Applicability of Cloud Computing for Accounting & Taxation Firms

In the present day business functions and financial activities technology acts as a major requisite. Technology has changed the ways we exchange financial information and presentation of this interpreted and analyzed financial data to the end user or the client. Information technology has a great role in mounting the heights on which Business functions are today. From the e-filling of tax returns to maintaining of books of accounts electronically, technology has helped the facades of business functions particularly Accounting and Taxation in achieving flexibility and efficiency like never before. The technology has again played its role in giving new dimensions to these business functions via the model of Cloud Computing. 

Cloud computing is defined by a major web encyclopedia (Wikipedia) as “The delivery of computing and storage capacity as a service to a heterogeneous community of end-recipients”. In the layman’s language Cloud Computing is a technology based on utilization of resources which are stored on the cloud (the internet) in which the user of such resources need not have specialization in technology and he/she need not care about the infrastructure and management of these resources in the cloud. The user can have access to all of the required data and use the storage to save, amend or modify the requisite data without any “physical” storage, server and other infrastructure.

When we specifically consider the utility of Cloud Computing in view of the needs of Accounting and Taxation firms we find that many major dilemmas faced by these firms are sorted out by the technological model of Cloud Computing. Whenever we start thinking about the needs of an effective service providing firm we come up with three major needs/areas where if control of the firm is ensured, the probability of the operations of firm being carried out smoothly and profitably increases manifold. These three areas are –

1. Cost

2. Efficiency, &,

3. Future Returns

It seems quite obvious when we assume a firm having a cost effective structure with considerable efficiency and certainty; that the present technique of doing work of the firm i.e. Cloud Computing is “Future Proof” and this would continue to yield profits and won’t get outdated very soon due to changes in future parameters. With this great gift of Cloud Computing it becomes feasible to achieve control over these areas to a greater extent if not completely. In fact this assurance of cloud computing that reasonable control over these areas can be achieved by firms after implementing it, is the major driving force behind the urge to implement the Cloud Computing Structure.

 

How Implementation of Cloud Computing is Beneficial for Accounting and Taxation firms?

Accounting and Taxation firms can achieve control over the above discussed three areas by moving to Cloud Computing and derive major benefits in these areas after implementation of Cloud Computing as summarized below:

1. Cost –

• Reduce Expense
• No initial Investment
• Pay only for what you use
• Save “Money value of Time”
• Get an edge over the competition

2. Efficiency –

• On-Demand utility
• Flexibility
• Opportunity to focus your resources in doing “what you do best”, and leaving the hustle for IT management to Cloud vendor

3. Future –

• Cloud Computing is (near) future proof
• Be in pace with the internationally acclaimed firms
• Be the first among your competitors to embrace the future
• Cloud Computing being Eco friendly to a great extent, will help to reduce carbon emission and hence fulfill the firm’s CSR( Corporate Social Responsibility)

In a firm where Cloud Computation Environment is not present, firm’s management will employ offline software for Accounting and Taxation related work or a software utility which is either generalized or custom made for the firm and doesn’t need a 100% online access, in such a case the firm will have to bear expenses for application licensing( if the utility is tailor made), recurring membership fee(if the utility is bought without making it custom made for the firm), updation costs, development costs, maintenance costs etc. The firm can get rid of all these expenses by embracing Cloud Computing; as in Cloud Computing, the utility related expenses including those related to updation and maintenance are to be borne by the Cloud Vendor. The employer of the firm only needs to use the accounting/taxation/ERP utility effectively and all other actions are carried on within the cloud without employer’s interference or knowledge of such actions.

Similarly, in absence of Cloud Computing, a developing firm will need to take care of its hardware components and hosting components like storage devices (hard disks), servers, and power components. With advancement towards cloud computing, a developing firm can avoid these expenditures and can avoid (or reduce considerably) its future hardware investments and Power & Cooling expenses.

There also lies a CAPEX vs. OPEX angle in migration towards Cloud Computing; all of the firm’s hosting and storage costs are capital expenditure, while in the cloud, costs are completely operational (OPEX or operational expenditure),i.e., Pay-as-you-go.

 

Document Management – Made easy via Cloud

A great deal of ordeal faced by any Indian Accounting or taxation firm is bulk quantity of documents lying in their premises. At later stage of cloud computing implementation, documents are to be uploaded to the cloud. This will facilitate in reduction of physical storage and space consumption. And in addition to this reduction, there will be an additional saving of the time which would have otherwise been wasted in searching for a particular data or document. After healthy implementation of Cloud Computing, all that an employee needs for fetching a particular data/document is “Keywords” or “Phrases”

In above diagram, the central figure denotes the employee and A,B,C,D & E denote the physical units where a particular data might be stored.

It is evident from the above diagram that when an employee of accounting firm needs a particular details, for example, past financial data, rules and regulations regarding a particular case, taxation details etc., there might be two cases when he goes to search for the same.

CASE 1: A Proper Documentation Mechanism is Present –

In this Case, the employee will have to contact the concerned person responsible for Documentation to know where the required documents are stored

CASE 2: No Proper Documentation is done –

The employee will have to employ “Hit & Trial” method and try finding the document in probable destinations

In both of the above cases, either of the firm will have to bear some cost for maintenance of documentation system or will have to suffer some unproductive working hours consumption.

                                                            

In above diagram, the two sided data transfer between the employer and the cloud is depicted

This is where Cloud Computing comes as an aid. With Cloud Computing in action, an employee of the firm (whether he be the accountant, the analyst, the consultant etc.) will just have to access a terminal (which may be a Desktop PC, Laptop, Workstation, PDA or Mobile Device etc.) and access the cloud to fetch the requisite material. He only needs to have some keywords or phrases related with and assigned to the required document and he can find the requisite data with a great ease without establishing a separate department for documentation or going through large bulk of files in cabinets. An additional benefit of Cloud Computing is that Data is also protected and secured from unauthorized access by other employees.

Data Security in a Cloud Computing Environment is Unparallel because the Cloud Vendors invest a huge amount in enhancing the security of Data of the users both physically and digitally, if we consider from the viewpoint of hardware failure, the probability of such event is very less because if a particular server at a geographic location fails there are several other servers installed at other geographical locations on which the additional load of the failed server can be migrated and diverted. When we talk digitally, these vendors offer high security data transfers with security as efficient and comparable to the SSL cryptographic protocols which we use in online banking transactions. The risk of data leakage whilst in transit is very less because such data is protected by strong encryption.

Cloud Computing is very beneficial to accounting firms, but it acts like a boon for taxation firms Tax application on clouds is very beneficial due to following reasons :

• It helps the professionals to exchange, interpret and alter the relevant data as per their convenience; so there is an extreme ease of access
• Tax returns can be generated anywhere at anytime
• Cloud Computing for Taxation can help improve the “Work-Life Balance” of firm’s employees, i.e., in times when the workload is excessive and a professional is deprived of the off-office hours he/she needs and fatigue takes him/her over, he/she can have some time off-office at home and can carry out his/her work from there only as per his/her convenience

 

Points to ponder before moving to the Cloud –

There are certain pre-requisite requirements of the Cloud Computing Model which should be taken care of before the implementation of this model. First and fore mostly it should be noted that

“Internet Connectivity plays a vital role in Cloud Computing System”

Hence, one must try to get the best bandwidth he/she can afford. Keeping this requirement in mind almost all the Cloud Computing Vendors have come up with promising offers of providing bandwidth which will more than needful for the purpose.

In this regard it is advisable to the prospective firms interested in implementation of cloud computing to avoid binding themselves with the long term bandwidth contracts and agreements because technology in this particular field is extremely volatile, changes and major improvements take place rapidly, and due to this reason there is always a possibility of getting better bandwidth at reduced economic costs.

Further, since India is not availing premier bandwidth services (though scenario is going to change soon with arrival of advance optical networks and 4G) an accounting or taxation firm which has just implemented the Cloud Computing system should ideally restrict its bandwidth uses; this restriction may be posed in the following manner –

• Draft IAUPs i.e. Internet Acceptable Use Policies, these policies determine acceptable and unacceptable utilization of firm’s bandwidth
• Block some sites which stream huge amount of information and hence consume considerable part of the bandwidth, or,
• Apply a combination of above two

Hence, by keeping above mentioned requisites and techniques in mind a firm can easily embrace Cloud Computing and establish a healthy and productive Cloud Computing Environment.

 

Drawbacks of Cloud Computing

Like everything in this world Cloud Computing is also subject to certain limitations. Although the future prospects of Cloud Computing are very promising and bright, Cloud Computing model has some drawbacks related primarily with user and location. Following are some drawbacks of Cloud Computing :

• Restriction on choice regarding selection of Applications, Operating Systems and Infrastructure options
• In case any legal “Search and Seizure” or investing activity is to be carried out in a firm where Cloud Computing Mechanism is present; a problem of “authorization” can arise at the ends of both; the investigator and the firm. Moreover, forfeiture of physical storage units like hard disks, files etc. can be easily done but there is no absolute way of forfeiting the data stored on a cloud and isolate it from the firm or company until and unless the firm or company agrees to grant such privilege. This situation gets even worse as there are currently no legal guidelines in our country which govern the way how data on a cloud is to be maintained
• If the vendor of the Cloud Computing Services is not very much reliable, there always exists an inherent risk of exposure of the firm’s data to competitors
• If the vendor and firm are from different countries, some legal inconveniences may arise in case of any disputes etc.
• Pay-as-you-go mechanism which is generally seen as a great advantage of Cloud Computing is also a potential backdrop because if a firm is not able to pay its dues to the Cloud Vendor, the cloud computing services will terminate after a stipulated time period with all the data and work of firm lost(i.e. inaccessible to the firm)

There is also a misconception in the market that implementation of Cloud Computing in any Accounting or Taxation firm irrespective of its size will result in saving of lots of operating and capital expenditure; but this is not the whole story. By moving its application and data to the cloud a small sized firm or a mid-sized firm may not be able to decrease the overall spending. Because although the clouds provide reduced spending on on-premise infrastructure, an average accounting firm may need to spend more money on the Internet Services, Space allocation, subscription and storage. In a gist, the decision that whether or not to implement Cloud Computing is firm specific and will depend on its needs and marginal utility it expects to draw by migrating to Cloud Computing.

Although some claim cloud computing to be a “greener” alternative, there are arguments against it also; cloud computing may result in an increased data-transfer and hence power consumption if the data centers used by cloud based services are located far from the end user like in other country.

 

Conclusion

Cloud Computing is no doubt a great offering of technology to the modern day business functions, but the profitability and marginal utility a firm derives out of it will depend on three major factors viz. the size of the firm, the needs of the firm and the efficiency of current mechanism in the firm. A firm should analyze the pros and cons before moving to the cloud based technology. If a firm is large and invests a considerable amount on on-premises infrastructure, Cloud Computing is definitely the IT solution for such firm. However, extreme caution must be exercised in choosing the right cloud computing vendor in order to enjoy all the benefits the cloud can offer. The fruits of implementation of Cloud Computing will depend on the way this mechanism is implemented in the firm and the firm’s thirst of bringing the change and harnessing it profitably.

- Divya Singhal