Harnessing AI and automation: How to elevate your tech stack  

With the dawn of automation and AI, small and medium-sized accounting firms face a crossroads: watch and wait or move quickly to embrace change. If your firm is like most, you have already realized the need to adopt technology — not just as a matter of staying current but as a strategic necessity for maintaining a competitive edge and ensuring long-term success. But where do you start when it comes to elevating your tech stack?

This white paper explores the importance of technology adoption, the benefits of an integrated tech stack, and the potential risks of a “watch-and-wait" approach. By harnessing the power of digital transformation with proven strategies to elevate your tech stack, your firm can harness automation and AI-powered tax technology to transform your workflow and achieve sustainable growth.

The current state of technology in the tax and accounting industry

Undoubtedly, the tax and accounting industry has seen substantial tech advancements in recent years. From cloud computing and AI to blockchain and data analytics, a digital transformation is reshaping how accounting firms operate, deliver services, and interact with clients. However, the adoption rate of these technologies varies significantly among small and medium-sized accounting firms.

According to The Thomson Reuters Institute’s 2024 State of the Tax Professional Report, the use of AI-powered tax solutions is still relatively low at most tax and accounting firms. Fewer than one-quarter (24%) of respondents said their firms use AI at all; among those that do, the most common usage was for research.

That said, 35% of respondents to this year’s survey said their firms would be investing in some form of AI over the next two years, although few (7%) cited AI as a top investment priority.

The survey also uncovered the unsurprising fact that many tax and accounting firms continue to struggle with the need to drive more efficiency. The shortage of qualified candidates — not only in tax skills but also in technology skills — amplifies this challenge. 

With a limited pool of options, many firms increasingly rely on technology to enhance the speed and accuracy of their work, ultimately delivering higher-quality services to clients. Central to this push for efficiency is the need for tax firms to integrate automation into nearly every aspect of their operations.

Though most firms automate some portion of their tax processes, small firms use automation the least. According to the survey, an average of 43% of firms only automate 25% or less of their tax processes. Midsize firms use automation the most, relative to their workload, with one-quarter of firms automating between 26% and 50% of their processes and 20% automating more than half.

If your firm still relies on traditional methods and legacy tax systems, it can limit your efficiency and ability to compete with tech-savvy competitors, not to mention a growing number of clients who expect it. 

Embracing the challenge of technology adoption 

While most tax and accounting professionals recognize that AI can enable growth opportunities by automating routine tasks, enhancing data analysis, and improving decision making, many firms are still hesitant to adopt it. 

Integrating new technology can be daunting, especially for small and medium-sized firms with limited resources. However, seeing technology adoption as an opportunity rather than a challenge is crucial because the long-term benefits far outweigh the short-term hurdles. 

The hesitation to elevate and integrate new technologies often stems from concerns about cost, complexity, and disruption to established workflows. Yet, as the profession continues to evolve, the pressure to modernize becomes increasingly unavoidable. Firms that fail to adapt risk falling behind and losing out on a competitive edge.

To address this challenge, firm leaders must define and implement an appropriate technology stack tailored to their specific needs. This stack should align with both the firm's current and near-term business strategies and address its unique requirements. 

According to the 2024 tax professional report, top investment priorities for tax firm leaders include tools for improving workflow processes, new tax technology solutions, and practice management tools.

By utilizing AI-enabled tax software to improve workflow processes, your firm can move away from mundane and repetitive work and shift its focus to more value-added tasks like providing strategic advice and building deeper relationships with clients. AI can also help your staff members leverage data more effectively by supplying insights, predictions, and recommendations that can help you find new opportunities and proactively solve problems for your clients. 

In addition, an AI-powered tax research solution can empower even junior staff members to answer complex client questions quickly and accurately — without bogging down senior colleagues for approvals. 

So, while the benefits are clear, the question becomes, how can your firm elevate its current tech stack to effectively take advantage of AI and automation?

The integrated tech stack as a strategic asset

An integrated tech stack refers to a cohesive set of technology tools and systems that work seamlessly to support various aspects of a firm’s operations. Simply put, it’s a combination of software components that collaborate to build and run applications at your firm.

For small and medium-sized accounting firms, an integrated tech stack can be a powerful strategic asset, offering numerous benefits, including:

• Improved efficiencies. A complex regulatory environment, rising client expectations, and greater competition mean that today’s accounting professionals must work smarter and faster. Leveraging automation capabilities as much as possible enables firms to improve efficiencies by eliminating time-consuming, mundane tasks. It also helps firms better maintain their competitive edge. 
• Streamlined workflows. When separate applications and disconnected systems silo data, it hobbles productivity and profitability. To effectively build streamlined systems, your accounting firm’s tech staff must be able to support integrations quickly and effectively, which they can achieve through tools like APIs. 
• Enhanced data gathering capabilities. Modern technology solutions enable firms to collect, process, and analyze vast amounts of data more efficiently. Automated data gathering and processing reduces manual errors, saves time, and provides valuable insights for better decision making. Advanced analytics tools can identify trends, patterns, and anomalies, helping firms offer clients more proactive and personalized services.
• Recruitment and retention. Forward-thinking firms have a greater advantage in the war on talent. Today’s talent, especially up-and-coming professionals, expect innovative technology to be in place. When accounting firms invest in improving their tech stack, it sends a message to both current and prospective employees that firm leaders want to ease the strain on staff members, and they understand the role that up-to-date technology can play. 
• A shift to higher-margin advisory services. A solid foundation of automation and streamlined workflows frees up time for accountants to focus on higher-margin, value-added services like advisory services. By shifting from a compliance-based business model in favor of more advisory services backed by a current tech stack, firms can experience more sustainable revenues. 
• Increased client loyalty. Today’s clients have grown accustomed to the convenience and speed of technology. They expect the same from their accounting firm. Firms with an integrated tech stack benefit from fast and trusted answers to their tax-related questions; strategic, data-driven insights for more informed decisions; and secure collaboration tools for an improved client experience. 

Building the ultimate tech stack

One of the first steps on the journey to elevating your tech stack is conducting a thorough assessment of your current technology. This evaluation involves assessing existing tools and systems, identifying gaps, and determining areas where strategic upgrades are necessary. Engaging with technology consultants or vendors can provide valuable insights and help your firm make informed decisions about the best solutions for your particular needs.

As you decide what upgrades are necessary, consider these three technologies:

1. Advanced data analytics and AI

The application of AI in tax technology has been evolving for years. Initially, machines assisted with basic tasks like tax calculations and research; over time, tax and accounting firms have gradually adopted more sophisticated tax technologies, incorporating advanced data analytics and AI to offer more insightful, proactive, and personalized client services.

For example, advanced data analytics and AI offer predictive analytics to combat increasing tax policy and regulation uncertainties. By analyzing historical data trends, you can foresee future patterns for your clients, such as potential compliance risks or financial opportunities. 

In addition, generative AI (GenAI) will become an even more critical component of tax technology. Firms can leverage AI and GenAI to research tax-related regulations and inquiries or employ machine learning to automate routine tasks. 

As a component of AI, machine learning can classify and extract data from unstructured sources like invoices, receipts, and contracts. Additionally, natural-language processing (NLP) can automatically read, understand, and interpret client communications, extracting relevant information for filings and routing queries to the appropriate department or response templates.

2. Blockchain for security and compliance

Security and compliance are vital components of any tech stack, especially since tax and accounting firms handle sensitive client information. Although blockchain technology is not new, it can significantly enhance data integrity and security through features like:

• Smart contracts. Originally used in the legal industry, smart contracts can be programmed to execute tax payments when certain conditions are met, reducing delays and ensuring compliance.
• Data integrity. Blockchain’s immutable ledger ensures that it cannot be easily altered once data is entered, which is crucial for maintaining audit trails and compliance and provides a transparent and secure record.

3. Integrated cloud infrastructure

An essential element of any technology stack is an integrated cloud infrastructure, which allows your firm to manage most of your data centrally. By enabling seamless integration of various tax software and applications, you can enhance workflow efficiency and reduce errors by ensuring consistent data use across platforms.

Plus, cloud infrastructure offers robust data security and compliance with tax regulations, which is critical for handling sensitive financial information. It also provides scalability to manage peak times, like tax season, without significant IT investments. 

From a staffing perspective, remote accessibility allows team members to work flexibly from any location, improving productivity, job satisfaction, and client responsiveness. Overall, an integrated cloud infrastructure supports more efficient, secure, and adaptable tax services.

In an increasingly digital and complex regulatory environment, firms that proactively invest in these technologies are more likely to thrive, ensuring client satisfaction, staff engagement, and operational excellence.  

The risks of a watch-and-wait approach in a rapidly evolving industry

While the integration of AI and automation offers significant opportunities for accounting firms, some are opting to take a watch-and-wait approach, delaying the adoption of AI until it becomes more mainstream or mature. 

Though seemingly cautious, this approach carries significant risks that could hinder your firm's competitive edge and operational effectiveness, including:

• Loss of competitive advantage. In the accounting profession, staying ahead of the competition is vital. Early AI adopters are already reaping the benefits of enhanced data analytics, automated processes, and improved client services. Firms that delay AI adoption risk falling behind competitors who leverage AI to offer faster, more accurate, and more personalized client services. 
• Missed efficiency gains. AI has the potential to automate repetitive and time-consuming tasks, such as data entry, transaction processing, and compliance checks. By adopting AI, firms can significantly reduce manual labor, minimize errors, and free up valuable time for employees to focus on higher-value activities like strategic advising and client relationship management. A watch-and-wait approach means missing out on these efficiency gains, leading to higher operational costs and lower productivity.
• Recruitment and retention challenges. The next generation of accountants and tax professionals is increasingly tech savvy and eager to work with advanced technologies. Firms that embrace AI can attract and retain top talent by providing opportunities to work with revolutionary tools and develop valuable skills. Conversely, firms that adopt a watch-and-wait stance may struggle to keep their best employees, who might seek out employers that offer a more innovative and forward-thinking work environment.
• Diminished client satisfaction. Clients increasingly expect their accountants to leverage the latest technologies to provide timely, accurate, and insightful advice. Firms that fail to adopt AI may struggle to meet these expectations, leading to decreased client satisfaction and potential loss of business to more technologically advanced competitors.
• Delayed learning curve. Implementing AI involves a learning curve, during which firms need to train their staff, adjust their workflows, and fine-tune their systems. Early adopters have already begun this process, positioning themselves to fully capitalize on AI's benefits sooner. Firms that delay adoption will face a steeper learning curve when they eventually decide to implement AI, putting them at a disadvantage.

While a watch-and-wait approach to AI adoption might appear wise, it is fraught with risks that can compromise your firm’s competitiveness, efficiency, and overall success. The advantages of AI — including enhanced operational efficiency, reduced risk, improved client satisfaction, and better talent retention — are too significant to ignore. 

How technology adoption can transform small and medium-sized firms into competitive powerhouses

Technology adoption can be a turning point for small and medium-sized accounting firms. From operational efficiency to enhanced client services, elevating your tech stack enables your firm to expand its market presence more effectively. 

In the past, accounting firms followed a transactional model, providing annual services primarily focused on meeting compliance and reporting obligations. However, with the advent of AI-powered tax technology and growing client expectations, accountants are evolving beyond just tax compliance to offer year-round, value-added services that address clients' comprehensive financial well-being.

As the number of clients looking for insights beyond the tax return grows, many accounting firms are discovering the benefits of transitioning from traditional tax compliance to offering advisory services. By elevating your tech stack, your firm can become a competitive powerhouse, delivering data-driven insights and helping your clients achieve their financial goals all year round instead of simply once-a-year tax preparation.

So, how are firms taking advantage of this opportunity? Well, more than half of the professionals surveyed in the 2024 generative AI in professional services report believe that they should use AI in their daily work — and they’re already planning for the specialized tools that will create this reality.

About one-quarter of the report’s survey respondents said their organizations were already using GenAI or had active plans to use it. Among professionals who have already adopted AI, there is a split between those who believe it will enable them to increase their pricing rates (40%) and those who think their rates will stay the same (42%). 

However, when implemented effectively, an elevated tech stack that incorporates AI and automation can enable your accounting firm to make the profitable shift to advisory services and a value-based pricing model. 

Value pricing is subjective and varies from client to client because it bases pricing on what the client values most and what they are willing to pay for that value. This profitable shift not only opens up new revenue streams but also allows your firm to build deeper, more meaningful relationships with clients.

With value pricing, you receive compensation for your expertise and use of modern technology — rather than giving away tax advice for free.

An important note about security

As we all know, a secure tech stack is essential for accounting firms to protect client data and maintain trust. Regular updates help mitigate vulnerabilities and protect against emerging threats. Legacy systems often lack robust security features, making them more susceptible to cyber threats. Investing in modern, secure technologies can protect sensitive client data and mitigate the risk of data breaches.

When it comes to elevating your tech stack, today’s cloud infrastructure provides robust data security and compliance with tax regulations, which are critical for handling sensitive financial information. Additionally, it can offer scalability to handle peak tax times without heavy IT investments. 

It is also important to ensure that all data, both in transit and at rest, is encrypted using strong encryption standards. This process prevents unauthorized access and protects sensitive information from cyberthreats. With strict access controls like role-based access and multi-factor authentication (MFA), you can ensure that only authorized personnel can access sensitive data. 

Work closely with your tax technology provider for regular security training sessions for staff to raise awareness about cybersecurity best practices, including an incident response plan to recognize and respond to potential security threats.

How technology can be a strategic advantage in the competitive market

In a world of increasing demands, there is no better time than now to elevate your firm’s tech stack. By streamlining complex processes and providing deeper insights into data, your firm can adapt to the changing landscape, boost competitiveness, and, ultimately, deliver superior service to clients.

Instead of focusing on the short-term hurdles that may come with implementing new software, look ahead to the strategic advantages that an elevated tech stack can provide in positioning your firm for future growth. In an increasingly digital and complex regulatory environment, firms that proactively invest in advanced technologies are more likely to thrive, ensuring client satisfaction and operational excellence going forward.

While talent shortages abound, technology is undoubtedly pivotal in attracting top talent. Young professionals entering the workforce expect to work with modern tools and technologies. Firms that invest in progressive solutions can enhance their appeal to potential recruits, demonstrating their commitment to innovation and growth. 

In a similar vein, an integrated tech stack can help you retain high-performing staff by reducing repetitive tasks, providing opportunities for professional development, and enabling flexible work arrangements. Technology can also facilitate better communication and collaboration among team members, fostering a positive and productive work environment.

How to embrace technological change for long-term success

Ultimately, embracing technological change is essential for small and medium-sized accounting firms to remain competitive and relevant in the rapidly evolving landscape. By assessing your current technology stack, making strategic upgrades, and leveraging the benefits of integrated solutions, your firm can enhance data gathering, recruitment, and retention — and shift to a more profitable advisory services business model. 

Remember, technology adoption is an opportunity, not a threat. Tools like Checkpoint Edge with CoCounsel and SurePrep1040SCAN can be essential resources for firms aiming to take advantage of this opportunity and transform their workflow with AI-powered solutions. Leverage them now to get ahead of the pack and enjoy operational advantages, more meaningful client relationships, and long-term success.