## At a glance

- Quantum computing is in its infancy, but its sheer potential means the finance and accounting world must start preparing now.
- The technology will affect applications where optimisation plays a role, such as stock forecasting and supply chain management.
- Risk analysis and fraud detection are also areas in which quantum computing is likely to have an effect.

The work currently under way in the race to quantum supremacy offers three key learning points.

The first, and most important, is confirmation that quantum computers will be able to deliver processing power on an unimaginable scale.

Second, the winner in the race to build a viable quantum computer will secure a tremendous advantage over competitors.

Third, since the technology is in its infancy, it is nearly impossible to agree on which contender has made the most headway.

The reality is that quantum computing is still a long way from entering the mainstream, says James Mabbott, partner in charge at KPMG Futures, an innovation lab for the firm and its clients.

“Quantum computing is still in that experimental learning phase at the moment. The biggest challenge is making it seem real,” Mabbott says. “The reason that it matters is that, for some of these impacts, you need to prepare now.”

Despite hardware shortfalls, venture capitalists and governments are already developing applications for quantum computing. Once someone gets the hardware right, the first companies to release useful software will have an outsized impact on any industry.

Finance and accounting applications that could benefit most from a quantum upgrade include forecasting, transaction processing and trading. Researchers are already thinking about how quantum computing will transform these tasks.

## The basics of quantum computing

Computers process information in “bits”, basic units of information and a portmanteau of “binary digit”. In classical computing, a bit is either 1 or 0.

Quantum systems upend this binary state by adding two more dimensions. A quantum bit (or qubit) can also be 1 and 0 simultaneously, or a mixture of 1 and 0. This state is called superposition and is the key to the immense quantum computational power.

Through superposition, two qubits can be in the same amount of states as four classical bits, four qubits the same as 16 bits, 16 qubits the same as 65,536 bits, and so on. A system of 300 qubits, it is said, can reflect more states than there are atoms in the universe.

A computer based on bits could never process this amount of information, which is why quantum computing represents a true “quantum leap” in terms of capability.

The biggest challenge for researchers is working out how to record qubits when they are in superposition. Qubits are produced with subatomic particles that change their value when you try to measure them and change back to a 1 or 0.

Fortunately, these quantum bits interact with each other through a process called entanglement. A quantum computer uses entanglement to measure the correlations between qubits to perform a calculation.

Quantum computers will become viable for business use once they can reliably and effectively manage superposition and entanglement.

## Impact on finance and accounting

Quantum computing is particularly interesting in finance and accounting applications where optimisation plays a role, Mabbott says.

This includes stock forecasting, asset and bond returns, and variance and covariance, as well as aspects of supply chain management, such as optimising moving goods between warehouses.

A key application is Monte Carlo simulations, which are used to predict the probability of different outcomes using random variables. These simulations explain the impact of risk and uncertainty in prediction and forecasting models.

Another area ripe for quantum computing is risk analysis and fraud detection. “Audits are moving away from random sampling to almost being able to look at data in real time. We could do real-time fraud detection and analysis through these applications,” Mabbott says.

Quantum computing should also boost the importance of strategy and planning within finance teams.

“You could run capital scenarios – customer and business performance, acquisitions – there are all sorts of things you could play with. That might lead to a change in the type of people that you recruit into the function as well,” Mabbott says.

Quantum’s biggest threat to finance and accounting is most likely its ability to break encryption, says Peter Turner, CEO of the Sydney Quantum Academy, a joint venture between four major universities and the New South Wales Government.

“If someone built the ‘Holy Grail’ – a fault-tolerant, scalable quantum computer – they could break RSA straight away,” Turner says, referring to the cryptographic algorithm used to defend international banking and finance systems.

In 1994, mathematician Peter Shor invented an algorithm that can crack the very large prime numbers used in RSA encryption. In 2002, IBM used a seven-qubit computer to demonstrate that Shor’s algorithm could factor numbers as predicted.

“Everyone knows how Shor’s algorithm works and how to implement it if you had the machine to do it,” Turner says. The Sydney Quantum Academy is planning to host a public conversation on the ethics of quantum technology to address these issues.

“If one nation state or organisation built this in a basement and didn’t tell everyone, it would not be good for anyone,” Turner says. “We support the development of a shared understanding of responsible use of quantum technologies.”

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## How to prepare for a quantum future

KPMG sees three practical quantum engagement strategies for finance and accounting firms.

“If you’re interested in high-risk investment in new technology, it’s imperative to engage,” Mabbott says.

“There is a bunch of people doing things in hardware, applications and middleware. A number of those could go on to be the next Intel or Google.”

The second strategy is to partner with researchers solving complex problems in your field. University-based quantum physicists often have limited experience of business and need case studies to support practical applications for their work.

The third strategy is to stay up to date with developments in data security – for example the work currently under way in creating a quantum-proof encryption standard, as well as new forms of encryption based on quantum cryptography.

When will we see the first practical quantum computer? The distance to that horizon, says Turner, depends on how many resources are committed to achieving it.

With the world’s economic powerhouses, China and the US, both tipping billions of dollars into “the world’s most important technology race”, perhaps the age of quantum computing will arrive sooner rather than later.