Today’s CPA firm is facing the same dilemma that the profession has been dealing with for years: how to get tax preparation and audit work and other profitable, high-level engagements without being bogged down by the bookkeeping and mechanical work that comes along with them. It’s a big problem for most firms, and perceived solutions have presented only a new and different set of problems.
There was a time when financial record keeping was performed with purely manual tools. Ledger books, multi-column pads of paper (the early spreadsheets), and a raft of paper documents made up the toolkit for the bookkeeper/accountant. Original documents, such as receipts, invoices and cancelled checks, were recorded, categorized, tabulated, summarized, and eventually distilled into a statement of financial position. The rigors of this manual process were rarely experienced by the small business directly; the accountant was typically engaged to perform this bookkeeping and "write up" work as a function of providing a financial statement and opinion that could be trusted.
While the accounting practitioner understood that the write-up of this original information was a prerequisite to providing summarized financial reports, there was a constant search for a solution to the frustrations and costs involved in performing these functions. Gathering all the necessary documents in a timely manner, employing the necessary staff to perform the laborious job of translating that original information into summarized journals, distilling the journal information into financial reports, and (finally!) producing tax returns and financial statements was proving to be a task too great for even the largest professional accounting organizations.
In the 1980s, computing had matured to a level of functionality and affordability that could be enjoyed by many businesses, and it appeared as though a solution to the problem might finally be available. Client write-up tools, applications that could perform a variety of business and financial calculations, and computerized reporting systems were developed for and introduced into the accounting practice. It seemed that the issues surrounding the processing of original information into summarized financial reports were being solved with the use of these innovative tools. The solution, which seemed evident, actually helped to create a new set of problems for the accounting practice – limitation of scope and professional services.
The advent of client write-up systems caused many accounting professionals to turn away the mechanical bookkeeping work that had previously been the core of the practice. The perception that the accountant’s value was solely in the review and issued opinion of the financial information overshadowed the importance of managing good record keeping for the client business. Accountants were reticent to continue performing low-margin bookkeeping work when an incredible increase in efficiency in processing summarized information had been created.
Many client businesses were left to their own devices to perform the basic bookkeeping for the company, which resulted in less accurate information being provided to the accountant. This, in turn, resulted in the requirement for the accountant to re-engage in reviewing original documents and verifying (auditing) the bookkeeping records provided by the client prior to doing the write-up and financial report generation. Efficiencies that had been gained were being diminished. Ultimately, this created a bigger issue with billable hours and profitability than did the original problem.
The changes in the accounting industry were not subtle. In a very short period of time, a flurry of cottage bookkeeping and business-support companies were created. Personal tax preparation, small business bookkeeping – these were the new industries being formed that would take up the work that the CPA left behind. For some accountants, attempting to remove the bookkeeping service was akin to removing a body part. Undoubtedly it damaged a few client relationships, but mostly it just reduced the workload. And the bigger issue still remained – how to get quality data in a useable form from the client business in a timely manner and at a reasonable cost and keep the billable hours up.
The next phase of attempting to solve the efficiency and accuracy problem was the introduction of computerized bookkeeping applications directly to the client business. Again, the perception in the market was that this resource, if properly delivered and managed by the accounting professional, would provide accurate information from which the professional could generate financial reports, perform audits, and prepare tax returns. The representation by the leading software companies in this area was that "if you can write a check, you can do your own bookkeeping". Unfortunately, the perception was only representative of part of the reality.
The professional accounting practitioner is not typically a technologist, and the selection, delivery and implementation of technology is not his forte’. However, the model that had been developed determined that many accountants would now have to understand, promote, and support accounting applications in their client businesses. In order to be able to interact with the information produced from the accounting system, the accountant typically recommended something that was familiar to him. This would ensure a high level of quality in the support services offered by the accountant, but did not necessarily represent the best business "fit" of the application to the client business model. To further exacerbate the problem, the accountant now had a more streamlined source of information from the client business, but the information was still not likely in a reportable form. Write-up still needed to be done, and the data still had to be transported to the accountant in some manner.
This involvement by the accountant in the technology had other negative effects on the practice. In many cases, the professional spent more time and effort in selling and setting up an accounting system for his client than was spent actually performing accounting services. The focus of the firm was redirected from providing high-level accounting and financial services to facilitating technology and process changes inside the client business. This caused many firms to move away from their core competency and try to create new means of generating revenues to strengthen the business case for their involvement in technology to such a high degree. At this point it is important to reiterate that the professional accounting practitioner is not typically a technologist.
As time progressed, the accounting industry managed to find some peace with this new way of doing business. Many professional firms created specific business units to do little else than implement and support computerized tools and processes within their client businesses. Some practitioners simply became computer savvy to ensure a level of future participation. Regardless of the fact that information still needed to be transported, reviewed, adjusted, and reported – the accountant was at least interacting regularly with the client and could bring some controls to the bookkeeping function.
The costs of computer equipment, software, and associated services were dropping rapidly, and many firms that had been profitable in the technology areas were finding that it would not last much longer. The realization that none of the computerization efforts had caused a substantial increase in the profitability of the accountancy side of the practice caused the firm to return to the question of offering bookkeeping services directly to the client business and to become more fully, directly involved once again. This would, hopefully, result in the engagement for more profitable higher-level work. This decision, naturally, resulted in the return to the original problem – how to get the information from the client, morph it into a useable form, report on it, and get it back to the client in a timely manner – and still make a profit on the business.
In order to perform bookkeeping and similar services at a profitable level, and keep the costs to the client within reason, the accounting professional must be able to provide these services in a manner that does not commit substantial costly resources that will rapidly absorb the revenues generated. While bookkeeping is often seen as a loss leader for a CPA firm, doing the books for a business client can be a very profitable venture if serviced properly. And doing the books often results in the engagement of the accountant for more, and more profitable, services.
The solution to the problem is a technology-based solution, and is one that facilitates a new workflow and process that is far more efficient than the previous model. Unlike previously available "solutions", those available today do not require a complete overhaul of the business model. In many ways, the technology that has become available mimics the systems that are being replaced. This technology is simply provided in a better, more flexible and more powerful manner. The tools being used are easily recognized, and are presented in such a way that allows professionals and their client businesses to enjoy the benefits without having to expend effort and resources to incorporate them into the existing business.
Through the use of easily-recognized platform and application technologies, coupled with the innovative method of delivering these applications using the Internet as the network, the accounting professional and client business now have a means for interacting in real time with live business financial data. Streamlining the process for obtaining original documents and information, creating an audit trail at every level of the transaction, and providing the means for accessing and interacting with the data from a variety of locations by a variety of potential users – all are aspects of the increased efficiencies and effectiveness of this computing model.
It has been recognized that businesses can increase their productivity levels enormously through the use of properly designed and implemented virtual office technologies. The value proposition revealed is far more than simply reducing the cost of obtaining and supporting information technology.
Through an understanding of the specific issues facing the accounting industry, and recognizing that the processes used in this industry would not change rapidly, it was realized that the developed technologies and services could have a significant positive impact on how an accounting practice interacts with and supplies services to a client business. Further investigation clearly demonstrated that, if used consistently, the audit trail and compliance aspects of the process could also be substantially improved.
The ability for an accountant to utilize staff bookkeepers effectively depends upon the ability of the staff to perform their functions in a timely, accurate, and secure manner. Constraints caused by logistics – physical location and similar factors – could be virtually eliminated through the use of on-line solutions. Staff members, regardless of locale, could be provided access to a computing environment and infrastructure that is shared with the client business, providing easy access to both the applications and the data required to perform the bookkeeping function.
Further, messaging resources - such as voicemail and fax services unified with electronic mail – and document management services create a resource for obtaining original documentation in original form from the client without compromising the integrity of the audit trail. Voice messages, for example, provide the means for memorializing cash transaction information and, if produced in an electronic file form, can be archived with all other information to provide a solid, irrefutable audit mechanism.
There is a technology paradigm shift occurring. The platform is evolving to the Internet, and many of the old rules no longer apply. Incredible computing power is available from anywhere, provided you have broadband Internet access – which is becoming almost as available as plain old telephone service. And with this technology shift is a commensurate shift in the accounting industry. The changes that are happening to the landscape of computing lend themselves to directly solving a number of the key challenges faced by the entire accounting industry, and address many of the needs and requirements of business in general. The accounting industry is running at breakneck speed to keep up with the advancements in technology. Successful firms have come to the realization that the corporate CFO and CIO (or the comptroller and the computer guy) must now work more closely together.
In reality, the accounting industry as a whole encompasses every business and individual who is required to keep and maintain records of financial transactions, i.e., everyone. Technology use by the accounting industry will, as history has clearly demonstrated, affect more than just the accounting industry. The impact of technology on any business can be extreme. The impacts of technology on this industry can ripple changes throughout the economy.
Joanie C Mann