Almost from the outset of the commercial Internet, in early 1994, technologists and business people used a stylized cloud as a metaphor for the Internet. Diagrams routinely depicted sets of computers connecting through this "cloud" over long distances. as the Internet evolved, so did the concept of this "cloud," eventually settling into a broad set of applications that include Software- as-a-Service, Infrastructure-as-a-Service, Platform-as-a-Service and more.

Part of this evolution was an extension into accounting applications, and by the late 1990s a handful of pioneering companies were moving their operations into the cloud. Other accounting software and service companies began to shift individual products -- particularly services such as bookkeeping and payroll that require close communication and collaboration with clients.

"This has been one of the great transformations in accounting, in the same manner as the introduction of personal computers transformed the industry," said Erik Asgeirsson, chief executive officer of CPA2Biz, which partners with leading vendors to promote cloud solutions to accountants. "The transformation has shifted the industry from an era of data management to an information era in which collaboration becomes more important than computation."

"Collaboration on this scale is driving increased productivity and profitability," said Chandra Bhansali, president and co-founder of AccountantsWorld. "The largest gain is in the area of payroll processing, where over 70 percent of recently surveyed users reported a significant improvement in processing time. And half of those users reported a gain of 10 percent or more."

Jamie Sutherland, president of U.S. operations at Xero, noted that, "The cloud not only provides efficiency gains for a practice, but also provides a way to drive new leads. More and more clients are looking for an accounting partner that understands cloud tools to help their business."

In fact, research firm International Data Corporation calls cloud computing the foundation for the technology industry's next 20 years of growth.

 

GROWING PAINS

Still, the transition to cloud computing, for all of its benefits, has not been without its problems. In the early years, there were problems with printing from cloud applications, the cost and complexity of accessing cloud services, the security of data, and the additional cost of compliance in order to ensure the privacy and security of data in the cloud.

Other problems arose as early adopters struggled to make an economic justification for the use of cloud services at a time when the investment costs were at their highest. Though early adopters were able to reduce their direct IT costs, those savings were often offset by necessary investments in new software and services. And while cloud computing has been cited as an example of "green computing" for its lower cost of sustaining servers, there is virtually no research to quantify this claim.

But every new technology suffers through similar growing pains, and these problems did not slow the steady expansion of cloud services among early adopters. And today's array of cloud services for accountants has vastly improved over the first generations a decade or two ago.

"As technology evolves, it is natural for the costs to go down," said Kacee Johnson, executive vice president of Cloud Nine Real Time. "But also for it to smooth out some of the more 'clunky' aspects of the delivery of cloud applications. For example, we have been able to eliminate the need for connection managers, reducing costs that increased service provider fees, while at the same time making the cloud experience more seamless, with quicker access to data."

For accountants, concerns about cloud computing in the past decade have focused on four areas:

Security of client data. The first and most critical concern for accountants was the security of their client data. Data integrity, data theft and data loss were the largest of the issues, and revolved around the problems of maintaining security across a distributed network. In addition, there were questions of how to deal with data security in an environment in which cloud servers are located in countries that do not have sufficient safeguards for security.

Privacy of client data. Privacy is a separate but related issue. Privacy includes the ability to keep client data out of the hands of those who are not entitled to see or use it, including law enforcement agencies wishing to peruse the data without a warrant. This issue related to how well the cloud company kept effective walls around the data of each accountant.

Costs of adoption. While the long-term costs of moving operations to the cloud represent a net reduction for most accounting firms, the upfront costs for early adopters were substantial. In addition to the costs of connection managers, research into download and print managers, due diligence of the cloud provider and other startup costs, there were additional issues around the real return on investment during the period in which the firm adopted and "settled in" to a new paradigm in their workflow and operations.

Integration of applications. The ability to use the best accounting and practice management tools has been hampered by the fact that many of the tools were proprietary, while others did not integrate well with applications from other vendors. This was particularly the case with the earliest cloud platform and software vendors, who by nature were focused on delivering an effective suite regardless of how well the applications within that suite were able to integrate with offerings from other vendors.

But cloud proponents believe those concerns have largely been resolved or addressed as the industry has evolved.

"We wish every accounting firm fully understood that the best cloud solutions provide superior security and controls for financial data," said Vishrut Parikh, director of marketing for NetSuite. "We work constantly to maintain stringent, world-class security standards, and the access controls in cloud solutions mean that audit trails are extremely easy to create and trace when necessary. It would be impractical and infeasible for most companies to duplicate the enterprise-grade security and access controls that we maintain as a matter of course for even the smallest customers."

"Too often, accounting firm leaders see investment in the cloud as costly and out of reach," said Scott Fleszar, vice president of strategic marketing for the Tax and Accounting business of Thomson Reuters. "Primarily because they don't know how to factor in the tremendous -- and real -- cost savings of operating their firm in the cloud: fewer hardware expenses, with much-reduced server and workstation replacement costs; less time spent on IT tasks; greater staff productivity; and much more. If firms understood the considerable time savings and productivity gains they'd experience by moving to the cloud, they wouldn't hesitate."

"The issue of integration between applications, and associated problems with data entry and maintenance within different programs, have been a universal problem for accounting firms," said Brian Diffin, vice president and chief technology officer of CCH, a Wolters Kluwer business. "A key to solving this issue for accounting firms is to leverage a cloud platform offering and an administration management application to enter and maintain common data across an application suite, as CCH is offering. The problems of disparate data and redundant data entry are largely solved by operating in the cloud."

 

NEW BENEFITS FROM THE CLOUD

But if many of the concerns of early adopters proved to be wrong or could be solved through evolution, the cloud has also presented benefits that were not originally envisioned. In particular, cloud computing has helped to respond to trends and events not envisioned in the 1990s.

"Hurricane Sandy has done much to awaken a sense of urgency around business continuity and disaster recovery topics as businesses have faced extinction in its wake," said Roy Keely, director of market strategy for Xcentric. "Cloud companies will continue to produce services and features centered around giving firms peace of mind related to operating amidst disasters. Disasters will happen, and will unfortunately give many the opportunity to learn how to better survive them using cloud-centered strategies."

"I see cloud-to-mobile connectivity as the 'next big thing,' said Thomson Reuter's Fleszar. "The ability to connect to mobile devices like smartphones and tablets - not only for the accounting firm, but for their clients as well -- will create many more ways to be productive, stay connected and serve clients. Increasingly, people are managing everything from their mobile devices -- banking, music, travel reservations, even the books they read. So naturally, they want to do business with companies who reach the devices they carry."

"Another key area is analytics," noted Vijay Ramakrishnan, director of product marketing for Intacct. "The cloud will enable better analytics by mashing up data from multiple cloud applications without users having to do any of the data integration work themselves. And all of that new information will be put to practical use by businesses, since it will be readily accessible."

"As more companies understand the advantages of doing business in the cloud, we're seeing more interest in using the cloud as a complete e-commerce platform for running the entire business," added NetSuite's Parikh. "That doesn't just mean retailers managing consumer purchases in a cloud-integrated Web store, but handling all B2B, B2C, and machine-to-machine transactions through a single, integrated cloud platform. That move is motivating a lot of our innovation, and we expect you'll see some exciting applications over the next two years."

"Since the nature of the cloud creates an always-changing dynamic for innovation, the future presents itself with endless opportunities for growth," said Samir Khosla, director of product management in the Accounting Professionals Division at Intuit. "Firms have come to expect instant access to their client's critical information, new streamlined workflows and reduced costs. There will be an increased expectation from clients that things are available 'as-a-service,' versus as a physical product, and that their accountant will be able to answer their questions anytime from anywhere."

 

MIGRATING TO THE CLOUD

For the accounting profession, computing in the cloud has evolved from the introduction stage with early adopters to the early majority of accountants.

"The issue for firms is change management," said CPA2Biz's Asgeirsson. "The firm has to embrace the change and re-align their practice management, because the cloud can't deliver by itself. But if you do the change management, and leverage the process, you can see a dramatic increase in what you can achieve. But you have to have the right people in the firm, in the right positions, and a dedication to better workflow in an ecosystem that works together."

"The firms that go through the process of taking advantage of better technology and cloud efficiency and find ways to eliminate duplication of work have had a great amount of success and increased profitability, not only on their outsourced accounting engagements, but firmwide," said Amy Vetter, CPA programs leader at Intacct. "Our firms have been able to enter markets they couldn't otherwise serve, as well as help their clients achieve growth they couldn't have unless they had outsourced their accounting and had the business intelligence access that we afford them."

"The most important thing every accountant must realize is that the migration to the cloud is inevitable," said AccountantsWorld's Bhansali. "Just like in the past, when they had to migrate to new, rewarding technologies -- from calculators to PCs, from DOS to Windows -- it is time to move from desktop to the cloud. While the destination is the same, the reward for those who migrate proactively is that they position themselves to benefit from the migration, versus those who wait until they are forced into it."

"As the accounting industry continues to evolve at a rapid pace, automation is replacing manual data collection and input, and as a result, firms are able to better serve clients and ensure business-critical operations," added Intuit's Khosla. "We wish each accounting firm would start slow, but start nonetheless. Move one client to the cloud and see how it goes. We believe that once you see the efficiency and time savings, security and client delight, you'll be eager to move more clients and more workflow tasks to the cloud."

Asgeirsson summarized the transition to the cloud in these terms: "There are three things firms need to think about. The technology itself. The talent within the firm that will implement the transition. The ability of the firm's leaders to manage change. And of these, the technology is the easy part."

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access