Drones are taking off in the business world, with tax professionals using the technology to check on assets and valuations
Drones may still sound a little like science fiction, but their use is rapidly becoming mainstream. The practical applications of drones are multiplying – from their use as kites for electricity generation to the dropping of targeted bombs in combat situations. While much of the reporting of drone technology has focused on how retailers may use drones to deliver parcels, such applications are still at the trial stage. But for accountants – auditors especially – drones are relevant and usable right now.
‘In simple terms, commercial drones actually work in quite a similar way to accountants: collect data, extract value from this data, and give insight,’ explains Elaine Whyte, one of PwC’s drones experts. ‘The advantage of drones is that they get to hard to reach places, scooping up huge volumes of data, over potentially a wider area, in very short periods of time. To extract the maximum value of this data, we are seeing machine learning and artificial intelligence then being applied. The result is sharper business decisions ranging from cost reduction in maintenance cycles, risk management with capital investments and the ability to identify new revenue opportunities.
‘For accountants, drones can provide a more accurate and more complete picture of business operations at a point in time or over an extended period. This could include stock takes over large areas or measuring the progress of an infrastructure project for investors. This insight gained can highlight areas for improvement, for example weak internal controls, or give confidence that progress is being delivered on an investment.’
Magdalena Czernicka, a manager at PwC’s drone-powered solutions global division based in Poland, adds: ‘Data gathered by UAVs [unmanned aerial vehicles] can also be applied for due diligence purposes in order to minimise the risk of fraud or concealment of the actual state of assets. UAVs are currently used by tax offices in countries all around the globe – Spain, Indonesia, Hungary, Argentina, Nepal, China – to inspect the correctness of tax returns or catch smugglers. It is worth mentioning that data capture from drones can be used as evidence in litigation as well as to properly value assets during insurance processes.’
Those tax inspections are often looking to determine whether property owners have correctly valued their homes for the purposes of property taxation. In some jurisdictions taxes can go up if a swimming pool is built – but owners do not always declare them. Drones are a simple way for tax inspectors to check the truth. In Buenos Aires, tax inspectors have used drones to identify 100 swimming pools and 200 luxury mansions that had not been properly declared, resulting in a significant increase in local tax collection.
A PwC study reports that drones have the potential to radically reshape much of modern commerce. It values the emerging global market for commercial drone applications at US$127bn. PwC predicts that the largest commercial application for drone technology will be in infrastructure, with an estimated global market value of US$45.2bn
Research by Deloitte has found that investment rates in the drone sector are increasing exponentially, with venture capital financing of software-based drone startups exceeding US$335m in 2016, which was double the level of 2015. Deloitte’s Maximo centre of excellence supports clients in 28 countries using the IBM Maximo asset management system. Its director Nigel Sylvester says that while drone technology itself is mature, what is new is its integration with other technologies, such as automation, cloud computing, cognitive learning and the internet of things. This technological integration has taken drone application a long way in a short period of time.
Sylvester explains: ‘A very big driver is health and safety. Asset inspections in many environments carry health and safety risk.’ These include oil and gas pipelines, wind turbines and rooftop inspections. ‘Drone use removes the need for manual inspections to be undertaken in that environment,’ says Sylvester. This not only directly cuts clients’ costs, but also improves the quality of their asset management and so positively impacts their bottom line.
Deloitte points out that vastly enhanced software is also extending the ways in which drones can be relied on. New software can interpret data provided by drones better; it can, for example, recognise cars and people, count individual plants in a field, and identify metal corrosion of infrastructure. The need for human participation in the analysis of drone-provided information is reducing.
EY is similarly keen to expand its use of drones and is currently conducting a pilot exercise looking at how drones can be used for inventory observations. Its proof of concept pilot is initially looking at applications in the manufacturing and retail sectors. Drones will be used at car manufacturing plants to count vehicle numbers and in warehouses for stock counting. The drones will conduct automated counting, through the use of sensors, bar codes and variable image and object recognition tools. These will be allied to a cloud-based asset tracking platform and an audit platform, accessible to over 80,000 EY auditors globally.
‘We have been testing the use of drones in the audit process for several months and the findings have been compelling,’ says Hermann Sidhu, EY Global Assurance Digital Leader. ‘It’s now time to scale our testing globally across multiple sectors, as we know that many audits can benefit from the use of this innovative technology.’
Safety assessments
Drones have become commonly used for safety risk assessments at construction sites and to inspect the condition of pipelines in regions where it can be very difficult or expensive to undertake a physical check. The technology can also be extremely useful for asset valuations – for example, in due diligence exercises and in the preparation of legal proceedings. A PwC-supported construction project achieved savings of US$2.94m in claims settlement litigation, because of the quality of the drone-provided evidence. A study by the firm found that the number of life-threatening accidents on construction sites monitored by drones has been cut by as much as 91%.
China is using drones extensively for its One Belt, One Road project to improve the quality of construction. Monitoring of the construction process is intended to ensure roads last better. Road maintenance is also enhanced by the use of drones, which can provide very accurate and measurable data sets on the state of road infrastructure, including the exact size of cracks and their location.
But PwC’s Whyte believes that drones will be assisting, not replacing, accountants to do their jobs. She explains: “Drones are essentially robots, and we’re hearing a lot at the moment about the impact robotics and automation will have on the workforce. It is likely that a number of professions will see their roles change over the coming years. Ultimately, it’s important to remember that any robot or machine is good at particular tasks – like locating knowledge, recognising patterns, analysing high volumes of data etc – they are less good at a lot of what we see as uniquely human characteristics: common sense, morality and emotional intelligence will always be essential. We’ll see the nature of jobs change rather than disappear, and many of the monotonous tasks that make up a job will become automated, leaving humans to focus on higher value, more rewarding and creative work.”
Deloitte meanwhile has warned companies deploying drones to ensure they take adequate cybersecurity steps to protect their data and systems. It is also essential to recognise that the use of drones is usually regulated by the national civil aviation authority, with pilots typically required to be trained and registered. Even with this strict regulation, though, it seems inevitable that accountants will find that drone technology is an ever more important part of their professional life.
Paul Gosling, journalist
Box
Drones have played an important role in the agriculture sector for many years – dating back to the 1980s, though based then on old analogue technology. In the 1980s and 1990s they were widely used in Japan for crop spraying. Although their use died out in the late 1990s, this application has now resumed across much of Asia. Crop spraying via drones has significant advantages. It reduces the risk to workers from chemical contamination. But it also enables pesticide and herbicide use to be targeted very precisely on a crop, increasing yields and reducing the unnecessary use of sprays, so cutting costs. The potential for the wider adoption of drone technology to improve agricultural production and profitability has attracted the attention of the Food and Agriculture Organization of the United Nations, which has asked PwC to provide a detailed paper on the technology’s application in farming.