The evolution of technology has changed the way companies do business and for accounting purposes, it has challenged how the cost of accounting is reported.
Without the need to buy licences and purchase or lease IT infrastructure, businesses have no upfront investment, no asset and no depreciation. Therefore, cloud software is fundamentally a different business model to traditional accounting.
Traditional software only worked on the computer to which it was loaded with only one person able to access data. While data could be bounced from place to place, the data in the system wasn’t up to date nor was the software consistently running the latest version.
This meant that information could be missed or lost and there was no way for accountants to be sure they were working with the most current information. On the balance sheet, however, purchased infrastructure could be reported as an asset and companies could capitalise the costs and amortise them over time.
There are significant benefits of cloud software and for accountants, saving money is quintessential.
These savings are not just limited to the reduction in capital outlay for servers and infrastructure but also the cost of the physical space required to house that infrastructure and a reduction in ongoing expenses such as the energy, maintenance, management and IT systems necessary to support it. Accountants can now simply have a provider host all their infrastructure and service needs.
Cloud software provides businesses with up-to-date, real-time financial information which can be fully accessed and managed by their accountant, offering timesaving convenience because accountants can do their job without either the client or the accountant needing to leave their office. Allowing accountants the time to focus more on management accounting, financial advice and consultation.
With cloud software, a user of cloud services never owns the underlying assets. The ability to apply cost capitalisation principles to cloud agreements is limited. While upfront costs may be capitalised and amortised over the contracted service period, ongoing monthly fees are incurred as an operating expense.
Systems of cloud software
Accountants work with a greater variety of third-party software than most other sectors, therefore, an accountancy firm with numerous business clients will need to be competent in the use of that same variety of cloud accounting software programs.
This can range from clients wanting to keep everything or those clients who want to operate via a cloud accounting system. Not only are there multiple providers of cloud accounting services, but there are also three key platforms from which these services can be delivered.
- SaaS – software as a service is delivered on-demand via the internet. Generally provided as a subscription service SaaS providers host and manage the software infrastructure including licences, updates and security. Subscribers connect to the cloud via computer and mobile devices.
- PaaS – platform as a service is an on-demand supply environment that developers can use to create, test, manage and deliver applications without the need to invest in the setup and management of the underlying infrastructure.
- IaaS – infrastructure as a service offers customers basic cloud services that can be fixed or scalable. Customers pay for scalable storage, network, server or operating systems on a pay-as-you-go basis.
Cloud services that include software licences, which is normally the case with PaaS or IaaS, fall within the general principles of intangible accounting.
Growth of cloud software
The adoption of cloud software services by accounting firms and businesses continues to steadily grow. Equally, it has helped turn client accounting services into a high-margin, high-growth line of business for many accountancy firms.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.