The Third Stage of Accounting
August 8, 2013
At the heart of a highly efficient accounting department is technology. Today, however, with ever-changing mandates and the need for ‘always-on’ access to data, it’s not enough to simply implement advanced applications. Technology alone cannot deliver significant results—in terms of elevated efficiency, cost reduction, and sophisticated, up-to-the-minute financial analysis. While advanced cloud-based applications have helped to improve accounting processes, most professionals have not advanced past the ‘transactional’ level—where technology is only used to enter data online.
Practitioners first need to understand that there is more to operating an efficient department than just stand-alone technology. To reap the full benefits of today’s powerful applications, practitioners must look beyond disparate application implementation and envision the big picture—building an end-to-end, streamlined internal SYSTEM to power highly efficient, collaborative accounting operations. When the right system is in place, it opens the door to standardizing processes department wide, building staff for a digital work environment, and gaining access to up-to-the-minute data anytime to support informed business decisions.
This white paper was developed to educate accounting professionals on leveraging the power of today’s advanced technologies and other critical components of a highly efficient internal accounting SYSTEM. The goal is to offer guided insight to help put you on the right path to building a highly efficient system, operating at peak efficiency, realizing substantial time and cost savings, and improving business intelligence.
The Three Stages of Accounting
Over the past few years, technology has advanced bookkeeping, accounting, and financial management to what has been termed ‘The Third Stage of Accounting.’ At Stage 3 are those that have figured out how to use technology to all but eliminate data entry and assign uniform processes department wide. All this adds up to off-the-charts efficiency, elevated insight into data, flexibility in staffing, and more.
Consider the three stages of accounting that have advanced the profession to where it is today…
Before delving into the intricacies of Stage 3, it’s important to understand the evolution of the accounting profession. From the advent of the double-entry system up until the last half of the century, bookkeeping was performed using ‘pen and ink’ data recording. This process brought with it laborious posting, balancing, reconciling, and the eventual write up of financial statements. This period was known as ‘The First Stage of Accounting.’
Moving along the continuum next came the emergence of microcomputers and relatively inexpensive bookkeeping and accounting software. The combination of technology and software offered a quantum leap in productivity and the elimination of much of the balancing and manual write up of financial statements. This was known as ‘The Second Stage of Accounting.’ However, despite productivity increases, Stage 2 still required a lot of manual data entry in relation to basic bookkeeping transactions. It also called for intense review by an experienced in-house accounting professional or outside consultants in order to produce accurate GAAP financial statements.
The ‘Third Stage of Accounting’ came about with the widespread use of the Internet. Internet-based technologies dramatically improved workflow processes and helped to skyrocket firm-wide productivity. The onset of integrated cloud-based applications, client portals, online document management systems, and other powerful innovations supported end-to-end, standardized digital processes and a collaborative work environment—with virtually no barriers in communication and data flow.
It's only been within the last few years that advanced web-based bookkeeping and accounting applications have come into strong play, allowing organizations to make another quantum leap in productivity. The advent of these innovations has all but eliminated manual data entry. Documents are scanned and uploaded directly into these applications where data is auto-populated and seamlessly flows from one integrated application to the next. And because these applications are Internet-supported, they can be accessed at anytime, from anywhere, and from the device of choice (smartphone, tablet, laptop)—supporting an ‘always-on’ system with detailed views to timely, accurate financial information for approved personnel.
The Value of an Advanced Technology SYSTEM
When the full power of today’s advanced technologies is harnessed, the value is immense. Operating within a true digital, streamlined system brings with it multiple benefits and opens the door to opportunities for extended process improvements. Technology is no longer a means to a single end (digital transactions), but rather represents the foundation for broad operational improvements. Consider all the benefits experienced by those who have reached the Third Stage of Accounting…
Digital, Streamlined Workflows—Integrated applications support end-to-end paperless workflow processes, that virtually eliminate manual data entry. When you work within a digital, streamlined accounting system, data flows from one application to the next—eliminating duplicate data entry at multiple stages of the workflow. Today’s OCR-based innovations further streamline processes by allowing upload of scanned documents and auto-populating data within software. Recording transactions has never been easier or more efficient!
24/7 Access to Current Data—An advanced accounting infrastructure ensures that you always have access to the most current data for real-time financial status. It also supports remote access at any time, from anywhere, and from any device. In essence, you have the luxury and flexibility of working the way YOU want and need to work.
Sophisticated Business Intelligence—Real-time, anywhere access to your data positions you to collect far more sophisticated business intelligence. With immediate, up-to-the-minute views of your data, you can make more informed business decisions on the fly, as well as provide accurate projections of future performance.
No-barrier, Collaborative Work Environment—Advanced and secure technologies such as portals and online client accounting applications enable real-time, collaborative processes. There are truly no barriers when you have 24/7, secure access to your data and applications.
Staffing Flexibility—Highly efficient operations translate into a significant reduction in work hours, lessening the need for an extended full-time staff. This provides the flexibility to hire seasonally when needed or even outsource day-to-day bookkeeping tasks to a professional CPA firm, which often costs less than a full-time bookkeeper. When you work within a completely digital accounting system, the boundaries of time and distance are eliminated—allowing you to outsource day-to-day bookkeeping to an experienced, cloud-based CPA firm. This type of service is often referred to as Virtual Accounting.
A Word on Virtual Accounting
Virtual accounting is the solution for CPA’s in industry that wish to further increase operational efficiencies. A new and effective trend within the corporate CPA sector is to move back-office accounting tasks outside of their department and allow a virtual partner firm to handle day-to-day work remotely. This ensures that bookkeeping activity is handled by a seasoned accounting professional, while eliminating the need for a full-time bookkeeper on staff. This also frees the corporate accounting team to focus on complex accounting work and ensure the ongoing financial health of their employer—while always having access to accurate, timely data because a seasoned CPA is handling the bookkeeping. Take a moment to review the other key benefits of virtual accounting.
Additional Key Benefits of Virtual Accounting:
Reduction in Errors—When you have an experienced, professional CPA handling your bookkeeping, you reduce the risk of error significantly. In addition, by working collaboratively within a digital accounting system, manual data entry is limited or eliminated altogether—furthering reducing risk of data entry errors.
Accurate and Timely Financial Statements—Rest assured you will always receive accurate, current financial statements and reports by working with a seasoned CPA.
Reduction in Fraud—Using an outside CPA firm allows for separation of duties, which is key to internal controls. By using a third-party firm, controls are built-in based on receipts and only allow disbursements via approval by authorized personnel for a fraud-resistant process. Additionally, most CPA firms are bonded.
Reduction in Operating Costs—Outsourcing bookkeeping work eliminates the need for a full-time staff position, offering as much as a 50% reduction in cost.
Advanced cloud-based technologies have catapulted the accounting profession forward in terms of efficiency gains, cost and time savings, and workflow flexibility. However, the issue still remains that many professionals don’t know how to apply technology holistically to maximize value and build a high-powered, digital accounting SYSTEM.
There is so much more to consider beyond the implementation of stand-alone applications. To build a system that fuels exceptional efficiency gains, it’s critical to understand how applications integrate, how to apply standardized processes, and how to build a staff for a cloud-based environment. Only when professionals understand the big picture will they be able reap the many benefits of working digitally.