Dec 24, 2014 Blogs

Cloud Computing Clarified for Accountants

Sharing is caring!

Cloud computing is now adopted by managers across several business functions and also opted-in to implement complex business processes. For accountants, cloud computing presented a dual challenge for adopting it as a solution for accounting on the cloud andtreating it for tax application.

Some pros like quick implementation process, anytime-anywhere access, low infrastructure, maintenance or setup cost, reliable security with necessary back-up and storage options make cloud solutions a preferred option in this digital era. However, since accountants deal with confidential information, it took a while for accounting solutions to be used vividly on the cloud. The migration to cloud accounting solutions did not happen as easily as it did with other CRM or payroll solutions.

Cloud computing for Accountants

A recent survey of more than 1,000 accounting firms by CPA2Biz, the AICPA’s marketing arm, found that 70% of respondents plan to increase their use of Web-based applications in the next six to 18 months.

One of the main reasons for accountants to switch to cloud computing solutions has been customer demand for transparency and access to information. This customer need has made accountants shift from desktop and on-premise software to Software as a solution (SaaS), made available on the cloud. Now, accountants have started to explore SaaS as an option in accounting areas like:

  • Audit Confirmation
  • Bill management and payment for businesses
  • CRM
  • Document management
  • ERP
  • Financial statements
  • Payroll
  • Sales and Use Tax
  • Tax
  • Workflow

How to treat the fees paid by a customer for cloud computing?

Financial Account Standards Board (FASB) has released an update to simplify the accounting for a customer’s fees paid in a cloud computing arrangement. Since this is not a case of e-commerce, where the customer pays for purchasing a product, but is a service transaction; treatment of such transactions require a different approach.

In a cloud computing arrangement, transactions can occur in two ways, viz, with an inclusion of software license and without an inclusion. While the arrangement includes a software license, the customer would be accountable to the software license consistent with other software licenses. On the other hand, when the arrangement does not include a software license, such arrangement needs to be treated as a ‘service contract’.

FASB released the following notice with regard to this accounting treatment:

“For public companies, the proposed Update would be applied in annual periods, and interim periods within those annual periods, beginning after December 15, 2015. For private companies and not-for-profit organizations, the proposed Update would be applied for annual periods beginning after December 15, 2015, and for interim periods beginning after December 15, 2016.

Organizations would elect to adopt the proposed amendments either (1) prospectively to all cloud computing arrangements entered into or materially modified after the effective date or (2) retrospectively. Early adoption would be permitted for any organization.”

With all the clarification existing and active involvement of FASB, accountants are still trying to hold back to use cloud solutions due to concerns related to security and reliability. Apart from these, what accountants need to be wary about are factors concerning the sustainability of the product and their company’s exit strategy that would affect the existence of those cloud solutions in the market. Transferring data from one system to another is never easy, so determine if your vendor will help you do so.

More companies today are opting for cloud computing and the cloud services revenue is expected to reach $148.8 billion this year. Financial services are one of the largest, early adopters of the same. There are many upcoming cloud service providers in India, as the nation looks to transform its accounting services too.

+9140 4646 4889
Get A Quote
shares