Organisations often embark on the journey with the single step of using a USB thumb drive or email to exchange data between client and accountant. They may then graduate to using portals to share and sync information and start introducing BankLink data feeds.
But, arguably, true connected accounting allows accountants and their clients to collaborate online using real-time data – and also to mesh accounting systems with other IT systems, such as customer relationship management systems, point of sale systems, payroll, invoice generation and processing.
In such a scenario, data lives in the cloud – that is, in a large, heavily secured, internet-connected data storage facility where all users can access it.
In this sort of accounting ecosystem where data is only ever a click away, compliance becomes an almost trivial exercise, freeing up accountants to play more of an advisory role.
David Smith, director of consulting practice Smithink 2020, believes connected accounting will prompt the greatest revolution for the profession since the automation of tax returns. “It will fundamentally change the relationship between the accountant and the client, as it will allow a shared ledger with the client,” he says.“If data is real time and shared, then the accountant can provide real-time advice.”
To illustrate this last point, Smith says the accountant can go into the client ledger and identify if debtors are blowing out, or the accountant can check in real time that a client is hitting their gross profit margins based on an invoice review.
But Smith notes that the number of accounting practices that have made headway in this area is “minuscule”, while small businesses are “just sitting on their hands”.
[breakoutbox][breakoutbox_title]Software rivalry[/breakoutbox_title][breakoutbox_excerpt]Accountants have traditionally received ‘one-eyed’ advice from software vendors…[/breakoutbox_excerpt][breakoutbox_content]Accountants have traditionally received ‘one-eyed’ advice from software vendors, which has often led them to churn suppliers to little advantage, according to Brett Kitchin, managing director of SME IT services firm Accountable Group.
Established accounting system vendors, such as MYOB and Reckon, are now responding to the advance of cloud-based providers such as Xero, NetSuite subsidiary JCurve, Saasu and CCH’s iBizz.
MYOB released its latest cloud-based solution, AccountRight Live, in late 2012 and is rolling out application programming interfaces (APIs) to encourage developers to write software that connects to the platform.
Reckon, which is also being challenged by the arrival of Intuit in Australia, is similarly developing a connected accounting ecosystem. In 2012, Reckon took a one-third share in Connect2Field – a mobile application that can handle job management, job notification, invoicing and quoting – and delivered GovConnect in answer to the government’s Standard Business Reporting (SBR) initiative to simplify reporting procedures.
Both MYOB and Reckon have the benefit of incumbency. MYOB’s decision to make its cloud system functionally identical to its on-premises system will likely encourage many firms to stick with it. Reckon CEO Clive Rabie, meanwhile, believes that the Reckon Online cloud-based and connected ecosystem is richer than most rivals.
Despite all this, Xero is at the front of the pack of software firms charging to the cloud, benefitting from its first mover advantage coupled with the ever-expanding range of software that links directly to Xero.[/breakoutbox_content][/breakoutbox]
MYOB dominates the SME accounting software market, with more than a million clients in the 5–20 employee bracket. It’s now moving its software to a connected accounting model with its AccountRight Live product (see breakout below).
MYOB CEO Tim Reed argues that, over the past 12 months, adoption has moved from the early adopters to the early majority as businesses realise it allows them to “have their books more up to date”.
“They do them all the time rather than once a quarter and are more aware of the financial performance and position of the business. It takes the friction out of the system,” says Reed. “The internet is the underlying technology, but cloud is an accelerator.”
Not everyone agrees on the benefits that connected accounting gives. Clive Rabie, group CEO of Reckon, acknowledges that his company has developed systems that will allow much greater connections between different systems but wonders whether the productivity gains will really be as big as some observers suggest.
“We’ve always had the ability to map ledger accounts from QuickBooks or MYOB,” he says. “Some just take the information and enter it in the system – to type 10 or 15 lines is not a big deal.”
It is hard, however, to entirely deny the benefits of connected accounting systems that will allow an accountant to see in real time the true and complete financial position of a client and use that information to provide advice beyond simple compliance work.
[breakoutbox][breakoutbox_title]Obstacles to change[/breakoutbox_title][breakoutbox_excerpt]Some accountants could be introducing extra risk by usig unsecured emails to transfer files…[/breakoutbox_excerpt][breakoutbox_content]Today, most accountants “are still dealing with clients the way they did 50 or 60 years ago”, according to Debbie Hewett, national account manager for Best Practice Solutions, specialists in accountancy efficiency.
Hewett maintains that some accountants are, in fact, introducing extra risk to the process by using unsecured emails to transfer files – including tax file numbers – between client and accountant in a bid to achieve some form of direct connection.
Although connected accounting is on the radar of a growing number of accountants, Hewett says that it is still only the early adopters who are making much headway. Part of the issue is the enormous inertia associated with traditional processes and bookkeeping practices, which slows wholesale adoption of connected accounting initiatives.
Despite conceding that cloud computing is very much in vogue, the manager of connected services at Sage HandiSoft, Michael Smith, says many businesses and accountants have invested in on-premises software that already allows a degree of connectedness. He gives the example of comma-separated value (CSV) flat files – “they’re not sexy but they work and are quick”.[/breakoutbox_content][/breakoutbox]
Different approaches
Getting started on the connected accounting journey requires a decision between two different approaches – plunging straight into the cloud or adopting a more measured strategy.
Greenfield businesses or organisations looking to refresh their technology platform can take to the cloud and its promise of connectivity from day one, unencumbered by legacy systems.
Chris Ridd, managing director of Xero, claims there are now 32,500 users of the service in Australia. He says that the main agent for change among small businesses is the accountant or bookkeeper who tells a client that they are a “nightmare” to manage and encourages them to sign their business up for a cloud service.
However, given that clients generally use a slew of different systems and different versions of those systems, most accounting practices will likely take a more stepped approach.
These common first forays into connectivity – USB thumb drives then email – can be problematic. Clients need to be mindful that the former are prone to accidental virus infection and the latter can be risky if unencrypted. At a later stage they may choose to implement point solutions, such as Paper Buster,
which allow data in scanned documents to be matched and linked to practice management systems; or they may implement generic data-sharing and synching platforms, such as Dropbox or secure portals, where information can be shared within a defined and password-protected user group.
Such approaches will deliver more intimate connections between businesses and accounting practices. Ultimately, however, the richest connected accounting ecosystems will be cloud-based, featuring open application programming interfaces (APIs) that will allow multiple systems to be meshed, delivering both flexibility and control to all parties.
