- Email: [email protected]
Cloud Accounting: A New Business Model in a Challenging Context
Available online at www.sciencedirect.com
ScienceDirect Procedia Economics and Finance 32 (2015) 665 – 671
Emerging Markets Queries in Finance and Business
Cloud accounting: a new business model in a challenging context Otilia Dimitriua,*, Marian Mateia a
Alexandru Ioan Cuza University of Iasi, Carol I Boulevard, No. 22, Iasi 700705, Romania
Abstract Accounting has been assisting every commercial activity ever since the beginning of trade, as simplified as it was at that time. Due to the need to efficiently and accurately translate the economic reality into figures, accounting has been continuously improving. Furthermore, the information technology expansion and the emergence of the internet have also shaped this art of recording. In fact, the 21st century has been marked by several stages in the process of IT enhancement and we have witnessed the rapid spread of these solutions in our daily activities, thus improving our lives. One of the most rapidly adopted paradigms was cloud computing that had a major impact on the business environment considering its various benefits. Simultaneously, the ongoing challenging context compels all participants in the economic field to be competitive, dynamic and proactive. Therefore, companies need to stay in touch with the de facto state and duly adapt. On the other hand, accounting, as a means to issue relevant and specific information for all stakeholders, has embraced cloud computing solutions. The result is cloud accounting – a new business model that supports the accounting profession. Based upon the most recent studies and practitioners’ technical reports, this paper is focusing on the impact of cloud accounting on each actor in the entire business area. Published by Elsevier B.V. This an open article under CC BY-NC-ND license license © 2015 Authors. The Authors. Published by Elsevier B.V.isThis is anaccess open access articlethe under the CC BY-NC-ND (http://creativecommons.org/licenses/by-nc-nd/3.0/). (http://creativecommons.org/licenses/by-nc-nd/4.0/). Selection and and peer-review Emerging Markets Queries in Finance and Business local organization. under responsibility responsibilityof ofthe Asociatia Grupul Roman de Cercetari in Finante Corporatiste Selection peer-review under Keywords: cloud accounting; cloud computing; accounting software;
1. Introduction Accounting, the language and science of measuring business performance, has been continuously adapting to the economic context. During the late 1950s, the automation of accounting data had begun, and what followed afterwards was an irreversible course. The emergence of accounting software has significantly
* Corresponding author. Tel.: +40-724-883-209. E-mail address: [email protected].
2212-5671 © 2015 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
Selection and peer-review under responsibility of Asociatia Grupul Roman de Cercetari in Finante Corporatiste doi:10.1016/S2212-5671(15)01447-1
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Otilia Dimitriu and Marian Matei / Procedia Economics and Finance 32 (2015) 665 – 671
improved the practice of accounting. Considering the large volume of information and the necessary time to process it, accounting software became a very useful tool for accountants to do their job faster and more efficient. Although accounting software has been around for decades, it has continued to develop its potential over the years; it has become highly sophisticated and this evolution marches on. The 1990s witnessed an explosion in the personal, business and government uses of the Internet. In fact, we could actually consider it the starting point of the “Information Revolution”. The rise of multimedia and collaborative software created new infrastructures that were designed to host complex applications and web pages. The last decade of the 20th century brought significant advances to data communication, technology evolved rapidly and social networks appeared. The Internet became faster, more reliable, less expensive and has expanded in almost every area. But most importantly, it has challenged the very foundations of the traditional business model. Furthermore, the new generation of smart mobile devices has encouraged the spread of cloud services [3]. The impact of cloud computing stands in the way that these services are provided: remotely and only on request. Gartner, a leading research company, designated cloud computing as the number one trend that will change the face of business [7]. According to an IDC research study, cloud computing spending will reach $ 73 billion by 2015 and will redesign the global business context [8]. It is the ability to enhance business flexibility that determines the wide cloud adoption, thus affecting all economic actors. This increasing pace of change promoted by cloud solutions has also reached the accounting domain [3]. As expected, cloud service providers have developed cloud-based accounting applications, which have considerable advantages. Today, accounting in the cloud is a new business reality, powered by cloud computing technology [7]. Also known as cloud accounting or online accounting, this software acts like accounting applications installed on users’ computers, but it is performed on servers offering online services and users can access them through web browsers. This way, accountants or business owners can connect to their financial affairs from any location, over the Internet. This theoretical study is examining cloud accounting as a new business model. The purpose of the paper is to present the numerous facets of this innovative paradigm. Because of the novelty of the concept, the current academic literature does not provide much information on this topic. In fact, we could say that the business environment is the one that specifically supported research on cloud-based accounting solutions. This is why, until now, the articles that refer to the cloud accounting notion are mostly technical reports, surveys and market studies. Based on the most significant features of these solutions, we described in this paper, the point of view of different business actors. In a qualitative paper, we explored the cloud accounting model from a practical point of view, as seen through the eyes of the business owner or investor, but also from the accountant’s perspective. 2. How is cloud accounting a different business model? Traditional accounting software is generally purchased as a product and installed on each user’s computer. We could consider cloud accounting a new business model as it is rather provided as a service and not as a product. By accessing the accounting data via the internet, companies are purchasing the use of accounting software from a specialized service provider and not the software itself (with the required license or even the necessary infrastructure). Cloud accounting solutions are transforming the way that accounting applications are used and they are modernizing the entire business environment. Mahin Khawaja, director of Adroit Accountax evaluates this as a shift in the industry with more accounting firms utilizing cloud services: “Accountants want to evolve like everyone else, with more online accounting systems, better connectivity than we had 20 years ago, and [the] ability to work remotely.” [2] Another aspect that defines cloud-based accounting as a different model is the capability to display the current financial state of the business. Relevant and up-to-date information is crucial for any economic decision, especially in a very competitive and challenging context like
Otilia Dimitriu and Marian Matei / Procedia Economics and Finance 32 (2015) 665 – 671
the one that we are living today. Businesses can either grow or disappear just as rapidly, depending on their ability to evolve and adapt to the best existing technological framework. At a certain point, the post-factual character of traditional accounting will no longer be enough [7]. Specialists in the field believe that the future belongs to those who will embrace the new technology and adopt its innovative vision. For businesses of all sizes, the cloud represents a great opportunity to avoid significant expenses and time consuming operations. Therefore, they can focus on innovation and development [4]. IDC, the international research company, nominated cloud computing as the basis for the IT industry’s next 20 years of expansion, “nothing less than the complete transformation of the industry’s core offering and business models.” [3] Major accounting firms and even accounting organizations (including AICPA - American Institute of Certified Public Accountants) have responded to the increased level of attention given to cloud based technology, by providing an array of cloud-based assurance services and guidance. Accounting companies (such as Deloitte) are offering the outset of a cloud vendor selection. KPMG global consulting advises that analysis of cloud related applications can help to set proper expectations on cloud use [5]. Cloud software is getting more popular as time goes by, as proved by the growing number of qualitative surveys and technical studies that has been published over the past two years [6]. Recent international surveys show that businesses are increasingly becoming aware of the potential benefits of the cloud. A study conducted in April 2013 by Lonergan Research, an Australian research agency, for a CCH (provider of software and information services for tax, accounting and audit practitioners) Research Report shows that “six in ten (60%) accountants who are not currently using a Cloud-based system consider it likely they will adopt one in the next 2-3 years.” And this preference for the cloud rises sharply among younger groups of business owners [1]. The same research also reveals that both accountants and business owners aged 18 to 34 are more receptive to migrating their accounting work onto a cloud solution (fig. 1).
Fig. 1. Attitude toward Cloud Accounting adoption
3. How does cloud accounting influence the business? According to practitioners’ opinion, any business can witness extensive benefits from using cloud-based solutions. The intuitive design, the possibility to access real-time information and several other advanced
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features make accounting accessible for both experts (accountants) and non-experts (small business owners). By taking a systematic approach to risk assessment, including creating effective policies for cloud usage and a risk response plan, companies can experience the leverage of this new technology and increase operational efficiency [5]. If we think of a company that is adopting such solutions, then we should consider some essential aspects that reshape the business itself. 3.1. Lowered costs The costs involved when using accounting software include both the up-front investment and the later maintenance expenses. A company’s initial investment can be substantially reduced through cloud accounting offerings because, with this business model, there is no hardware or software licenses to purchase. Especially for small sized companies that cannot afford expensive infrastructure and the software implementation process (including integrated systems), these solutions allow them to run their internal processes and operations using the same IT systems employed by their more developed competitors [7]. They can access the same high-end technology as large or multinational companies and they only pay for what they use (pay-as-you-go model). Users can actually choose the payment method: per each use or by paying a monthly subscription fee, depending on consumption. By adopting an online accounting solution, there is no hardware (hard drives, servers or external memory) to maintain. Many companies that embraced the cloud model have been able to considerably decrease costs, because their software is delivered over the internet and it is not installed on a local computer. The user does not buy an accounting application, but only the use of it. Because the software is provided over the Internet, users are always able to access the updated version of the technology. By routinely updating the “product” during low traffic periods (such as early morning or late evenings), there is no need for the users to disrupt work during their day. From this point of view, cloud-based software can be described as an innovative timesaver, convenient for the beneficiary business. Without requiring the user to do any other action, automatic updates are performed so that the client can use the latest version of the product right away. All these are possible with a simple connection to the internet. 3.2. Increased productivity The fact that the cloud is available 24/7 allows users to work when they want to, not restricting them to office hours only. This develops the business productivity, because the users are not limited to office hours, bound to a desk, or limited by any kind of access device they might use. By accessing the application from any mobile device or computer, the user is able to check his bank balances or recent transactions. The dashboard ensures a real-time view of the business at a glance and a better visibility of the cash flow. Cloud-based software ensures the business continuity through several means. The automated back-up of the financial data is performed as a scheduled task (daily, weekly or monthly, as the customer requires). The cloud provider is always using a stable environment because in the end, protecting financial data is critical for every business. The information is encrypted using highest security standards and it is safely stored because the application is located “in the cloud”, not on a particular (and also vulnerable) device. Even if the user’s laptop is stolen or malfunctioning, there is no risk of losing data; the same information can be accessed from another device. In case of unexpected events, there is always the possibility of continuing the activity [7]. Before cloud computing, productivity stopped once the business owner and their employees left the office. By using online accounting, the business can go on, thus providing business continuity. Another factor that can increase the productivity is the possibility to use resources in accordance with the business needs. Scalability or the allocation / de-allocation of resources is made available through the use of cloud-based software. The cloud allows entities to rapidly scale up or down because the applications are
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delivered at the speed of the internet. With conventional software, users have to choose how much to invest up front in IT resources or applications. When using the cloud model, companies can purchase just enough for the present and scale as the business grows. Therefore, firms (and especially small-sized ones) have much more flexibility and increased adaptation because they can effortlessly add software as they need it. 3.3. Concerns and risks Considering the fact that today’s economic environment is highly competitive and challenging, each business is very careful when it comes to sharing their financial data. In fact, owning the right information at the right time is a very powerful tool in the business field. Even though a high level of security has already been established, business owners are still concerned about the safety of their financial information. This is actually the main obstacle when considering the migration to the cloud. Mike Chisholm, CEO of CCH Collaborative Solutions, is one of the active defenders of the cloud security, according to his statement in 2013: “Five or six years ago, when cloud systems were first coming onto the market, security was definitely the overriding concern. But that concern has gradually been pushed down the line as people realize cloud systems can be very secure, and in many ways are more secure than existing systems based on office servers.” [1] Another aspect that is concerning business owners is the risk of losing the internet connection. In this scenario, the business’ continuity or performance is depending on a reliable network and the speed of the data transfer. This is in fact, a false issue because all cloud providers have got very clear and specific service-level agreements with their own network providers, so that the cloud user never experiences downtime [7]. Before adopting a cloud solution, companies are strongly advised to try the new product that they want to buy. Since these applications are available online, most cloud accounting providers allow users to test their service for free. This trial is recommended when business owners are not sure if a certain solution is appropriate for his particular activity. By using the application for an agreed period of time, a company will know if the solution is suitable, before making a long-term commitment. 4. What is the accountant’s perspective? The cloud has already conquered almost every business area, but it seems that the accounting profession is skeptical about this new model. According to some accountants, cloud-based software is an obvious threat [1]. Of course, it could be considered a threat for those who are not willing to adapt and to clearly comprehend the benefits involved. As we all know, people fear what they do not understand. This business model is not implying that accountants are excluded from the branch. In fact, these solutions are meant to simplify the accountant’s tasks and to optimize the business workflow. Cloud-based applications are not designed to replace the the human factor from the business activity (as some surveys [1] might suggest). The first cars, in the early 20th century, were initially called “horseless carriages”. People could not imagine a wheeled vehicle without a horse carrying it. Initially, most people could not fully understand the new paradigm. Today, we are witnessing a similar change: the shift from locally installed software to the cloud [4]. Just as in the early days of the car industry, it is difficult to see the big picture and where this new model will lead us. Looking back, we will see that each step forward in our historical evolution has attracted the same skeptical attitude. We should be aware of the fact that a different paradigm can actually prove to be another progress for our society. After all, each business or profession is an active participant in an uncertain economic environment. The accounting profession should be receptive and evolve in accordance to the reality that we are living today. Accountants need to experience a different point of view and welcome the assistance given by this innovative 21st century technology. They also need to move towards a more interactive service and efficiently meet the informational needs of businesses that are sometimes struggling to assess the way forward. Accountants need to be able to offer real-time insight into profitability. Cloud accounting offers the alternative to shift from paper-based
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financial statements to real-time financial dashboards. Cloud-based accounting software can give companies the chance to transform the client relationship by improving collaboration and communication. Accountants can enable business partners to access accurate and real-time data from anywhere through an internet connection. By working collaboratively, companies can eliminate the burden of transferring data (or paper documents) back and forth (process that is costly, time-consuming and unsafe). With improved remote access, clients can easily pay invoices online and other business partners are able to use up-to-date financial information to make wise business decisions. There is a clear opportunity for accountants to step up and play a vital role in enabling a new level of business insight that could transform the performance of businesses (especially for small companies). This will require the accounting profession to adopt not only new technology, but also a new way of working that minimizes repetitive administrative processes and frees qualified individuals to share their expertise and knowledge with the marketplace. Technology can help enable this cultural shift and the cloud model can make it affordable for all types of businesses [8]. 5. Conclusions The last decade has been propelling an impressive development of information technology. The borderline between technology and our society is fainting, as IT tools and gadgets are spreading in almost every aspect of our life. In such a dynamic and challenging environment as the economic field, companies are considering a new way for doing business. The cloud concept is getting more popular as time goes by and increasingly more companies are adopting cloud-based software in order to improve their efficiency and to experience many other benefits. The cloud accounting model enables all business participants (business owners, accountants, auditors and clients) to closely collaborate by accessing up-to-date financial data in the same time, via the internet. This article is focusing on the cloud accounting solutions as seen from different points of view. We particularly reviewed the business’s and the accountant’s perspective with regard to these technologies. We identified several advantages ensured by cloud-based software and we have also discussed the most significant concerns involved, as perceived by both business owners and accountants. The paper is a qualitative research, based upon the most relevant literature on this topic. We would like to emphasize the lack of meaningful academic sources regarding the cloud accounting model. Although these technologies have been known to practitioners for some years, very few papers have been written in this respect. Therefore, the literature on this subject is mainly built on practitioners’ studies and handbooks, surveys conducted by specialized research companies or by cloud service developers. The article is addressing the cloud accounting paradigm from a business-oriented view, and does not intent to provide an exhaustive or a technical outlook. Further research could cover other economic implications and effects generated by this mentality shift. The transition to the cloud is only just beginning. It might become the fundamental factor for reshaping our reality and redefining globalization as we know it. If accountants give technology the chance to prove its worth, the accounting profession could eventually act as a worldwide standardized entity and take businesses to the next level of efficiency.
Acknowledgements This work was supported by the European Social Fund through Sectorial Operational Programme Human Resources Development 2007–2013, project number POSDRU/159/1.5/S/134197, project title “Performance and Excellence in Doctoral and Postdoctoral Research in Economic Sciences Domain in Romania”. This work was supported by the European Social Fund through Sectorial Operational Programme Human Resources Development 2007–2013, project number POSDRU/159/1.5/S/142115, project title “Performance and Excellence in Doctoral and Postdoctoral Research in Economic Sciences Domain in Romania”.
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References [1] CCH. Cloud Computing - A matter of survival for the accounting industry. CCH Research Report. 2013. Available at: http://www.cchifirm.com/why_ifirm/cloud-computing-and-the-accounting-industry [2] Clear Books. How cloud accounting software is changing the business model of accounting firms. 2014. Available at: http://www.clearbooks.co.uk/themes/ClearBooks2013/images/ClearBooks/accounting-software-business-model.pdf [3] Ernst & Young. Cloud computing issues and impacts. Global Technology Industry Discussion Series. 2011 [4] Horton W. Beyond Horseless – Carriage Thinking. William Horton Consulting. 2000 [5] Kinkela K., College I. Practical and ethical considerations on the use of cloud computing in accounting. Journal of Finance and Accountancy. 2013. Available at: http://www.aabri.com/manuscripts/131534.pdf [6] KPMG. Modelling economic impact of cloud computing. KPMG Report. 2012 [7] Păcurari D., Nechita E. Some considerations on cloud accounting. Studies and Scientific Researches. Economics Edition. 2013; (18):193-198 [8] Tulsian A. Why small business owners should take their accounting to the cloud. Information Technology – The Chartered Accountant. 2012: 979-982
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ScienceDirect Procedia Economics and Finance 32 (2015) 665 – 671
Emerging Markets Queries in Finance and Business
Cloud accounting: a new business model in a challenging context Otilia Dimitriua,*, Marian Mateia a
Alexandru Ioan Cuza University of Iasi, Carol I Boulevard, No. 22, Iasi 700705, Romania
Abstract Accounting has been assisting every commercial activity ever since the beginning of trade, as simplified as it was at that time. Due to the need to efficiently and accurately translate the economic reality into figures, accounting has been continuously improving. Furthermore, the information technology expansion and the emergence of the internet have also shaped this art of recording. In fact, the 21st century has been marked by several stages in the process of IT enhancement and we have witnessed the rapid spread of these solutions in our daily activities, thus improving our lives. One of the most rapidly adopted paradigms was cloud computing that had a major impact on the business environment considering its various benefits. Simultaneously, the ongoing challenging context compels all participants in the economic field to be competitive, dynamic and proactive. Therefore, companies need to stay in touch with the de facto state and duly adapt. On the other hand, accounting, as a means to issue relevant and specific information for all stakeholders, has embraced cloud computing solutions. The result is cloud accounting – a new business model that supports the accounting profession. Based upon the most recent studies and practitioners’ technical reports, this paper is focusing on the impact of cloud accounting on each actor in the entire business area. Published by Elsevier B.V. This an open article under CC BY-NC-ND license license © 2015 Authors. The Authors. Published by Elsevier B.V.isThis is anaccess open access articlethe under the CC BY-NC-ND (http://creativecommons.org/licenses/by-nc-nd/3.0/). (http://creativecommons.org/licenses/by-nc-nd/4.0/). Selection and and peer-review Emerging Markets Queries in Finance and Business local organization. under responsibility responsibilityof ofthe Asociatia Grupul Roman de Cercetari in Finante Corporatiste Selection peer-review under Keywords: cloud accounting; cloud computing; accounting software;
1. Introduction Accounting, the language and science of measuring business performance, has been continuously adapting to the economic context. During the late 1950s, the automation of accounting data had begun, and what followed afterwards was an irreversible course. The emergence of accounting software has significantly
* Corresponding author. Tel.: +40-724-883-209. E-mail address: [email protected].
2212-5671 © 2015 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
Selection and peer-review under responsibility of Asociatia Grupul Roman de Cercetari in Finante Corporatiste doi:10.1016/S2212-5671(15)01447-1
666
Otilia Dimitriu and Marian Matei / Procedia Economics and Finance 32 (2015) 665 – 671
improved the practice of accounting. Considering the large volume of information and the necessary time to process it, accounting software became a very useful tool for accountants to do their job faster and more efficient. Although accounting software has been around for decades, it has continued to develop its potential over the years; it has become highly sophisticated and this evolution marches on. The 1990s witnessed an explosion in the personal, business and government uses of the Internet. In fact, we could actually consider it the starting point of the “Information Revolution”. The rise of multimedia and collaborative software created new infrastructures that were designed to host complex applications and web pages. The last decade of the 20th century brought significant advances to data communication, technology evolved rapidly and social networks appeared. The Internet became faster, more reliable, less expensive and has expanded in almost every area. But most importantly, it has challenged the very foundations of the traditional business model. Furthermore, the new generation of smart mobile devices has encouraged the spread of cloud services [3]. The impact of cloud computing stands in the way that these services are provided: remotely and only on request. Gartner, a leading research company, designated cloud computing as the number one trend that will change the face of business [7]. According to an IDC research study, cloud computing spending will reach $ 73 billion by 2015 and will redesign the global business context [8]. It is the ability to enhance business flexibility that determines the wide cloud adoption, thus affecting all economic actors. This increasing pace of change promoted by cloud solutions has also reached the accounting domain [3]. As expected, cloud service providers have developed cloud-based accounting applications, which have considerable advantages. Today, accounting in the cloud is a new business reality, powered by cloud computing technology [7]. Also known as cloud accounting or online accounting, this software acts like accounting applications installed on users’ computers, but it is performed on servers offering online services and users can access them through web browsers. This way, accountants or business owners can connect to their financial affairs from any location, over the Internet. This theoretical study is examining cloud accounting as a new business model. The purpose of the paper is to present the numerous facets of this innovative paradigm. Because of the novelty of the concept, the current academic literature does not provide much information on this topic. In fact, we could say that the business environment is the one that specifically supported research on cloud-based accounting solutions. This is why, until now, the articles that refer to the cloud accounting notion are mostly technical reports, surveys and market studies. Based on the most significant features of these solutions, we described in this paper, the point of view of different business actors. In a qualitative paper, we explored the cloud accounting model from a practical point of view, as seen through the eyes of the business owner or investor, but also from the accountant’s perspective. 2. How is cloud accounting a different business model? Traditional accounting software is generally purchased as a product and installed on each user’s computer. We could consider cloud accounting a new business model as it is rather provided as a service and not as a product. By accessing the accounting data via the internet, companies are purchasing the use of accounting software from a specialized service provider and not the software itself (with the required license or even the necessary infrastructure). Cloud accounting solutions are transforming the way that accounting applications are used and they are modernizing the entire business environment. Mahin Khawaja, director of Adroit Accountax evaluates this as a shift in the industry with more accounting firms utilizing cloud services: “Accountants want to evolve like everyone else, with more online accounting systems, better connectivity than we had 20 years ago, and [the] ability to work remotely.” [2] Another aspect that defines cloud-based accounting as a different model is the capability to display the current financial state of the business. Relevant and up-to-date information is crucial for any economic decision, especially in a very competitive and challenging context like
Otilia Dimitriu and Marian Matei / Procedia Economics and Finance 32 (2015) 665 – 671
the one that we are living today. Businesses can either grow or disappear just as rapidly, depending on their ability to evolve and adapt to the best existing technological framework. At a certain point, the post-factual character of traditional accounting will no longer be enough [7]. Specialists in the field believe that the future belongs to those who will embrace the new technology and adopt its innovative vision. For businesses of all sizes, the cloud represents a great opportunity to avoid significant expenses and time consuming operations. Therefore, they can focus on innovation and development [4]. IDC, the international research company, nominated cloud computing as the basis for the IT industry’s next 20 years of expansion, “nothing less than the complete transformation of the industry’s core offering and business models.” [3] Major accounting firms and even accounting organizations (including AICPA - American Institute of Certified Public Accountants) have responded to the increased level of attention given to cloud based technology, by providing an array of cloud-based assurance services and guidance. Accounting companies (such as Deloitte) are offering the outset of a cloud vendor selection. KPMG global consulting advises that analysis of cloud related applications can help to set proper expectations on cloud use [5]. Cloud software is getting more popular as time goes by, as proved by the growing number of qualitative surveys and technical studies that has been published over the past two years [6]. Recent international surveys show that businesses are increasingly becoming aware of the potential benefits of the cloud. A study conducted in April 2013 by Lonergan Research, an Australian research agency, for a CCH (provider of software and information services for tax, accounting and audit practitioners) Research Report shows that “six in ten (60%) accountants who are not currently using a Cloud-based system consider it likely they will adopt one in the next 2-3 years.” And this preference for the cloud rises sharply among younger groups of business owners [1]. The same research also reveals that both accountants and business owners aged 18 to 34 are more receptive to migrating their accounting work onto a cloud solution (fig. 1).
Fig. 1. Attitude toward Cloud Accounting adoption
3. How does cloud accounting influence the business? According to practitioners’ opinion, any business can witness extensive benefits from using cloud-based solutions. The intuitive design, the possibility to access real-time information and several other advanced
667
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Otilia Dimitriu and Marian Matei / Procedia Economics and Finance 32 (2015) 665 – 671
features make accounting accessible for both experts (accountants) and non-experts (small business owners). By taking a systematic approach to risk assessment, including creating effective policies for cloud usage and a risk response plan, companies can experience the leverage of this new technology and increase operational efficiency [5]. If we think of a company that is adopting such solutions, then we should consider some essential aspects that reshape the business itself. 3.1. Lowered costs The costs involved when using accounting software include both the up-front investment and the later maintenance expenses. A company’s initial investment can be substantially reduced through cloud accounting offerings because, with this business model, there is no hardware or software licenses to purchase. Especially for small sized companies that cannot afford expensive infrastructure and the software implementation process (including integrated systems), these solutions allow them to run their internal processes and operations using the same IT systems employed by their more developed competitors [7]. They can access the same high-end technology as large or multinational companies and they only pay for what they use (pay-as-you-go model). Users can actually choose the payment method: per each use or by paying a monthly subscription fee, depending on consumption. By adopting an online accounting solution, there is no hardware (hard drives, servers or external memory) to maintain. Many companies that embraced the cloud model have been able to considerably decrease costs, because their software is delivered over the internet and it is not installed on a local computer. The user does not buy an accounting application, but only the use of it. Because the software is provided over the Internet, users are always able to access the updated version of the technology. By routinely updating the “product” during low traffic periods (such as early morning or late evenings), there is no need for the users to disrupt work during their day. From this point of view, cloud-based software can be described as an innovative timesaver, convenient for the beneficiary business. Without requiring the user to do any other action, automatic updates are performed so that the client can use the latest version of the product right away. All these are possible with a simple connection to the internet. 3.2. Increased productivity The fact that the cloud is available 24/7 allows users to work when they want to, not restricting them to office hours only. This develops the business productivity, because the users are not limited to office hours, bound to a desk, or limited by any kind of access device they might use. By accessing the application from any mobile device or computer, the user is able to check his bank balances or recent transactions. The dashboard ensures a real-time view of the business at a glance and a better visibility of the cash flow. Cloud-based software ensures the business continuity through several means. The automated back-up of the financial data is performed as a scheduled task (daily, weekly or monthly, as the customer requires). The cloud provider is always using a stable environment because in the end, protecting financial data is critical for every business. The information is encrypted using highest security standards and it is safely stored because the application is located “in the cloud”, not on a particular (and also vulnerable) device. Even if the user’s laptop is stolen or malfunctioning, there is no risk of losing data; the same information can be accessed from another device. In case of unexpected events, there is always the possibility of continuing the activity [7]. Before cloud computing, productivity stopped once the business owner and their employees left the office. By using online accounting, the business can go on, thus providing business continuity. Another factor that can increase the productivity is the possibility to use resources in accordance with the business needs. Scalability or the allocation / de-allocation of resources is made available through the use of cloud-based software. The cloud allows entities to rapidly scale up or down because the applications are
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delivered at the speed of the internet. With conventional software, users have to choose how much to invest up front in IT resources or applications. When using the cloud model, companies can purchase just enough for the present and scale as the business grows. Therefore, firms (and especially small-sized ones) have much more flexibility and increased adaptation because they can effortlessly add software as they need it. 3.3. Concerns and risks Considering the fact that today’s economic environment is highly competitive and challenging, each business is very careful when it comes to sharing their financial data. In fact, owning the right information at the right time is a very powerful tool in the business field. Even though a high level of security has already been established, business owners are still concerned about the safety of their financial information. This is actually the main obstacle when considering the migration to the cloud. Mike Chisholm, CEO of CCH Collaborative Solutions, is one of the active defenders of the cloud security, according to his statement in 2013: “Five or six years ago, when cloud systems were first coming onto the market, security was definitely the overriding concern. But that concern has gradually been pushed down the line as people realize cloud systems can be very secure, and in many ways are more secure than existing systems based on office servers.” [1] Another aspect that is concerning business owners is the risk of losing the internet connection. In this scenario, the business’ continuity or performance is depending on a reliable network and the speed of the data transfer. This is in fact, a false issue because all cloud providers have got very clear and specific service-level agreements with their own network providers, so that the cloud user never experiences downtime [7]. Before adopting a cloud solution, companies are strongly advised to try the new product that they want to buy. Since these applications are available online, most cloud accounting providers allow users to test their service for free. This trial is recommended when business owners are not sure if a certain solution is appropriate for his particular activity. By using the application for an agreed period of time, a company will know if the solution is suitable, before making a long-term commitment. 4. What is the accountant’s perspective? The cloud has already conquered almost every business area, but it seems that the accounting profession is skeptical about this new model. According to some accountants, cloud-based software is an obvious threat [1]. Of course, it could be considered a threat for those who are not willing to adapt and to clearly comprehend the benefits involved. As we all know, people fear what they do not understand. This business model is not implying that accountants are excluded from the branch. In fact, these solutions are meant to simplify the accountant’s tasks and to optimize the business workflow. Cloud-based applications are not designed to replace the the human factor from the business activity (as some surveys [1] might suggest). The first cars, in the early 20th century, were initially called “horseless carriages”. People could not imagine a wheeled vehicle without a horse carrying it. Initially, most people could not fully understand the new paradigm. Today, we are witnessing a similar change: the shift from locally installed software to the cloud [4]. Just as in the early days of the car industry, it is difficult to see the big picture and where this new model will lead us. Looking back, we will see that each step forward in our historical evolution has attracted the same skeptical attitude. We should be aware of the fact that a different paradigm can actually prove to be another progress for our society. After all, each business or profession is an active participant in an uncertain economic environment. The accounting profession should be receptive and evolve in accordance to the reality that we are living today. Accountants need to experience a different point of view and welcome the assistance given by this innovative 21st century technology. They also need to move towards a more interactive service and efficiently meet the informational needs of businesses that are sometimes struggling to assess the way forward. Accountants need to be able to offer real-time insight into profitability. Cloud accounting offers the alternative to shift from paper-based
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financial statements to real-time financial dashboards. Cloud-based accounting software can give companies the chance to transform the client relationship by improving collaboration and communication. Accountants can enable business partners to access accurate and real-time data from anywhere through an internet connection. By working collaboratively, companies can eliminate the burden of transferring data (or paper documents) back and forth (process that is costly, time-consuming and unsafe). With improved remote access, clients can easily pay invoices online and other business partners are able to use up-to-date financial information to make wise business decisions. There is a clear opportunity for accountants to step up and play a vital role in enabling a new level of business insight that could transform the performance of businesses (especially for small companies). This will require the accounting profession to adopt not only new technology, but also a new way of working that minimizes repetitive administrative processes and frees qualified individuals to share their expertise and knowledge with the marketplace. Technology can help enable this cultural shift and the cloud model can make it affordable for all types of businesses [8]. 5. Conclusions The last decade has been propelling an impressive development of information technology. The borderline between technology and our society is fainting, as IT tools and gadgets are spreading in almost every aspect of our life. In such a dynamic and challenging environment as the economic field, companies are considering a new way for doing business. The cloud concept is getting more popular as time goes by and increasingly more companies are adopting cloud-based software in order to improve their efficiency and to experience many other benefits. The cloud accounting model enables all business participants (business owners, accountants, auditors and clients) to closely collaborate by accessing up-to-date financial data in the same time, via the internet. This article is focusing on the cloud accounting solutions as seen from different points of view. We particularly reviewed the business’s and the accountant’s perspective with regard to these technologies. We identified several advantages ensured by cloud-based software and we have also discussed the most significant concerns involved, as perceived by both business owners and accountants. The paper is a qualitative research, based upon the most relevant literature on this topic. We would like to emphasize the lack of meaningful academic sources regarding the cloud accounting model. Although these technologies have been known to practitioners for some years, very few papers have been written in this respect. Therefore, the literature on this subject is mainly built on practitioners’ studies and handbooks, surveys conducted by specialized research companies or by cloud service developers. The article is addressing the cloud accounting paradigm from a business-oriented view, and does not intent to provide an exhaustive or a technical outlook. Further research could cover other economic implications and effects generated by this mentality shift. The transition to the cloud is only just beginning. It might become the fundamental factor for reshaping our reality and redefining globalization as we know it. If accountants give technology the chance to prove its worth, the accounting profession could eventually act as a worldwide standardized entity and take businesses to the next level of efficiency.
Acknowledgements This work was supported by the European Social Fund through Sectorial Operational Programme Human Resources Development 2007–2013, project number POSDRU/159/1.5/S/134197, project title “Performance and Excellence in Doctoral and Postdoctoral Research in Economic Sciences Domain in Romania”. This work was supported by the European Social Fund through Sectorial Operational Programme Human Resources Development 2007–2013, project number POSDRU/159/1.5/S/142115, project title “Performance and Excellence in Doctoral and Postdoctoral Research in Economic Sciences Domain in Romania”.
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References [1] CCH. Cloud Computing - A matter of survival for the accounting industry. CCH Research Report. 2013. Available at: http://www.cchifirm.com/why_ifirm/cloud-computing-and-the-accounting-industry [2] Clear Books. How cloud accounting software is changing the business model of accounting firms. 2014. Available at: http://www.clearbooks.co.uk/themes/ClearBooks2013/images/ClearBooks/accounting-software-business-model.pdf [3] Ernst & Young. Cloud computing issues and impacts. Global Technology Industry Discussion Series. 2011 [4] Horton W. Beyond Horseless – Carriage Thinking. William Horton Consulting. 2000 [5] Kinkela K., College I. Practical and ethical considerations on the use of cloud computing in accounting. Journal of Finance and Accountancy. 2013. Available at: http://www.aabri.com/manuscripts/131534.pdf [6] KPMG. Modelling economic impact of cloud computing. KPMG Report. 2012 [7] Păcurari D., Nechita E. Some considerations on cloud accounting. Studies and Scientific Researches. Economics Edition. 2013; (18):193-198 [8] Tulsian A. Why small business owners should take their accounting to the cloud. Information Technology – The Chartered Accountant. 2012: 979-982
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