The choice of systems is often determined by the size of the business.
Micro based businesses often do not have the setup for office based systems and the option for using Cloud based systems may be more attractive.
Small and medium sized businesses often have office based systems which are network orientated. Such systems often run on desktop with server applications.
Medium and large sized businesses usually utilise server based networked systems.
Respective characteristics of the systems
In Cloud based systems, the software is accessed over the internet and data is processed by another company under the authority of the software supplier. The responsibility for storing the data rests with the software supplier, which whilst saving the business time, makes the business totally reliant on the integrity and continuation of that supplier. The practice of suppliers in blocking off the “backup up functions” for businesses may restrict a business’s ability to change software supplier at a later date. As these systems are totally dependent on internet access, the business ability to function is restricted when internet access goes down and when in poor broadband areas or mobile blackspots. Popular Cloud based packages include Sage One, Quickbooks, Xero, Freshbooks & Kashflow.
In SME Desktop based systems, the software resides on the business’s own computer systems. This gives the business direct full control over their accounting systems and full restriction (physical and software) over access to their systems. Businesses are solely reliant on their own backup procedures but have an easier process to upgrade and switch software between suppliers if they so choose. The businesses are not reliant on the internet or mobile coverage. Popular packages include Sage Line 50 and Mamut One office.
In SME Hybrid systems, the software resides on a business computer but can communicate with other computers/tablets over the internet. This enables local and offsite computers to communicate as if they were on the same network. The data process works the same as desktop systems but with the advantage of enabling remote access and processing. Popular packages include Sage Line 50 c which includes the Sage Cloud.
In larger systems, the software resides in the business servers but interacts directly with the business process systems for production, storage and delivery. Such systems are more complex. Popular packages include Sage 200 Cloud.
The advantages and disadvantages of Cloud accounting
Online accounting means just that – it is online! Your business can access your financial data from anywhere in the world, 24 hours a day from any appropriate device. Whether you’re mobile or static you do not have to be in your office. All you need is an Internet connection.
However, not all parts of the country have good broadband or mobile signals. In West Wales the OFCOM coverage map indicates significant proportions of poor broadband speed and coverage.
The advantage of the Cloud is that you can use mobile phones and tablets in addition to desktop and laptop computers to access your financial data.
However, the small size of modern mobile devices is of concern in that it makes the danger of loss/theft more likely, and with that the complications that arise from the security issues around your data. The increase in the number of portals that can access your computer data, increases the potential threats from malware and malicious codes.
Mobile devices can also facilitate threats from employees and other insiders. Humans are naturally the weakest link in any business security strategy, and many employees have neither the knowledge, nor the time to track whether their devices have updated security software installed. The downloading of applications can also lead to unintentional threats.
Ease of updates
Whereas desk-based systems require the business to maintain and update its own accounting software, the fully Cloud systems do not require the user to do this as this is undertaken by the software supplier.
Backups are a problem for many Cloud based systems. The advantage is that you do not do it locally and are reliant on the software supplier doing it for you. However, the lack of a backup process means that if you want to subsequently change/leave a supplier, the transfer of data may be more difficult, and if the supplier does not do it then there are significant issues. The choice of supplier can be critical.
Obligations to hold historic data
UK regulations require data and accounting records to be normally available for HMRC inspection for up to 6 years, although in cases of fraud or wilful default the limit is extended to 20 years. Different taxes and obligations have different timing limits, for example employer’s liability insurance may require policy certificates to be kept for up to 40 years. The practice of holding data in the Cloud may be difficult to maintain after a business ceases its contractual relationship with that Cloud provider, whereas when businesses maintain their own internal systems then they will have full control over their data retention practices.
Confidentiality of data
A difficulty of using the Cloud is that confidential data is shared with a third party. It is difficult to control how a third party might use that data. Where data is held on internal systems the threat from such third parties is reduced.
The use of Cloud devices to access the financial data places significant security risks as to who is using those devices. Mobile devices do not have the same level of physical security that could be applied to localised systems.