of superposition, interference, and entanglement.
Prof. Davies (Milburn 1997) defined this period as follows, “The nineteenth century was known as the machine age; the twentieth century will go down in history as the information age. I believe the twentyfirst century will be the quantum age.” Therefore, within the framework of technological developments, figure 1 shows the indicators with a highcapacity computer technology based on algorithms, complex, and capable of processing big data, based on the point at which the computer infrastructure has transformed in terms of past, present, and future periods. Quantum computers are processors that can solve problems with a different approach, compared to classical computers (figure 1).
When evaluated in terms of its functioning, classical computers
represent a structure that can accommodate one of two states, known as "bit", consisting of 0 and 1. Here, these are machines that represent and solve problems based on physical units. On the other hand, when we consider quantum computers, it works using logic and bits. Therefore, a quantum computer can do anything a classical computer can do. In addition, the quantum bits (“qubits”) rely on more complex mathematical approaches during the calculations performed when solving problems based on quantum algorithms.
The first quantum state can be a "superposition", by holding multiple values at once. This situation reveals the difference between a qubit and a classical bit, with the approach referred to as "quantum
superposition". In other words, a qubit can have values 0 and 1 simultaneously, whereas a classical bit can only have values 0 or 1. The second quantum state can be "entanglement", by having correlations between qubits, and this position provides stronger rules compared to classical probability approaches.
The third quantum state can be "interference", by forcing specific combinations of quantum qubit values to follow less likely or more likely conditions. The solution of various tasks that cannot be solved with classical algorithms has become much more efficient and faster, based on quantum algorithms developed through these basic properties of quantum states (Ron 2023).
The quantum approach that offers the tools to discern the macroscopic world from the microscopic world, has made quantum applicable to this field, especially in the economic world, with the analysis of its structure in such form that each decision unit is termed “microscopic”, and the total is designated “macroscopic” (Aspect 2023; Snyder & Hui 2023). It reveals that in the new era, we can deepen our understanding of the universe by using quantum computers, to solve problems that we have never been able to attempt with classical computers. However, how much better a quantum computer will solve these problems, is a complex and esoteric issue.
The strategic importance of quantum computers, one of the most advanced inventions ever conceived by humankind, is obvious for all industries requiring complex simulation capabilities and data processing speed, including cryptography. Even though quantum technology has a long history based on Nobel Prize-winning scientists' pioneering works in Physics, namely Planck, Einstein, Bohr, Heisenberg, Schrödinger, and Dirac (Pleijel 1933), it is regarded as not quite sufficiently developed as yet, so as to increase its wide use and reward the investments made.
Notwithstanding the many advantages of quantum computer technologies, there are difficulties in expanding its expansive use in practice. This is primarily ascribed to the need for extremely low temperatures, silent environmental conditions (noise sensitivity), and scalability issues (Ron 2023; Snyder & Hui 2023).
As mentioned before, the twentyfirst century will be the quantum age. The era of classical computers is over, and the same should be true for classical accounting and auditing frameworks. In this context, we have entered a period that requires the complete redesign of the accounting- and auditing framework and rethinking the cultural issues, that are amongst the areas most affected by technological innovations (Kahyaoğlu & Aksoy 2021a; 2021b). The workplace, workforce, and work itself are in a stage of significant change, within the ongoing digital transformation process (Kahyaoğlu 2019; Kahyaoğlu & Coskun 2022).
This is simply termed a “VUCA”—a volatile, uncertain, complex, and ambiguous world, with new dynamics and challenges (Liang, Lee & Sang 2016; Kahyaoğlu, Durst & Coskun 2023; Snyder & Hui 2023; Steenkamp, Smidt, Kahyaoğlu & Coderre 2023). In this regard— owing to the increase in data processing capacity and speed— analytical tools, techniques, and applications have become much more practical for professionals, work process owners, and end users, in general. For this reason, restructuring auditing- and accounting functions is one of the strategic priorities of businesses all over the world (Nuijten, Van Twist & Van der Steen 2015; Kahyaoğlu & Coskun 2022).
It is observed that executives are seeking a better understanding of all these innovations and areas of change, and to make the right decisions (Liang, Lee & Sang 2016). When evaluated from this perspective, it is critical to ensure the functionality and value-added position of accounting and auditing functions, that have a significant impact on and contribution to the sustainability of businesses. Hence, it is necessary to carefully examine Complexity theory, in order to better understand the needs of accounting and the auditing framework, based on the quantum perspective (Hurst 2015; Turner & Baker 2019; Snyder & Hui 2023).
It may not be appropriate to offer a direct definition of “Complexity theory”, as there is yet no single agreed-upon definition in the literature (Turner & Baker 2019; Snyder & Hui 2023). Nevertheless,
Complexity theory is presented as a "paradigm shift" and a "new perspective" on what is happening in the world. As such, it is common cause that the recent cultural shift to digital, technological change, and the understanding of “risk society” (Beck 1992; Lupton 2016; Kahyaoğlu et al. 2023) reflect greatly on the accounting- and auditing functions, its conceptual framework, and the expectations from the practising process owners (Schillemans & Van Twist 2016; Kahyaoğlu 2019).
Contrary to simplistic Newtonian approaches (Snyder & Hui 2023), it is argued that the functioning of the entire universe has a complex and chaotic structure, whether viewed in terms of any living thing and humans in general, natural events or the functioning of international markets (Hayles 1990; Holte 1993;
Eve, Horsfall & Lee 1997, Ron 2023). This situation brings about interdisciplinary collaborations and new approaches to social science. Whether starting from a "restricted complexity" structure or a complete "general complexity" structure, we can summarise its common and known characteristics (figure 2) in connection to social science, in general, as follows (Turner & Baker 2019; Kahyaoğlu 2023): The "selforganised" structure.
Elements within a complex system can organise themselves according to rules that arise from direct interactions amongst themselves, without the influence of any central control. It has newly discovered and “emergent” properties. There are new and emerging aspects of elements of a complex system that cannot be fully understood from the outside, at first glance.
accounting-understanding and -approaches are built on the principle of periodicity, and present instantaneous developments with a delay by the rules, depending on this periodicity to present it as information. However, the world of complexity requires the preliminary determination of losses that will occur when risks arise or occur owing to their existence.
A new era has begun with the risk management techniques that emerged as a result of the global financial crises, especially within the framework of the regulations issued in the financial markets and systems, and its reflection in accounting, auditing and fraud detection (Quantum Zeitgeist 2021). Here, considering the general effects of the Complexity theory in the field of social sciences and its reflection in the accounting and auditing profession, there is a need for restructuring that has strategic importance for businesses.
In terms of accounting and auditing, advanced techniques are being used in the processing of transactions, the data generation process, and its monitoring, control, and auditing (Gartner 2023; Grant Thornton 2023). In particular, the possibilities of taking precautions against new types of risks that emerge within the framework of the changing audit universe and risk universe and even turning these risks into opportunities with the quantum perspective should be evaluated.
There is a need for analysis and reasoning, appropriate to the non-linear, asymmetric and complex structures, particularly big data structures, that replace linear and symmetric analysis based on conventional tools and techniques. The point to be considered here is that the work and operations performed with classical computers can be continued for a while. This signifies that classical computers will not replace quantum computers, as they can be used simultaneously, for different purposes. However, the most important constraint is that, at the current point in the business world, there is a need for process owners, and appropriate tools and infrastructure that can execute tasks from a quantum perspective (Roberts 2019).
In the digitalised business world, accounting needs to provide a structure that will reflect potential loss and/or default risks, especially depending on these advanced risk management tools. When evaluated from this perspective, these accounting records will be created using tools to detect situations that may occur in real life, depending on many economic factors. It should be noted that many economic factors, in this sense, also constitute the elements of the Complexity.
Therefore, analysis of this Complexity and its transformation into accounting records necessitates the creation of a new business culture and professional rules. In this respect, whilst accounting becomes a digital recording system in which the possible consequences of risks can be monitored, a process that will ensure instantaneous continuity of auditing, i.e., continuous auditing and continuous monitoring (CACM) will emerge, for this system to be more effective (Vasarhelyi et al., 2014; Chan, Chiu & Vasarhelyi 2018).
It is expected to become a new business process, where reporting can be performed at any time, at the end of the period, and decisions can be made according to new situations. Thus, it becomes possible to perform financial and operational audits instantly, through accounting records. Considering that the accounting system is a structure where a large amount of information is processed, quantum tools will provide important information in determining whether there is any external intervention in the systems. Especially in cyber security—considering the speed of digital tools—cyber defence, -security and -countermeasures, quantum cyber security infrastructure, and quantum cryptography become necessary, to ensure stability and sustainability in the economy, especially for financial institutions.
Quantum approaches will definitely be needed in order to reach the necessary speed in the implementation of AI-based algorithms, in the new era. This is a fact that executives should consider, in terms of corporate sustainability and cybersecurity issues. It is especially important that the accounting- and auditing functions—that ensure the business continuity, transparency and accountability of the digital business models, structures, systems and processes within the organisation—comply with optimisation needs based on quantum computing. Therefore, we are in a period that requires those who practice accounting and auditing professionally, and those who want to continue doing so in the future, to be prepared for a new learning process. This should not be forgotten.
