22 February 2013

Technology

J ason Blumer, who runs Blu-merCPAs, an accounting firm in the United States, is a keen technology fan – what the high-tech industry calls an

early adopter. In 2009, he set his staff three goals: end the use of paper, close down the firm’s bricks-and-mortar offices and mi-grate all services to the computing “cloud.”

By the end of last year, he achieved all his aspirations. And Blumer isn’t worried that traditional customers might be put off by his ground-breaking methods. “After do-ing this, we have found there is a particular type of customer who wants to be served this way,” he tells A Plus from his home in Greenville, South Carolina.

“Using technology is no longer a dif-ferentiator for the right customer,” Blumer observes. “The more tech-friendly and tech-savvy customers actually expect you to de-liver your services now with technology.”

Blumer believes his principles can be adopted in almost any jurisdiction, but the Hong Kong accounting profession appears to be a long way from activating such revo-lutionary ideas.

However, as the Hong Kong Institute of CPAs membership becomes more youthful and technologically sophisticated, it is inevi-table that technology is set to dramatically change the way members work.

The technology industry aims its ac-counting-related software at two principal

categories of buyers: businesses and CPA firms. For businesses, software helps auto-mate cash flows, streamline invoicing and billing and helps maintain compliance.

Accounting software automates data en-try, measurement and recognition, and fi-nancial report disclosure and presentation. Modern software can incorporate enhanced displays, such as three-dimensional model-ling, and a networking environment where users can annotate data, discuss and ques-tion issues, and solve problems in real time.

For accounting firms, Institute members say technology has benefited in two separate ways: by improving the firm’s internal pro-cesses and creating external opportunities with clients.

Illustrations by Alan Ho

CRUNCHING THE NUMBERSAs the accounting profession becomes more youthful, its members are keener to adopt new technology. George W. Russell explores recent advances

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“Firstly, technology has helped trans-form how we conduct our business, how we document, review and access audit working papers,” says Kenneth Wong, a partner in the risk and controls practice at Pricewater-houseCoopers in Hong Kong and an Institute member. “In addition, technology has also opened doors to enable us to develop new service areas, such as management con-sulting, forensic accounting and regulatory compliance,” adds Wong, who is also a mem-ber of the Institute’s IT interest group.

Benefits of automationTechnology providers are already aware of the emerging changes. “The increasingly popular adoption of tablets and smartphones

for mobile computing makes working-on-the-go a real possibility for accountants,” says Adrian Ang, an assistant sales manager in Hong Kong for Sage, a U.S. company that has been selling software to accountants and their clients for more than 30 years.

Sage sells business management soft-ware  and industry-specific accounting pro-grams. Recently it has been offering its en-terprise resource planning software as iOS and Android applications. “We work to assist CPAs to automate and improve productivity,” says Ang.

Other vendors such as Flexsystem, a 25-year-old Hong Kong-based accounting software company, says they try to automate as much as possible of the full reporting cycle,

freeing CPAs for more important tasks. “CPAs should no longer be involved too

much on data entry, data validation and rec-onciliation nor drill too much into the tech-nical areas of information technology,” says Ashley Clarke, the company’s chief operat-ing officer.

Flexsystem also focuses on expense man-agement and other human resources-relat-ed issues and financial performance man-agement. Clarke says the company’s new challenge is to offer CPA firms analysis of data of their internal operations at “a more granular level.”

“Technology should be viewed as a fa-cilitator to bring information – not data – to both the financial and non-financial users

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who need it, when they need it and for it to be accessed as appropriate from any de-vice,” adds Clarke, who says his company has signed up more than 1,500 clients in China.

Another fast-moving company is Xero in New Zealand, which has attracted invest-ment from Peter Thiel, a German-American financier who founded PayPal, the online fi-nance company, and who was an early back-er of the Facebook social network.

Xero stresses the user-friendliness of its cloud-based software compared with that of competitors and offers a range of “single-click” report templates, such as for profit and loss, balance sheet, management reports and taxes for a range of jurisdictions.

Rod Drury, a cofounder of Xero, based in Havelock North, New Zealand, says the accounting profession is “fundamentally retooling” itself to adapt to technological change. Modern software, he says, has cre-ated a continuous relationship between ac-countants and their clients, instead of a once-a-year interaction based on the tax year.

Another growing brand is Auditflow, a cloud-based auditing software developer in Southport, Australia, that plans to launch in Hong Kong this year.

Large accounting firms tend to develop their own auditing software. PwC, for ex-

ample, uses its proprietary Aura suite devel-oped in the U.S. Auditflow offers jurisdic-tion-specific auditing software to smaller firms that is updated online to account for any changes in regulations.

“Our software assists auditors to per-form fully compliant engagements for their clients in a timely and cost effective man-ner, and provides practice workflow man-agement of the assignments and staff,” says cofounder Rich Neal.

The lagging innovation in the Asia-Pacific region hasn’t stopped technology consultants setting up shop in Hong Kong. Lisa Gotlieb, a New Zealand Institute of Chartered Accountants member, moved to Hong Kong to establish Lisa Gotlieb Enter-prises, which contracts accounting services to small businesses in the city.

Her services include setting up software, including Xero, and training for small busi-ness clients, as well as improving office procedures such as simplifying paper flow, minimizing waste and streamlining access to data.

“Technology has allowed information to be shared easily across different business lo-cations, as well as allowing easily traceable links between internal documents, creat-ing structure and a clear picture and story

of what the accountants are telling us about the business,” Gotlieb says.

Half century of computingIt is nearly 50 years since accounting first embraced the computer age. “Accounting was first automated to a significant degree when IBM introduced the System/360 in April 1964,” says Chris Westland, an Ameri-can Institute of CPAs member and a former visiting scholar at Hong Kong University of Science and Technology.

This was the first accounting-specific computer and had been among the most ex-pensive products ever developed by the com-pany up to that time, says Westland, now professor of information and decision sci-ences at the University of Illinois in Chicago.

The immediate effects of this computer-ization were dramatic. Within a decade, ac-counting departments at Fortune 500 com-panies in the U.S. were staffed at only about a tenth of the levels they had been in 1964.

The next era of accounting technology began with the commercial release of DOS-based computers in 1981, followed by the introduction of the ground-breaking Lotus 1-2-3 spreadsheet software two years later and the first Windows operating system in 1985. The same year Microsoft wrote the

Excel program originally for Apple’s Macin-tosh computer.

Technology advocates forecast that the latest era will be based on cloud comput-ing – the provision of products and services through a shared distribution network. “Cloud accounting is absolutely turning the industry on its head,” says Drury at Xero. “It’s the third generation of technology.”

Cloud platforms are changing how com-panies store and allocate data and has led to another rising trend – software-as-a-ser-vice, known as SaaS, in which enterprises rent software applications and server space from providers to save on upfront costs.

Westland says small- and medium-sized practitioners in particular should be leverag-ing the power of technology. “Optical charac-ter recognition, pattern recognition, statisti-cal, business analytics and data manipulation tools now exist that allow small firms to be as effective as the Big Four in all but the largest of corporate operations,” he says.

“Auditing is no longer a profession that needs to throw masses of junior auditors at an audit. It can be effectively – and perhaps more effectively – undertaken by small, in-terlinked teams of specialists under the su-pervision of an audit manager.”

What the future holdsTechnology professionals predict further advances. Clarke at Flexsystem, for exam-ple, foresees faster processors, more band-width and increased compression as drivers of accounting technology.

“Social networking in a controlled en-vironment will be the norm and will allow for a new level of quicker problem-solving across operating entities,” he adds.

Meanwhile, cloud computing will con-tinue to evolve, he says. “It will be knocking down geographic boundaries and allow-ing, for example, heightened levels of cor-porate governance through the ability for checks and balances to be initiated across borders.”

Technology providers continue to stress cost savings from the cloud. “By consolidat-ing servers from various locations in a tra-ditional IT environment, accounting firms can regain tighter control and monitor their IT expenditure, and align IT expenses with business growth to maximize utilization of limited resources,” says Derek Yiu, general manager of business solutions and services at Fujitsu Hong Kong, which sells scanners and data storage to CPA firms.

However, accounting remains a conser-

vative profession and there is still some resistance to tech-

nological innovation. “Many CPA firms [in the U.S.] are still mired in the mostly manual audit methods that were used 30 years ago when archival records were maintained on paper,” Westland notes.

One barrier to change is often that CPAs become too bogged down in daily opera-tional details. “They won’t make the change that will free up their time,” says Clarke, adding that the global financial crisis ex-acerbated this issue, given the increasing regulatory burden.

However, as younger recruits embrace technology, barriers are likely to fall away. “Like most international accounting firms, we recruit university graduates and those from a younger generation are much more receptive to new technology than, say, peo-ple like me,” Wong at PwC acknowledges.

Vendors are already seeing change. “We find CPAs tech-savvy,” says Drury at Xero. “They already know document man-agement – they’re already on Dropbox and Google Docs. Often a young partner is a technology evangelist educating the rest of the firm.”

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