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The Journal of Finance and Data Science 8 (2022) A1–A2
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Accounting in an age of big data

The use of big data and modern data analytical tools has grown rapidly in accounting practice and research. A
complete understanding of the implications of big data for accounting, however, is often hindered by the fact that the
boundaries of the accounting profession and accounting research have been ever-changing.
The fundamental purpose of accounting, according to Shyam Sunder,6 is to help “make a firm work” (p. 13). Sunder
views the firm as “a set of contracts among rational agents,” including shareholders, creditors, employees, managers,
customers, vendors, government, and auditors. The impact of big data has touched on every aspect of this nexus of
contracts. To name a few:

• Shareholders. Big data and alternative data provide shareholders with new insights into the profitability of the
firm.
• Government. Government agencies routinely use big data in (unobservable) regulatory scrutiny of the registrants.
In the meantime, government agencies also make big data available in the public domain (e.g., asset-level in-
formation about certain types of asset-backed securities (“ABS”) required by the SEC's Regulation AB IIa; the
EDGAR Log File Data Sets, which include records of internet-based retrievals of SEC filings).
• Customers. Companies like Amazon, Facebook, and Netflix aggressively use big data to grow sales. In the
meantime, they serve as (sometimes incompetent) custodians of user data, often without explicitly obtaining users'
consent. This new role for the firms creates many accountability challenges.
• Auditors. Big data can produce more data-driven audits.

2. What is included in this special section?

Researchers in accounting and finance have addressed a plethora of topics in the areas of big data, alternative data,
machine learning, natural language processing, and FinTech. In 2021, Professor Jingzhi Huang, editor-in-chief of The
Journal of Finance and Data Science (JFDS) discussed with me the possibility of a Special Section on “big data,
machine learning and emerging technologies in accounting.” I found this opportunity immensely interesting, especially
given my own research interests, and I was glad to take on the challenge. A year after, we now have concluded this
Special Section with four invited articles from renowned accounting researchers, covering three types of agents
identified in the Sunder6 nexus of contracts that define a firm.
Shareholders. Corporate financial reporting decisions are increasingly conditioned by an environment in which
many investment professionals use data analytics tools, especially machine learning, to analyze financial statements.2
Nissim5 provides a comprehensive review of research on how uses big data and/or machine learning methods to provide
insight relevant for equity valuation. He concludes by making several important observations about the literature and
potential future research. Green and Zhao3 focus on predictive models of earnings and returns. They discuss the
methodological challenges arising from applying statistical, econometric, and machine learning advancements to
forecasting earnings and returns, and recent research that confronts these challenges.

Peer review under responsibility of KeAi.

https://doi.org/10.1016/j.jfds.2023.01.001
2405-9188/© 2023 The Authors. Publishing services by Elsevier B.V. on behalf of KeAi Communications Co. Ltd. This is an open access article
under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
Book review The Journal of Finance and Data Science 8 (2022) A1–A2

Auditors. A first course in auditing would include audit sampling,b which, according to Huang, No, Vasarhelyi, and
Yan,4 “starts to lose some of its meaning in this big data era.” Reflecting on the opportunities brought by big data to the
auditing profession, Huang et al present an approach for applying audit data analytics and machine learning to full
population testing.
Customers. When it comes to a firm's role as the custodian of customer data, perhaps the most well-reported issues
are cybersecurity breaches. Such incidents cause far-reaching, negative repercussions among as many as millions of
customers and shareholders. Examining the staggered adoption of state-level data breach disclosure laws, Ashraf, Jiang,
and Wang1 shed important insights on the economic tradeoffs of the 2022 SEC proposal for firms to publicly disclose
their cybersecurity incidents within four days of discovery.c
We hope this Special Section provides promote a deeper understanding of the issues and facilitate dialogues among
researchers from different disciplines, as well as between academics, practitioners, and regulators. We also hope that
this effort spurs more research at the intersection of big data, accounting, and finance.

References

1. Ashraf M, Jiang JX, Wang IY. Are there trade-offs with mandating timely disclosure of cybersecurity incidents? Evidence from state-level data
breach disclosure laws. Journal of Finance and Data Science. 2022;8:202–213.
2. CFA Institute. AI pioneers in investment management: an examination of the trends and use cases of AI and big data technologies in in-
vestments. Research Report https://www.cfainstitute.org/en/research/industry-research/ai-pioneers-in-investment-management; 2019.
3. Green J, Zhao W. Forecasting earnings and returns: a review of recent advancements. Journal of Finance and Data Science. 2022;8:120–137.
4. Huang F, No WG, Vasarhelyi MA, Yan Z. Audit data analytics, machine learning, and full population testing. Journal of Finance and Data
Science. 2022;8:138–144.
5. Nissim D. Big data, accounting information, and valuation. Journal of Finance and Data Science. 2022;8:69–85.
6. Sunder S. Theory of Accounting and Control. South-Western College Publishing; 1997.

Kai Du
Smeal College of Business, Penn State University, PA, USA
E-mail address: kxd30@psu.edu

b
Auditing Standards (AS) 2315 defines audit sampling as “the application of an audit procedure to less than 100 percent of the items within an
account balance or class of transactions for the purpose of evaluating some characteristic of the balance or class.” See https://pcaobus.org/oversight/
standards/auditing-standards/details/AS2315.
c
See https://www.sec.gov/rules/proposed/2022/33-11038.pdf.

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