With the fast-paced advancements in technology, businesses are constantly adapting to keep up with the changing landscape. Among buzzwords like digital transformation, cloud computing, and Artificial Intelligence (AI) tools, the accounting industry is no longer an exception to riding the wave of accelerated change and innovation.
In this article, we explain the fundamentals of cloud transformation and explore how it is revolutionizing the field of accounting, bringing with it a host of benefits.
What is cloud transformation?
Cloud transformation refers to the process of adopting cloud-based technologies and solutions to modernize and streamline business practices and operations. This transformation involves shifting from traditional on-premises software and hardware to cloud-based software and services that are hosted and managed on the cloud.
It has become a prominent catalyst for change in the accounting and financial services sector, as with many other industries, aiming to enhance operational efficiency and effectiveness. However, this transformative process necessitates a holistic shift in business operations and thus requires a thorough understanding of its potential challenges.
The challenges: what to expect
Cloud transformation in the realm of accounting, also like many other industries, is not a one-and-done initiative, but rather a continuous process of automation that involves re-evaluating and optimizing various aspects of the overall architecture, business operations model, security standpoint, and costs.
When contemplating a cloud transformation journey, it's important to acknowledge that there are numerous challenges that can be classified into two categories:
Overall business shift
- Cloud transformation is beyond mere technology adoption. According to Feng Liu, BDO Digital’s Head of Cloud Engineering, “It is rather a mindset shift of how you run your business on the cloud and how you leverage the capabilities at hand and be able to scale up and down, in and out.” Businesses alike, including accountants and finance teams, will need to adapt to new ways of managing financial data in the cloud, including understanding the cost structure and pricing models.
- Establishing the foundation, which includes technical skillsets and resources, is imperative for embarking on such a journey. Developing expertise in cloud competency is a gradual process that may necessitate years of dedicated talent allocation.
- Security concerns and compliance with regulations around data privacy and protection also become critical when moving financial data to the cloud, and questions around encryption management arise.
Technical complexities
- For existing solutions, the limitations of legacy applications may not be compatible with cloud environments or can pose challenges.
- Application integration issues may occur when integrating cloud-based financial systems with existing on-premises or third-party applications; how can they be managed while securing the connection?
- The time and investment required to migrate financial processes and data to the cloud can be substantial, impacting business continuity during the transition period.
- The cost of cloud services, including subscription fees and data migration charges, must be carefully managed to avoid unexpected expenses and ensure cost-effectiveness.
The benefits: Long-term gain
The accounting industry has evolved significantly in recent years, and one of the key drivers of this transformation is the adoption of cloud technology. Cloud transformation, which involves migrating accounting processes and data to cloud-based platforms, has become a game-changer for the accounting industry, providing numerous benefits that are reshaping how accounting firms and finance departments operate.
“When you have cloud computing power at your fingertips, the cost of trying new ideas and responding to market change becomes much faster, while the innovation barrier becomes lower,” adds Liu.
Cloud transformation offers numerous benefits to organizations which can also be categorized into two groups:
- Stronger, centralized security: Data security is a top concern for the accounting industry, as financial data is sensitive and subject to regulatory compliance requirements. Cloud-based accounting solutions offer advanced security features, such as data encryption, authentication, and regular backups, which provide robust protection against data breaches, unauthorized access, and data loss. Cloud providers also adhere to strict security standards and certifications, ensuring that accounting and finance departments can meet regulatory compliance requirements and protect their client's data.
- Reliable disaster recovery capabilities: This ensures data backups and continuity of operations in case of any unforeseen events.
- Automation and efficiency: Cloud-based accounting solutions often come with built-in automation tools that streamline accounting processes, reduce manual errors, and improve efficiency. For example, cloud-based accounting software can automate routine tasks, such as data entry, bank reconciliations, and financial reporting, freeing up accountants' time to focus on higher-value activities such as financial analysis and strategic planning. Automation also minimizes the risk of errors associated with manual data entry and improves the accuracy and reliability of financial information, reducing the chances of costly mistakes.
- Agility and ease of integration: Cloud-based accounting solutions can integrate with other business applications, such as customer relationship management (CRM), enterprise resource planning (ERP), payroll, and payment processing systems, creating an interconnected ecosystem that streamlines business processes. This integration with other business applications eliminates the need for manual data entry, reduces errors, and improves data accuracy.
- Scalability: Cloud transformation allows accounting firms and finance departments to scale their operations up or down based on their needs. Cloud-based accounting solutions provide the flexibility to add or remove users, storage, and computing resources as required, without the need for upfront investments in hardware or software. This scalability eliminates the need for overprovisioning, reducing costs, and optimizing resources in the long run.
- Sustainability: Cloud transformation promotes sustainability through the use of energy-efficient data centers, contributing to environmental conservation efforts.
Although it may appear conflicting with some of the earlier discussed challenges, considering the long-term return on investment reveals a more cost-effective outcome when considering cloud transformation as it eliminates the need for significant upfront investments. Instead of heavy capital expenditures, cloud-based solutions allow for operational expenses to be incurred as needed. This enables businesses to optimize their financial resources and allocate budgets more efficiently.
Additionally, cloud transformation provides opportunities for businesses to optimize their operations, streamline processes, and enhance productivity, leading to improved business outcomes.
With the scalability and flexibility of cloud services, businesses can quickly build and deploy new products or services, allowing for faster time-to-market and increased innovation. In fact, cloud transformation empowers businesses to leverage the advantages of cloud computing to drive growth, agility, and competitiveness in today's dynamic business landscape.
For a comprehensive exploration of this subject, be sure to listen to our podcast on getting our head into the cloud, where we delve into the details of immersing ourselves in cloud transformation from an accounting standpoint.
Empowering you to embrace the future
BDO’s Accounting Advisory teams can help your business in all matters financial–from embracing digital and cloud transformation to managing change through deal support, transaction, capital markets support, and financial reporting services.
To learn more about how BDO can help your business succeed, please contact:
Feng Liu, Head of Cloud Engineering, BDO Digital
Mary Mathews, Partner, Accounting Standards and Advisory Partner, BDO Canada