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CPAs Moving Slowly on the Road to Cloud Adoption

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Jun 21st 2016
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The accounting profession faces many issues in a fast-changing world, and cloud usage with all of its attendant requirements ranks among the most important.

AccountingWEB spoke with Erik Asgeirsson, president and CEO of CPA.com, whose mission is “empowering CPAs and businesses for the digital age,” about the progress being made in embracing the cloud.

AW: The CPA of the Future report released in December 2014 indicated that 90 percent of CPAs believe digital business processes will be a key differentiator among accounting firms in the next five years. Yet, only 8 percent indicated the profession is ready for the future. Why is technology and, specifically, cloud services apparently so difficult to accept?

Erik Asgeirsson: I actually think there is some strength in that data point in the fact that CPAs are self-aware. They need to do a lot more. When we looked at this in 2010, you wouldn’t have the 90 percent saying that it would be the key differentiator. So, that’s great, and now they are saying they aren’t where they need to be. They aren’t saying they are there when they aren’t, and that’s very important.

We’re seeing a lot of that 90 percent who need to do more being very focused, much more involved, and engaged in how to leverage these new cloud accounting capabilities. So, they are accepting it. Now they are really working on putting in place plans to more aggressively adopt it. The challenge is putting in place the business and practice plans to adopt it.

AW: Have you determined how many CPAs also are hesitant to do anything in the cloud, such as online banking, shopping and purchasing, booking travel, streaming TV, and so on? Or is the concern specific to their type of business and security issues?

Asgeirsson: I think it’s a very high percentage, similar to what you’d find in the broader consumer market, who have moved to online banking, shopping, purchasing, and streaming. This technology revolution we are living in started on the consumer side with Google, Facebook, and online banking.

Erik AsgeirssonThe business marketplace in the past few years is absolutely making a more aggressive move to cloud services. I think one thing that’s changed when you look at the past decade is the ubiquitous nature of high-speed Internet access. That’s really important because as firms move from doing things on desktop applications or in their server environment to moving it all to the cloud, it is very important that the services work in a very efficient manner. I think that’s taken some time. Online banking is absolutely there; streaming videos is there.

In cloud accounting, QuickBooks got online and working at a first-year level with their big relaunch about 18 months ago in fall 2014. Now, QuickBooks is turning up over 100,000 businesses per quarter onto QuickBooks Online and clearly surpassed the turn-ups related to QuickBooks desktop. There’s no comparison. That’s occurred over the last couple of years and that’s why this is slightly behind online banking and purchases.

As to the security point, it’s not just about the CPA firm moving to cloud accounting. Their business clients have to as well. High-speed access is like electricity. You have to have it to be in business. The firm can support them in the cloud accounting environment. I do think the firms have moved in a more measured fashion than on the consumer side due to questions about security. Fundamentals had to change, and they have. And the firms had to get more comfortable with the data being stored at these cloud vendors.

AW: One cloud issue that’s been frequently mentioned in industry publications concerns not just cloud security but the security of SaaS vendors. How can firms verify what vendors’ security measures are and that they stay up-to-date?

Asgeirsson: Firms need to make sure that the cloud services they use are following security best practices. That means that they have SOC [Service Organization Control] 2. There’s a big difference between SOC 2 and SOC 1. With SOC 1, the internal controls in place were around financial reporting. SOC 2 reviews the principles and those are the security that’s in place, confidentiality in place, privacy rules in place, processing integrity in place, and availability in place. You look at those because that’s what you want reviewed. It’s not about “will the data be breached” or if the data will be available. It’s how that company is addressing the confidentiality and privacy of that information.

What I’ve seen in the marketplace is that sometimes companies try to pass off a standard like SOC 1 to look like it’s SOC 2. A firm should absolutely know this and look for appropriate standards in their due diligence and a review of cloud standards. And SOC 2 has to be current, not done two years ago. They should be very familiar with these standards.

AW: Much has been discussed and written about succession planning as many older accountants prepare to retire. How does cloud usage factor into that when they are trying to attract younger managers and CPAs?

Asgeirsson: I hear from firms all the time about this. If they want to attract millennials, know what they are looking for. They are looking for flexibility, to work in a modern way, which means that it’s not always in the office. You are supporting remote work, and when you do that, you need to do it in an effective fashion. And it all starts today with cloud technology: attending internal meetings, using things such as video, desktop-sharing tools, meeting with clients in that fashion, managing workflow in the firm with cloud-based tools, and automating the inputs.

Millennials don’t want to do data entry. You have to use the technology or practice to automate inputs for cloud accounting in your tax area, and now automation is occurring more in the audit space as well. That’s almost a must if you want to engage and attract younger managers. In the CFO area when you have bank feed automation, automating of the bill payment process, you are focused on setting up dashboards and reports for your clients that they view in an online fashion. For small firms, all they need is Internet access and it doesn’t matter where their staff is located, and that’s important.

I think firms will have a lot more value by adopting technology. Firms will have a much bigger return if they automate. You don’t know what you don’t know. The last thing you want to say is “I sold my firm but didn’t know my value and the buyers modernized it and dropped another 10 percent on the bottom line.” Some of these really laggard firms are attractive just for that reason – there is up potential. That’s an embarrassing reason to be bought because you don’t understand your own potential.

AW: At last year’s Annual Executive Roundtable, you were quoted as saying “to be successful, firms need to rethink what their business strategy is. The technology is the easy part.” But apparently it isn’t. It seems that it’s going to take firms longer than five years to differentiate themselves digitally. Realistically, how long do you think it’s going to take for the majority of the profession to be in the cloud?

Asgeirsson: It’s hard to say. I think you’re right. To be totally in the cloud, we’re in the early majority. We really need to look at the adoption curve, which the book Crossing the Chasm made famous. You start with innovators, then reach a chasm with the early majority, and the early majority really gets going once there is a pragmatic way to build out new capabilities. We’re in the early majority in every part of the firm – from virtual CFO controllership services, the modern ways to support your tax business, to audit.  Audit I see as slightly behind, but virtual controllership is leading from the digitalization standpoint. We’re there in the early majority. There might be one system that doesn’t make sense to migrate into and you want to do it in components.

To get to that full adoption, we could be five years out, but the real statement to make is that we are clearly in the early majority, clearly have great vendor training and case studies of best practices on how to go about this. That takes the early majority to late majority, which is getting well above 50 percent of the profession. We’re under 50 for the profession right now that are clearly 100 percent cloud-based. But we’re well on the road to full cloud adoption.

It’s a question now of when, not if. When I give talks, it’s not “I’m not sure about this” that I hear. It’s “I’ve got to get on this, have to get my talent better and practice better, and I need to be vigorous in vendor selection.”

But to do this right is not easy and will take time.

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By sb96
Jun 22nd 2016 12:31 EDT

It's hard to move to the cloud when vendors don't offer your most important programs. I began using ProSystems fx Engagement in 2006 and was told it would be SAAS within a year. Still waiting. And no one hosts it well, either.

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Seth2016
By Seth Fineberg
Jun 23rd 2016 11:01 EDT

True cloud offerings for accountants were a bit limited back then and the larger, legacy product vendors still haven't quite gotten it together even 10 years later. Some have, lots more to choose from but for tax...it's still challenged.

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