Accountants serving small business


CPAs produce knowledge products from information provided by clients. Computers and internet have not fundamentally changed the practice of public accounting. The GAAP and tax domains for example, have not changed, neither have the legal environment or principles of management, for most businesses.

Technology has not been kind to CPAs. It has increased the volume of low-grade information we must absorb. Meanwhile, technology has not provided tools at the cognitive level we work at. Simultaneously, technology has created a more complex business environment, and contributed to the labor shortage in qualified staff in the accounting field.

During the 1990s, great improvements were made in CPA firms' software for time and billing, tax preparation, and information resources on CDROM. But little improvement was made in accountants' core processes of value creation.

Internet accounting offers some hope of relief in two respects. The first is in the production mechanisms underlying our service delivery. The more important development is enabling higher cognitive level tools for CPAs based on XML.

The "production" problem can be decomposed into

  • getting sufficient information from the client, summarized sufficiently to enable rapid analysis,
  • being able to get answers to further questions, either verbally or by query or drill down, and
  • having an adequate software environment to manipulate information and generate tax returns and financial statements. (I am assuming a pre-existing level of professional knowledge, and GAAP and tax resources in the office.)

Look at this simplified workflow:

Raw data and discussion notes from clients
CPA's analytical thought processes

Financial statements, tax and consulting products

discuss some more

The above workflow, of course, is not very efficient. Both arrows #1 and #2 obviously require a lot of manipulation of information of a mechanical nature, which does not add value.

Here is a more typical "work flow":

  • Read the client's accounting data to review transactions and prepare adjusting journal entries. This requires either purchasing the same software as used by our many clients, and getting a copies of their data, or, driving to the client's location.
  • Transfer, somehow, the client's trial balance to our "tool" for preparing financial statements (usually Microsoft Word or Excel.)
  • Post numerous classes of data from the accounting system into specialized subsystems for fixed assets, payroll tax reporting, eliminations and consolidations, or financial analyses.
  • Think and reflect a whole lot, on the transactions the client has executed and how they need to be recharacterized into standard GAAP descriptions, semantics, and footnotes, and prepare financial statements accordingly, and
  • Further reorganize the data into yet another set of required subtotals and sums for the company's tax returns. Manually enter these amounts into nooks and crannies of our income tax preparation software.

The most immediate unmet needs of CPAs in this marketplace include:

  • acquire the client's data more efficiently
    - more frequently and timely, within periods as well as at ends of periods,
    - at the time we need it, not when the client has time to provide it,
    - at lower acquisition cost, not requiring work by the CPA or client,
    - in complete detail ranging down to the individual transactions,
    - in interactive format (complete reports, with drilldown into details).
  • manipulate the data into financial statements and tax returns more efficiently,
    - using tools designed to support the CPA's cognitive processes and roles in the value chain,
    - having powerful structures and tools for cash flow statements, asset management, consolidations and footnotes, etc.
    - tools with which we can grow more expert every year, instead of being on a permanent learning curve with Microsoft and dozens of clients' accounting software.
  • prepare tax returns more efficiently,
    - tax returns should be mostly automatic by this stage
  • post accounting adjustments into the clients' accounting system more efficiently
    - eliminate costs and risks of relying on clients to post them
    - but in a way that gives clients full control, oversight and responsibility
  • maintain snapshots of client accounting data from prior periods in our systems,
    - sufficiently rigorous to avoid reviewing interim data twice.
    - sufficiently rigorous to identify backdated changes by bookkeeper
    - indexed or linked somehow to financial statements we have produced, and our Excel, Word, and tax return data.

The internet offers the best opportunity in many years, for CPAs to acquire data from clients more efficiently.

The emergence of XML as a standard format for transferring accounting data offers the best hope that has come along in many, many years for improvements in interoperability --transferring data between different accounting systems. The 1990s has already seen some brilliant tax and writeup software, which has been crippled only by the lack of raw data from clients accounting systems. Now that we have XML, the vertical software available for CPAs will really flower and bloom.

Accounting and bookkeeping outsource services

The single biggest problem of accounting outsourcing is that the accountant must know enough about the business dealings to record them properly. Today's service providers to small business spend massive time on site, and expend massive mental concentration acquiring a mental picture of transactions and business process.

Internet accounting will provide remote access to clients' transactions. It will also reduce the mental concentration and skills required to understand remote contexts:

  • when selling and purchasing is conducted online by clients, the resulting data will be captured more accurately
  • CPAs will understand the business context of diverse transactions more readily by visiting the websites of the trading partners involved in transactions
  • transactions will be displayed more consistently across companies,
  • reporting and drilldown into details will likely be superior, and
  • CPAs will be able to view transactions thru templates or XSLT transformations that give them familiar views regardless of the client's software.

In conclusion, there are approximately 400,000 CPAs in the U.S. and more accountants internationally.  This group is very diverse.  But substantial numbers, certainly exceeding 10% of this number, are highly aware of the abysmal level of functionality of their computers in the areas of interoperability and connectivity. They are ready to spend substantial 5-figure money on software and services to achieve these functionality, and are discovering the potentials of webledgers and XML applications for data interchange and reporting in growing numbers.

TB 8/11/99