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What is cloud accounting?
It’s a fact: Cloud computing is here to stay
In addition to the numerous benefits it offers to your day-to-day workflow, efficiencies, and security, cloud accounting makes it possible for firms to provide far better service to their clients — with an increasingly human touch.
The earliest cloud technologies can be traced back to the 1960s and 1970s, as corporate labs and academia began exploring ideas of multiple people sharing what, at the time, was expensive hardware. Early attempts at virtual machines began to pave the way for other distributed computing models, and while the vision of what is now considered cloud computing was born, it would be some time before the infrastructure technologies were in place to support wide adoption. The 1990s saw an acceleration of the needed infrastructure networks as the internet became mainstream, and it wasn’t long until the corporate world started heavy development efforts around cloud platforms and virtual applications. Companies like Salesforce, Amazon, Google, Cisco, IBM, Citrix, and Microsoft, among many others, all have their place in accelerating the landscape of cloud computing.
Looking back at early days of computing, especially computing within businesses, computers were large. Not only were they physically intrusive (often taking up an entire dedicated room to do what your smartwatch can do now), they were also financially large (they were extraordinarily expensive). However, these were the only computers available at the time, and while it was very expensive, there was clear potential.
When the concept of cloud computing was originally developed, we assumed that it would be a cold and impersonal process. Instead, the cloud enables us to maintain a distinctly personal touch. In 2012, technology research firm Gartner predicted that people would soon “interact a lot more naturally with technology” thanks to developments such as cloud computing. Today, the cloud has evolved from a market disruptor to an expected approach for traditional and next-generation IT. (Cloud Computing Primer for 2018, Gartner)
The cloud allows us to scale and scale quickly. It allows people to serve themselves more appropriately. Both internal and external clients have come to expect that type of access.
In fact, cloud computing has become so central to our lives that in 2015, Dictionary.com recognized the word “cloud” as one of 20 words whose meaning has expanded over the last 20 years because of technology. The word “cloud” no longer simply defines fluffy white passes of condensed vapor; it now has a second, well-recognized meaning: “any of several parts of the internet that allow online processing and storage of documents and data as well as electronic access to software and other resources.”
The cloud can be deployed in many ways, but the general idea involves online access, whether for documents, data, software, answers to questions, or items, products, or services.
Today, the cloud computing model has shifted significantly from inception. Almost all new software solutions are now developed with a cloud platform in mind.
Technical solutions are expected in today’s marketplace. Consumers want what they want, whenever and wherever they want it. That is only possible with cloud-based applications, and it is a trend that experts predict will continue well into the future. After all, if you can get what you want on demand, why wouldn’t you? Virtually everyone uses cloud computing today, even if you don’t realize it. When you stream a movie on your tablet or smart TV, access your bank account from your phone, save your vacation pictures to Google Photos, or store documents in Dropbox, you’re using the cloud.
Consumers don’t want to spend a lot of time on the phone or have to go to people’s offices. With access to so many services and products on a virtual basis, many consumers view these traditional forms of business communication annoying. We all do more with less time these days. You, like your clients and future clients, want the option to maximize efficiency by handling business remotely as much as possible. It allows us to get more done while still retaining time for more work/life balance.
Today’s consumers — especially millennials — are known for their constant connectivity. Therefore, it makes sense that if you want to capture and retain these clients, you’ll need an equally tech-savvy approach that accounting in the cloud provides. Millennials will make up 34% of the labor force in 2024. (Sources: wearesocial, Population: UN, US Census Bureau; Internet: ITU, InternetWorldStats, CIA, national government ministries and industry associations; Social & Mobile Social: Facebook, Tencent, VKontakte, LiveInternet.ru, Nikkei, VentureBeat, Niki Aghaei; Mobile: GSMA Intelligence)
Now is the time to make sure that your strategy will ensure that you have access to this critical market.
Chapter One
Benefits of clouding accounting
For tax and accounting firms, cloud accounting has become the norm rather than the exception. Employees and clients can collaborate seamlessly from wherever they are working — in the office, on the road, or even at soccer practice. The technology supports simple, secure file sharing and communication, as well as that elusive goal of work/life balance unique to today’s business environment.
Attracting the next generation of clients and enhancing retention by increasing client satisfaction for your existing client base are just a few advantages of cloud accounting. With cloud-based programs, firms can reduce implementation and maintenance costs, eliminate version control issues, and minimize software update management, while increasing efficiency and workflow, decision-making capabilities, data sharing capabilities, and possibly even security.
- Work consistently anytime, anywhere. You may remember days when you wanted to leave the office early to attend a school play, football game, PTA meeting, or parent-teacher conference, or some other event or activity outside of work. In some cases, you wouldn’t be able to go. In other situations, you could go, but you’d have to return to the office well after business hours to log in and catch up on the work you missed while you were out. Maybe you planned and printed everything you needed before leaving the office but worried the entire time that you didn’t have everything you would need to work from home. If not, you would have to go back to the office anyway.
Those days are gone. Cloud accounting solutions allow you to work consistently anytime, anywhere. Whether you’re leaving early to go to a child’s event or you’re visiting a client across town, you can maintain a consistent workflow from outside of the office building. - Protect your data. The cloud also potentially provides additional security that offline, localized programs doesn’t offer. Cloud vendors, including Thomson Reuters, have a vested interest in making sure their cloud-based accounting applications and online portals have multiple levels of security. This includes several layers of security that your firm may not be able to replicate, including physical security, software security, and personnel security. You may think that you can put the proper safeguards in place, but wouldn’t it be smarter to let companies that do this for a living assume all that risk instead?
- Manage effectively. Rather than carrying around your little black book to have clients’ contact information at your fingertips, printing out your workpapers, setting up temporary LANs to allow your audit staff to share files while working in the field, and merging various databases on a regular basis to ensure they’re all up to date and consistent, the cloud allows you to manage your resources all in one location. Managing critical resources is much easier when everything is in the same place, accessible by you and your staff from anywhere in the world, and automatically updated whenever a change is made.
- Share data and streamline your workflow. The ability to share data, whether internally or externally, is another benefit of cloud accounting. When a member of your staff finishes a return, the reviewer can access it immediately. Similarly, if someone is out sick or takes bereavement leave, that person’s files aren’t locked behind their login at their workstation. The files are accessible to those who need to step in and take over the workflow.
Having everything in the cloud allows you to continue servicing your clients with the same great level of service while your employee focuses on healing. When it’s time, you can easily share the return, financial statement, or other important documentation with your clients. Sharing from the cloud is easy and convenient for both you and your clients. - Business continuity. What happens if there is an earthquake, hurricane, fire, or other physical emergency and all your data in the server room at your office is under a pile of rubble, flooded, burned, or otherwise inaccessible because the roads are closed? Your firm will likely be closed until access can be restored (if it can be restored). Keeping your data securely in the cloud allows you to continue your business, no matter what natural disaster occurs. You and your staff can simply grab laptops and log in. Work from anywhere until the damage is repaired, the office is restored, or a new location is procured. Business can continue because of the cloud.
Additionally, when you hire a new staff member, how much software do you have to install and set up before he or she can hit the ground running? What is the lead time your IT department needs for each new hire? Two days? Ten days? It probably depends on the size of your firm. Yet, with the cloud, you can skip the installation and customization process and merely request a login for the cloud-based accounting software he or she will need. Onboarding from a technology set-up perspective is reduced significantly.
Cloud accounting, of course, is not a magic wand. It does not make your firm perfect. However, if you take a step back and see what the cloud can offer you, you can change your practices to streamline your workflow and become significantly less error prone. Furthermore, the client can upload documents, and you can automatically pull them into your tax or bookkeeping software. Then, your job is only to review it. This eliminates manual entry, where you could mistype, and skips straight to the review.
Chapter Two
Cloud terminology overload
If you’ve read an article in technology periodicals or journals that are specific to the tax and accounting profession, you may have heard of hosted versus web-based, shared versus dedicated, or SaaS, IaaS, and PaaS. All these different terms and definitions around cloud accounting can be overwhelming. Take a step back and think, “What am I looking for? What areas have I identified in my firm that could be better? What is the availability? What is it that I really need?”
Hosted vs. web-based
Hosted offers cloud services for desktop software; web-based is built for cloud from the ground up.
IaaS (Infrastructure as a Services) vs PaaS (Platform as a Service)vs SaaS (Software as a Service)
IaaS – Others manage Virtualization, Servers, Storage, and Network
PaaS – Others manage IaaS PLUS O/S, Middleware, and Runtime
SaaS –Others manage PaaS PLUS Data and Applications (IE – others manage it all)
Shared cloud
Best for customers who don’t want to maintain software and servers and want to take advantage of multi-tenant cost savings. While these customers maintain their own tax configurations and leverage the same global tax engine, systems and tax content are both automatically updated. Some system-wide settings, such as password complexity requirements or currency rules, cannot be changed.
Dedicated cloud
Best for customers who need a dedicated environment due to regulatory requirements or need advanced system access. These customers can choose when to schedule an upgrade or load tax data updates.
Again, step back, talk to your IT professional, talk to your software vendor, and the other IT groups you’re working with and determine your needs and level of control. They will be able to wave through a lot of this technology to figure out what the best cloud accounting solutions are for you.
Chapter Three
Advantages and disadvantages of cloud accounting: The myths
Myth #1
“My staff or clients won’t understand how to use the cloud.”
They’re not tech savvy. It’s too complicated. I can’t do this.
People use the cloud whether they realize it or not. When you check your bank account online or keep track of the family on Facebook, the technology underpinning it is cloud technology. Even a younger generation, deemed to be more “tech savvy”, may not realize they are utilizing the cloud. Many individuals realize they need a professional to help them complete their taxes. In their search for tax and accounting professionals they may look for a client login option on the firm’s webpage. It is an expectation to be able to complete this work online. They may not use the words “cloud accounting technology” in the search for accounting services, but this technology lives in our culture.
Myth #2
“I can’t afford the productivity loss.”
The second myth is the myth of productivity loss. We’ve heard from people, “Is it going to be slower?” For years, internet access really was slower. Again, the 1990s pioneered building out easily accessibly cloud technology. However, we needed more growth in internet connectivity and the strength of internet connectivity. Today, that connectivity is rarely a struggle. There may be some areas that struggle, but for the most part, and for where you would like to do business, internet is going to be available.
It comes down to the economy of scale. Cloud-based accounting firms are not only trying to do this for one client. They are doing it for multiple, and they can have economy of scale with the data centers they partner with. They are now able to provide clients scaling architecture and a better experience than most local systems. It really is flipping that myth on its head. There was a reason why people believed the myth, and there were some truths to it in the past. Now, purely the economy of scale makes it no longer the case, and in fact, the opposite is generally true.
Myth #3
“I can’t afford the cloud.”
And with that myth, another is that cloud computing always saves money. Although the potential benefits of cloud accounting, including cost savings, agility, innovation, investment protection, and improved time to market, are often the impetus for using the cloud, these benefits are often less quantifiable. However, they are becoming more commonly cited as the true drivers and value of cloud computing as the adoption of cloud computing continues.
Cost issues remain important, and while some organizations save money moving applications into the cloud, others spend more money running their applications in the cloud. The key to success is to drive cost transparency and accountability to the firm’s business.
The truth is, both myths are extremes. People question whether the cloud will be far more or less expensive. The answer is, maybe. Costs vary.
People tend to look at cloud computing costs as a tack-on to what they are already spending. Is the cloud going to allow you to become more efficient? Are you saving the time that you, a professional in tax and accounting (not in IT), are spending doing updates during tax season, or troubleshooting issues on the server before your IT company can come help? With the cloud, you are off loading a lot of responsibility for stability, performance, and security to another group.
You should expect that there will be some cost for allowing another group to manage this for you. However, you are eliminating these tasks that take up your valuable time. Are you subtracting those before adding in the cloud cost?
Remember the suggestion that you take a step back and look at your firm, your process, and where can you improve. What kind of opportunity cost are you missing out on if you do not take the step forward into cloud? There is more math that needs to be done on the cost of cloud accounting benefits.
The benefits are not always easily quantifiable, but if you look at reviews of cloud computing and how cloud accounting solutions helped the firms, they are becoming more commonly cited as the true drivers and value of cloud computing. Again, cost issues are important. Take some time to really investigate the costs to figure out whether either one of these myths are true for you.
Myth #4
“It is still too risky to host systems and sensitive data in the cloud.”
Nothing is 100% safe, but the greatest risk to data lies in the processes, not the technology. Humans open most of the doors to hackers.
In-house software must be continually monitored and patched by the end user, which is not always performed consistently or correctly. Cloud providers know the success of their business hinges on security. Thus, they continuously update security measures to stay ahead of new threats.
With cloud computing moving into its second decade, many things are changing. For example, assumptions around security are very different. The first 10 years saw rampant fear, uncertainty, and doubt around security. Cloud computing terms continue to change, and even with the confusion, the new conventional wisdom is becoming, “cloud is now more secure than on-premises.” (Cloud Computing Primer for 2018, Gartner)
A lot of variations exist with this myth, but the basic myth is the cloud is not safe. Nothing is 100% safe, but typically if you look at the tax and data compromises, the greatest risk to data usually lies in processes, not technology. It is usually with the humans. We cause problems. We click the wrong links. With in-house software, you are continually monitoring and patching it. But it is not always consistent, and not always correct.
Cloud providers are continuously monitoring security measures, updating security measures, looking at new patches, and evaluating whether these patches are appropriate. They have staff set aside to do this work. They have the resources. They have staff viewing logs to catch anything that the automated processes cannot. There is physical security like biometrics to get into data centers. There are all these pieces that your vendor, no matter which type of cloud vendor you’re talking about, created so strong.
While nothing is guaranteed 100% anywhere, there is a strong possibility that your cloud accounting vendors have the resources to protect your data better than most firms can do on their own.
Chapter Four
Cloud security
Diving further on the previous myth, cloud security is a valid concern. However, the benefits of cloud accounting outweigh any perceived risks. The key? Work with a reputable cloud service provider that offers the highest level of security against hackers, fires, and natural disasters. Data becomes more secure with the right provider than in an office, which can be a victim of break-ins and physical damage.
Data centers
The data centers that cloud providers use can vary significantly in their technical specifications, security profile, and levels of service. Some common features that high-quality data centers offer include:
- Multiple locations
- Fully redundant sub-systems
- Compartmentalized security zones
- Biometric controls
- Geographically separate mirror sites
- Disaster recovery capabilities
- Extremely low latency
These features maximize both security and uptime.
Whether you’re working on the cloud or not, there are things you can do to improve your firm’s security.
Do you and your staff have company email or other company data on your mobile device or portable drive? This is one of the benefits of cloud. If you have your email in the cloud and your device got stolen, it is possible the thief can obtain information on the device. However, with a good cloud provider, they wouldn’t store any data in the app. It is the connectivity that allows you to see the data. Thus, if your phone was stolen and you did not have a lock on it, people would still need to know your login to get into applications to be able to get data.
Again, human error is the larger security threat than the cloud. Do you force a login if they’re allowed to have company information on their devices? Do you use data encryption? Do you have multi-factor authentication? Do you lock your computers? Could your passwords be easily deduced? Do all the devices in your firm have the most recent updates for operating systems? Not updating the security software and not doing security updates on local machines has been one of the biggest things that has allowed people into systems. If your information is local, and the hacker gets into your local system, the bad guy has all your client data.
Take some time to investigate that. Look at your local security and see if you are keeping things up to date. Even if you’re looking at the cloud, you’re limiting your risks of a security breach.
Furthermore, cloud technology improves your firm’s security through multi-factor authentication. This is a second layer of making sure it is you, instead of somebody else who has compromised your login and is trying to get access as you. Cloud accounting really has given us more benefits and made more things possible for us in terms of security.
Chapter Five
Forecast for cloud accounting
What does the future look like for accounting in the cloud? We know that in the past three years, internet activity has grown 10%. Social media activity grew 10%. Mobile social users, on their phone or tablet, saw an almost 20% increase. People are interacting via the cloud, especially via their mobile devices. 99% of U.S. households with over $75,000 in income have the internet. Most clients coming to your firm for assistance have internet access, and they will expect things via the internet.
Our world is very much online. We need to make sure that online has a human touch. Technology on its own is not enough. Apple, for example, is really focused on making sure the user experience is delightful. In the past, only having online banking was enough. Now, clients will change banks solely on their experience with the website and online banking. In the future, we will see technology driven by creating comfortable and happy experiences for people.
We also will discover what else we can do around cloud-based accounting analytics and improving that user experience. We are finding ways in our profession that we can use blockchain, cognitive computing, and more exciting insights on the horizon. Right now, if you have not made the journey to a cloud-based accounting system, uncover all the possibilities you are bypassing. You may discover the answers to your problems and difficult processes are in the cloud.
