Accounting firms moving slowly toward cloud

The future of accounting software may be in the cloud, but the present remains in the server room—at least for now.

That’s one of the pictures painted by the results of a new section of technology-related questions in the 2014 Management of an Accounting Practice (MAP) Survey from the AICPA Private Companies Practice Section (PCPS) and the Texas Society of CPAs (TSCPA). For the first time, the biennial survey asked firms about specific software choices and whether they access the software over the internet.

The new questions also explored firm policies regarding mobile and social media use, document retention, and hardware and software replacement. In addition, the survey inquired about the partners, staff, and outsourced personnel responsible for leading and managing the firms’ information technology (IT) efforts.

This article examines the firms’ responses to the new set of technology questions and what those answers might mean for the profession going forward.

Editor’s note: Click here to download a single PDF of all of the exhibits referred to in this article.

The software scene

When CPAs envision the near future, they see the cloud. In The CPA of the Future, a study released in December by AICPA subsidiary CPA.com, 90% of the CPAs surveyed agreed that the delivery of digital business processes to clients will become a key differentiator among accounting firms in the next five years. On the other hand, the study, conducted by James Canton of the Institute for Global Futures, also found that only 8% of CPAs believe the profession is future-ready today.

That means that at least nine of every 10 CPAs understand that the accounting profession needs to evolve quickly over the next few years to adapt to a rapidly changing business environment, one that emphasizes analytic and forward-looking services over increasingly commoditized compliance and reporting work.

Part of that transition will involve the adoption and deployment of cloud-based software. Vendors have clearly hopped on the cloud wagon, with established players releasing software-as-a-service (SaaS) versions of flagship products, as new, cloud-only competitors emerge. It’s still relatively early in that process, however, as evidenced by the MAP Survey, which found significantly more firms using software located on their computers than those accessing purely SaaS offerings.

Part of the reason for this is the dominance of large vendors and established software packages. QuickBooks, for example, emerged as the clear leader in market share for write-up and bookkeeping software for firms in all seven size categories tracked by the MAP Survey (see Exhibit 1). Write-Up CS from Thomson Reuters was the only other product to register double-digit usage rates among the nearly 1,750 firms surveyed, doing so for the middle five revenue tiers.

Asked to indicate the primary way they access their write-up and bookkeeping software, more than 70% of firms replied that they use applications installed on-premise. The percentage of firms primarily using purely SaaS offerings, described as software accessed through a website login, failed to top 9% in any of the revenue categories.

On-premise applications also lead the way in most other software categories: tax preparation, time and billing, scheduling, and work flow and document management (see Exhibits 2–5). SaaS applications are still relatively small players except in work flow and document management software, where XCM Solutions’ web-based work flow offering has double-digit shares among firms with at least $5 million in annual revenue.

Look for other cloud-based software offerings to claim large chunks of market share over the next five years. Firms already are predominantly in the cloud for research software, both for tax and for auditing and accounting. Thomson Reuters’ Checkpoint and Checkpoint PPC products control the lion’s share of the research software market (see Exhibits 6–7).

The digital divide

While virtually all firms of all sizes use tax preparation and write-up/bookkeeping software, the usage rates for the other types of software surveyed trended upward with firm size. More than half of firms in the smallest three revenue categories did not employ scheduling software, while the same held true for work flow/document management software among firms in the smallest two tiers.

The who, what, why, and how of technology decisions also vary according to firm size. More than half of firms with at least $1.5 million in revenue have a formal technology strategy that’s tied to the firm’s overall strategic plan. The rates for firms in the four other revenue tiers range from 31% for the smallest firms to 42% for those in the $500,000 to $750,000 revenue bracket (see Exhibit 8).

While a firm owner or partner is almost always responsible for information technology strategy and oversight, larger firms are much more likely to have a senior manager, outsourced IT personnel, or in-house IT staff involved (see Exhibit 9). Day-to-day management usually falls to an owner or partner in firms with less than $750,000 in revenue, while the outsourced IT personnel play a leading role for firms with $750,000 to $5 million in annual revenue (see Exhibit 10). Most firms with at least $5 million in annual revenue have in-house IT staff to handle day-to-day IT management.

Firms in the middle three revenue brackets were the most likely to have outsourced IT help. More than half of firms in the $1.5 million-to-$5 million revenue range turned to outsourced consultants to help develop IT strategy and/or direct day-to-day IT management. The median paid for outsourced IT was nearly $17,000 a year, while more than a quarter of firms spent more than $36,000. The prevalence of outsourced IT plunged in the largest two revenue tiers as the largest firms have more robust internal IT teams. When large firms do outsource IT, they spend more than their smaller peers, with a quarter of firms in the largest two tiers paying at least $45,000, sometimes much more, for outsourced help.

Policies and practices

The approach to replacing or updating hardware varies by firm size. Firms with less than $500,000 in revenue tend to wait until the current hardware fails or their IT consultant tells them it’s time to make a change (see Exhibit 11). IT consultants also hold a lot of sway for firms with $500,000 to $5 million in revenue. The percentage of firms operating on a schedule for hardware replacement increases with firm size—rising from 19% among the smallest firms to 88% among the largest firms. On the other hand, more than a fifth of the smallest firms indicate financial ability is the key factor in whether they replace or update hardware.

On the software side, between 33% and 42% of firms across the size spectrum replace or update their applications when a better alternative becomes available (see Exhibit 12). Among the other options, smaller firms are more likely to replace/update software annually or when it is no longer supported by the operating systems, while the larger firms are more likely to have a proactive replacement schedule, which helps to make costs more predictable.

Fewer than half of firms with revenues below $1.5 million employ virtualization technology, which allows for the creation of multiple servers and/or an operating environment within a single physical server or desktop. More than 70% of firms above the $1.5 million revenue mark use virtualization. For the largest firms, VMware for Servers is the most popular choice, followed by Citrix XenApps, Microsoft Hyper-V for Servers, and Microsoft Terminal Server, which was the most popular choice among firms with between $500,000 and $5 million in annual revenue. In an interesting twist, Citrix was the top choice for both the smallest firms and the large firms with between $5 million and $10 million in revenue (see Exhibit 13).

On the mobile front, the vast majority of firms allow their employees to access work email via their tablets and smartphones, with more than 80% of firms of all sizes promoting at least some use of mobile technology (see Exhibit 14). More than half of firms with at least $750,000 in revenue grant their employees’ mobile devices remote access to the firm’s network.

More than half of firms with less than $1.5 million in annual revenue do not actively use or promote the use of social media (see Exhibit 15). Of those firms, sole proprietors and others in the smallest tier are more likely to use social media for business development and client communications than many of their larger competitors. Firms with at least $5 million in revenue post the highest social media usage rates, with business development and staff recruitment as their most popular activities, though 15% of the largest firms say they are not active on social media.

In contrast, a vast majority of firms, and virtually all the large ones, claim to operate in a paperless work environment (see Exhibit 16). The most popular technique among firms of all sizes is to scan and archive digital files as the final record of completed engagements. Large percentages of firms also deliver organizers and tax returns digitally. Among other paperless practices, large firms are much more likely to provide mobile monitors to staff, use document management or tax work flow software, scan documents at the beginning of an engagement, and use a client portal. Regardless of how documents are stored, the most common policy for their retention calls for files to be purged after seven years. More concerning is that at least 10% of firms in each revenue category, and a third of the smallest firms, indicate that they either don’t have a document-retention policy or that they don’t follow one—a course of inaction that can have a number of privacy law and compliance implications.

Conclusion

CPA firms are much farther along on the path to paperless than on the journey to the cloud, but look for that gap to close in the coming years. As noted in The CPA of the Future report, CPAs understand that the digital future is coming fast and that they need to get ready. Much of that preparation will take place in the cloud.

Editor’s note: Click here to download a single PDF of all of the exhibits referred to in this article.

Jeff Drew is a JofA senior editor. To comment on this article or to suggest an idea for another article, contact him at jdrew@aicpa.org or 919-402-4056.

AICPA RESOURCES

JofA articles

• “2014 MAP Survey: Firms Tech It Up a Notch,” Jan. 2015, page 28
• “2014 MAP Survey: Firms Experience Growth, Stockpile Cash,” Dec. 2014, page 30

Publications

• 10 Steps to a Digital Practice in the Cloud: New Levels of CPA Firm Workflow Efficiency (#PTX1204P, paperback; #PTX1204E, ebook)
• 2014 AICPA PCPS/TSCPA National MAP Survey Results Summary (#PCPSSUR01, online access)
• AICPA Privacy Principles Scoreboard (#PPS12S, online access)
• Management of an Accounting Practice Handbook (#090407, loose-leaf; #MAP-XX, one-year online access)

CPE self-study

• Hosting in the Cloud (#BLI165030, one-year online access)
• IT Risks and Controls in Current and Emerging Environments (#733522, text; #156551, one-year online access)

Website

National MAP Survey: Access the complete collection of MAP reports, including the free MAP Commentary and the new Technology Report, at aicpa.org/mapsurvey.

Conference

Practitioners Symposium and Tech+ Conference, June 7–10, Orlando, Fla.

For more information or to make a purchase or register, go to cpa2biz.com or call the Institute at 888-777-7077.

Private Companies Practice Section and Succession Planning Resource Center

The Private Companies Practice Section (PCPS) is a voluntary firm membership section for CPAs that provides member firms with targeted practice management tools and resources, including the Succession Planning Resource Center, as well as a strong, collective voice within the CPA profession. Visit the PCPS Firm Practice Center at aicpa.org/PCPS. The Succession Planning Resource Center is available at aicpa.org/PCPS/succession.

Information Management and Technology Assurance (IMTA) Section and CITP credential

The Information Management and Technology Assurance (IMTA) division serves members of the IMTA Membership Section, CPAs who hold the Certified Information Technology Professional (CITP) credential, other AICPA members, and accounting professionals who want to maximize information technology to provide information management and/or technology assurance services to meet their clients’ or organization’s operational, compliance, and assurance needs. To learn about the IMTA division, visit aicpa.org/IMTA. Information about the CITP credential is available at aicpa.org/CITP.