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This report aims to analyze the current trend among business organizations to opt for cloud-based accounting system with respect to the positive and negative features of both the cloud-based accounting software as well as the traditional software. The report also identifies the major defects of the cloud accounting system that may affect the business users. The report also makes few recommendations regarding which company will be most benefitted from the installation of the cloud accounting system so that the businesses can take proper decisions regarding the installation of an appropriate accounting system. Lastly, the conclusion section provides several guidelines regarding how a company can derive maximum benefit from the installation of an appropriate accounting system.
Nowadays the traditional desktop-based accounting system is losing their popularity and cloud computing is getting more and more an inevitable trend. The reason behind this is the numbers of facilities that are offered by the cloud accounting software over and above the traditional one. The facilities that are offered by cloud computing definitely enhances the productivity of an accountant. However, the cloud accounting system also suffers from shortcomings. In this topic, a detailed comparative analysis has been done on various features of the cloud-based accounting system and the traditional accounting system so that the businesses can choose the most appropriate system as per requirement.
Cloud-basedaccounting system:Cloud based accounting system is accounting software which is hosted on remote servers and deliver accounting capabilities to businesses in a fashion that is very to the SaaS (Software as a Service) business model.
Traditional Accounting System:Traditional accounting system like ERP is an on premise accounting system that runs on owner based servers and hard drives.
Differences between a cloud based accounting system and a traditional accounting system
Traditional accounting system
The business that is using cloud-based accounting system does not have to make a lump-sum purchase of an accounting software programming package. There is no need to buy and set up a server to host this accounting system (Othman, Madani& Khan, 2014). As a result, the business manages to minimize the IT professional fees as well as can also avoid installation fees. With the change of accounting rules and tax regulations, the business does not have to purchase and install updates. Instead only a monthly or annual subscription fee that is charged by the service vendor has to be paid as it includes all the updating cost
On the other hand, a traditional accounting system requires the users to make separate expenditures for setting up the servers and for updating the server from time to time apart from the regular maintenance cost (Vogel, 2014).
In cloud-based accounting software when new data is entered it automatically populates each required location and thus saves the business from wastage of time, money, and potential complications that may arise in case any location is missed (Vogel, 2014).
Traditional accounting systems require manual updating of the accounting information in every related document say journal, ledger and like others and thus not only involves huge wastage of time and money but also makes the process of data updating very cumbersome (Vogel, 2014).
The cloud-based accounting system offers 24/7 accessibility of the required information via the internet. Thus here important information can be made available to the required person within minutes.
Under traditional accounting system, information can only be accessed when THE accounting professional is available in the office to review the paper-based records or the desktop computer that contain the information. Thus under this system, the facility of 24/7 accessibility of information is not available (Othman, Madani& Khan, 2014).
Availability of information across team members
The cloud-based accounting system allows the entire business team to share all data at all times. Under this system, it is easy to add new users. To add a new user the business just set up an authorized profile and password of the new employee and the system is ready to share a new user and thus this system offers better collaboration.
Under the traditional accounting system, the process of adding new member to the team who are using the accounting system is quiet complicated
Instant solution to system issue
If any problem arise with the cloud based accounting system then it is possible to quickly find out the solution to put the system in work (Othman, Madani& Khan, 2014).
The traditional accounting system needs some time to be corrected in case an issue is arising with the system (Othman, Madani& Khan, 2014). Therefore instant solution for system problems are not available
License of the system
The service vendor claims the ownership of a cloud based accounting system
The installing company of this type of accounting system is the owner of the license
Service provider location is the system location
Under the traditional accounting system the location of the system is the location of the company that has installed the system
Data Back Up and Recovery
The cloud based accounting systems offers the facility of automatic saving of data at an offsite location (Othman, Madani& Khan, 2014). Thus the system offers automatic data back-up that helps to reduce human error that may occur in case a person forgets to save the essential information
Under traditional accounting system automatic data backup is not available and human intervention is necessary to initiate the process of data saving that can be recovered when needed (Vogel, 2014).
Third party support is essential to ensure smooth running of the underlying technical operation of a cloud accounting software (Othman, Madani& Khan, 2014).
The traditional accounting system is also dependent over third party for the necessary technical support (Othman, Madani& Khan, 2014).
Multiple users can share the cloud accounting system through separate private channels
Here the use of the accounting system is limited within the license holders
Many companies still hesitate to install the cloud-based accounting system due to the various loose ends of the system. Some of the major loopholes of the system are as follows.
Loss of data confidentiality:
Under cloud accounting system the data is stored in cloud storage that is controlled by the service provider. Thus the user of the cloud accounting system has to share his data with the third party who can use the sensitive data information any time for his own business interest (Chen, & Zhao, 2012).
The cloud accounting software often fails to support all the additional applications that an office is trying to use. On the other hand, as a user, the business is not allowed to make the necessary alteration in the underlying hardware or at the system interface. As a result, the business has to run with limited applications.
The threat of data loss:
The cloud computing system only offers data back-up with respect to the cloud storage and there is no scope of saving data in the users own computer. As a result, if the software ids changed for some reason then the user may end up losing important data.
A system should go for the adoption of an accounting system after identifying the most important requirements that must be fulfilled by that accounting system. For instance if a company want to fuscous on the features like “cost reduction”, “24/7 accessibility of data to a wide range of team members some of which are working from remote location” and also the company need an instant backup mechanism to save data that are coming from different sources, then the company should opt of cloud-based accounting system. Small businesses start-ups, companies that are working with remote employees and the companies that require the use of cutting edge technology should be certainly benefitted from the installation of the cloud-based accounting software. Because the system not only offers a savings of time and money while installation but also helps to maintain good collaboration among the on-premise and remote employees through remote communication facilities. Besides a company that is working with the remote employees do not have to worry about data loss as the system offers automatic data backup facility (Takabi, Joshi&Ahn, 2010).
A company that is looking for quick fix accounting solution should definitely go for cloud accounting software. The cloud-based accounting system can be installed very quickly and the entire hardware maintenance, technical support and the regular updating of the software are the responsibility of the service provider. The user can get all these services for payment of a monthly or yearly subscription. In case any issue arises with the system, then the system allows finding quick solutions that are delivered by the service providers to the users (Zhang, Cheng, & Boutaba, 2010). Therefore for the companies that are looking for a cost-effective hazard free solution should opt for cloud-based. The big and mid sized organizations should go for cloud-based accounting system considering its flxibility and ease of access.
On the other hand, if a company is looking for total control over the accounting system in order to ensure a high level of data security then this company should go for a traditional accounting system. Because the traditional accounting system is an on-premise system and offers full control over the system. On the other hand, only limited number of lice sense holder use the system and there is no threat of data leakage as the system in not connected to the internet. Traditional accounting system should be chosen by organizations which are small considering the price tag the such softwares come with.
Therefore every company should first prioritise their objectives that are to be fulfilled by the installed accounting system. Then the company should figure out the facilities that they can get from an accounting system and what are the limitations of the system that may hamper the business operations and accordingly should go for appropriate accounting system.
Vogel, H. L. (2014). Entertainment industry economics: A guide for financial analysis. Cambridge University Press.
Zhang, Q., Cheng, L., &Boutaba, R. (2010).Cloud computing: state-of-the-art and research challenges. Journal of internet services and applications, 1(1), 7-18.
Takabi, H., Joshi, J. B., &Ahn, G. J. (2010).Security and privacy challenges in cloud computing environments. IEEE Security & Privacy, 8(6), 24-31.
Chen, D., & Zhao, H. (2012, March). Data security and privacy protection issues in cloud computing. In Computer Science and Electronics Engineering (ICCSEE), 2012 International Conference on (Vol. 1, pp. 647-651).IEEE.
Othman, M., Madani, S. A., & Khan, S. U. (2014). A survey of mobile cloud computing application models. IEEE Communications Surveys & Tutorials, 16(1), 393-413.