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Cloud based Accounting Systems Assignment
A cloud computing facilitates the sharing of files and applications over the Internet instead of hosting, storing or processing the data file on a locally managed hardware. A business owner has to be a good salesman and needs to be focused on taking cost saving measures to succeed into the market. The cloud-based accounting systems lead to huge savings as the users do not have to pay for storage, security, and maintenance of the system. A business owner can go for either cloud based accounting system or traditional system after properly assessing the specific needs of his business.
Differences between a cloud based accounting system and a traditional accounting system
Traditional accounting system
Number of users
As per the study results of the “computer world”, 42% of the companies that are involved in IT decision making prefer to use cloud-based accounting system.
As per the study results of the “computer world”, 58% of the companies that are involved in IT decision making still prefer to use the traditional accounting system.
As per the revelation of the “Chartered Institute of Management Accountant,” only 19% of the finance companies prefer to use Cloud-based accounting system.
As per the revelation of the “Chartered Institute of Management Accountant,” only 81% of the finance companies still prefer to use the traditional accounting system.
Cloud-basedaccounting software utilizes the Cloud to store accounting data. Therefore the financial information can be accessed by the owners as well as employees from anywhere with an Internet connection
A dedicated hard drive has to be used under traditional accounting system for storing the sensitive data information of the company and this hard drive has to be installed by the company at their own cost
The cloud-based accounting system appears to be more cost effective as the user only have to pay small fixed monthly fees within which the cost of maintenance, cost of hardware packages cost of updating the software all are included
Installation of traditional accounting system is quite time-consuming and the installation process also demands substantial amount of expenditure
Type of company
Start-ups and SMEs will be most benefitted from the adoption of the cloud-based accounting system as this system offers high degree flexibility and scalability which are the factors of great importance to these companies.
The traditional accounting system is an on -premise accounting system, therefore the company that has installed the system enjoys full control over the system. As a result of big companies to whom data security is of utmost importance often prefer to opt for traditional accounting system
The license of the Cloud-based accounting system is owned by the company that is offering the service for hire
Here the ownership of the license lies with the company that has installed the traditional accounting system
Location of the system is the location of the company whose service has been hired
In the case of the traditional accounting system, the installing company decides the location of the company.
The user does not have to pay any upfront fees for hardware packages as the system hardware is included within the service who has given the cloud-based accounting system for hire (Salehi & Mogadam, 2010).
The business that is installing the accounting system is liable to purchase the system hardware
Windows & SQL Server
SQL and Windows are included in the offerings (Beloglazovet al.2011).
The installing company or the users of the traditional accounting systems themselves have to supply the required Windows & SQL Servers that are required to run the system
The vendor that is offering the cloud accounting software for hire supplies the necessary IT resources.
In case of traditional accounting system, the installing companies by themselves have to supply the required IT resources that are essential to run the system or they can take the third party help
For technical support, the user has to depend on the third party
For traditional accounting software also the user has to depend on the third party for getting the required technical support
Any number of users can share the cloud accounting system via different private channels
Here the number of users are limited to only the users who are holding the system license can use the system
Risks or limitations in adopting a cloud-based accounting system
A large number of companies are still hesitating to move to the cloud-based accounting systems because of the existence of certain limitations within the system. The major limitations of the system have been discussed below.
Storage dependency and usage of internet
In cloud-based accounting software data is stored in the Cloud storage.Therefore a company that is using cloud storage have to depend on the third party ( service vendor) for the security of the data that is stored in the cloud.If the company is having sensitive data. then usage of cloud-based accounting software will be a risk for them(Chandrasekaran, 2014).
Besides cloud-based accountingsystems runs via the internet. Therefore the performance the system is fully dependent on the quality of the internet connection. In case of the failure of the internet service the company may face long or short spells of frequent service failures
The cloud-based accounting system is based on internet communication.That is both the employers and employees are capable of sharing the data that is stored at cloud storage via the internet.But this internet connectivity makes this system very vulnerable to severe cyber attack.Because any information that can be accessed via the internet is not secured because even the strongest web cyber security can be breached by the hackers and therefore there exists a risk of unauthorized access to data
Restricted access to the system:
The companies who are using the cloud-based accounting systems only enjoys restricted access to the system. The users are allowed to change the data and services as per requirement but do not have any access to the underlying interface of the system or to the backend infrastructure
Use of off-premise accounting system and security
A majority of the finance, as well as technology companies, are not ready to move to an off-premise accounting system like the cloud based accounting system because of the regular requirement software update, third-party license ownership and remote storage of sensitive financial data. Besides these companies not even trust on the data recovery capacity of the third part at the event of a data loss (Kavis, 2014).
Businesses that will be benefited from the installation of cloud-basedaccounting systems:
The cloud-based accounting system will be most appropriate for the Start-ups and SMEs who are going to enjoy a high degree of flexibility and scalability which is very important for these companies.This accounting system enables the smaller firms to enjoy the processing power that was otherwise only available to the bigger firms who are capable of making big investments for installing a strong accounting system. Cloud technology will be even beneficial for the sole trading companies that are trying to control their finance.
The companies that are constrained with capital should go for cloud-based accounting system as they can hire a high-tech accounting system with the payment of minor fixed monthly fees. This fee includes almost all maintenance cost of the software. SMEs and start-ups are mostly capital constrained and prefer to work with distant employees and cloud accounting system offers them the facility of remote communication. Thus, in general, it can be recommended that capital constrained SMEs and Start-ups will be benefitted with the installation of the cloud accounting software. On the other hand, companies to which data security is of utmost importance can opt for cloud accounting system after ensuring necessary data security (Vogel,2014).
The above comparative study clearly points out that both the traditional accounting systems as well as the cloud-based accounting systems have some advantages and limitations. The users who are looking for installation of an appropriate accounting system should choose one after carefully weighing that how they can utilize the benefits of the chosen accounting system and to what extent the limitation of the chosen accounting system can affect the business operations. Besides this a company should also figure out that what safeguarding measures they can apply to deal with the shortcoming of the system to ensure smooth and safe business operations.
Chandrasekaran, K. (2014). Essentials of cloud computing. CRC Press.
Kavis, M. J. (2014). Architecting the cloud: Design decisions for cloud computing service models (SaaS, PaaS, AND IaaS). John Wiley & Sons.
Vogel, H. L. (2014). Entertainment industry economics: A guide for financial analysis. Cambridge University Press.Book
Salehi, M., Rostami, V., & Mogadam, A. (2010). Usefulness of accounting information system in emerging economy: Empirical evidence of Iran. International Journal of Economics and Finance, 2(2), 186.