Institute of Certified Bookkeepers

Technology Change

The loud noise around the developments in technology include terms like “cloud” and “API”, “SBR” “single ledger” “remote access” and “multi user”.

Definitions: Cloud

In our view (and we aren’t alone) “Cloud” means “internet enabled”; any software/program that uses the internet to communicate, access or submit information is "in the cloud".

Some “Cloud” programs are “browser based” where the entire access to the software requires browser access through the internet to the “service provider”. All program infrastructure and all data is stored on the provider's internet accessed servers.

Some programs access or use the “Cloud” by using the internet as the communication channel to a service or information provided by another.

Businesses and the Cloud

ABS stats (“Business Use of Information Technology 2011-2012”) states that of the 776k businesses identified for this survey:

  • 91.9% have internet access
  • 44.6% have a WEB presence
  • 55.3% placed orders via the internet
  • 27.8% received orders via the internet
  • $237b of sales through the internet

Of those business that use IT at all, they use it to do the following:

  • 86% of business used IT for accounting
  • 52% for production or service operations
  • 76% for invoicing
  • 32% for stock control
  • 65% for HR including payroll

The more people employed in the business the more likely they are to use IT in business process.

Drivers of Change

Recent ATO conferences and positioning statements talk about the concept of “Digital First” and a world of the ATO having open access to a business’ records of transactions each day, every day.

Some of the content includes ideas around:

SBR and everything else touted will be the next step in the journey to a better ATO interaction - including lodgement, confirmation, reporting and management - of your own or your clients’ tax affairs. If you like, SBR is everything we want in a portal but one that is working and on steroids. Next generation. Our accounting software and our agent practice management software will integrate better with the ATO and other government bodies.

One commentators summary included:

  • “the world for tax practitioners is about to be turned upside down”
  • “Within two years…. totally re-engineered”
  • “…new accounting systems will transmit data directly to the ATO every time a sale..is made”
  • “The days of …. passing it (data) to their tax or BAS agent…into business activity statements or tax returns….are coming to an end”

A Response and Observation

There are approximately 300,000 new businesses per year in Australia of the 2.2m in total (ABS stats for 2013-14 referred to in ICBs July Newsletter)

92% have IT of some type and use it for very different business processes.

Based on the above survey stats bookkeeping, business process and the cloud is here, is here to stay and are very intertwined concepts.

Bookkeepers using “Cloud” / “Internet Enabled” software to assist business process and to do bookkeeping processes is reality and is the future.

The current wave of technology developments are great for business and for bookkeepers.

Compliance is not Going Anywhere!

Mostly business owners do not want to understand how to comply.
Mostly business owners want to understand that someone else is making sure they have complied.
Bookkeepers understand business, understand how to comply and match the two together.
Bookkeepers are that “someone else” to the business that ensures they comply.
Now Bookkeepers should be using today’s technology and therefore hitting new levels of efficiently providing that “Certainty of Complying”.

Nothing has Changed - just the way we do it.

Historic Processing of What Went Through the Bank Account

Historic processing has changed dramatically with the introduction of bank feeds via the internet. The coding of bank statements, the historic processing of what the business did, the tick and flick of a bank reconciliation process has changed.

In our ideal world the business process that happens as the business does its thing, also creates a record of the transaction, and when the bank records are accessed, the bookkeeper simply verifies what was recorded. Therefore, the bank feed matches what was already in the system.

The bookkeeper verifies that the matching is appropriate, deals with the exceptions and checks that the electronic feed is reliable.

In many cases the accounting transaction record hasn’t been created and the bank feed is used to create that accounting record. Today’s electronic bank feeds are facilitating a far more efficient way to perform this data entry.

Business often does not highly value the recording of such data, especially where it is just the recording of what happened months ago. They tolerate it with some concept that it is needed to keep the taxman happy. At a minimum, they might value the more efficient technology-led coding and processing of a bank feed.

Business should value today’s efficient method of verifying what the business process did and providing the financial results of that business process. How? The actual doing of the business creates the accounting record, quickly verified by a bank feed leading to provision of timely information.

Bookkeeping Provides Timely Information

Or at least it should now. Things have changed.

Technology has brought us ways to ensure that the recording of what the business has done can be performed earlier, therefore allowing information to be provided about the success or otherwise of the business in a far more timely and relevant manner.

We now live in a world where no longer is the business owner looking at results only when the tax returns have been prepared, then trying to work out how long ago this related to.

Their business world circumstances change rapidly and old results are hardly of value to today’s business activity. Now, a business owner should be able to track their current financial performance.

Bookkeeping Should Adapt to use Technology

Processing the purchases, making the payments, issuing the invoices, receiving the money - recording these should be enabled through technology.

The evidence is beyond question: the evolution of technology facilitates better, more efficient business processes. Technology is able to remove the dead time of recording and processing transactions in order to create the accounting record only for compliance.

Technology allows the integration of accounting processes with business processes.

Opportunity

The ABS Survey referred to above states that in 2012 year:

  • 55% of Business were placing orders via the internet
    • only 46% of business with 0-4 employees
  • 28% Received Orders via the internet
    • only 24% of those with 0-4 employees

Of those businesses that received internet orders, 72% indicated that their systems used to receive orders did not have automated links to any other business system.

The dominant reason to NOT receive orders via the internet was they “Prefer to maintain current business model eg face to face interaction”

Electronic Lodgment with Government Organisations

  • Only 44% lodged taxation forms by electronic means
  • 63% made payments to government
  • 76% some kind of electronic lodgements with government organisations

Open Access to Business Data

I think we are a long way away from the tax office being able to use, with any degree of effectiveness, the ability to have open access to business data.

We have a complicated business world and a complicated compliance world.

Business people maybe using their software and creating primary data but it isn't until, someone who understands what that data should look like or whether it is right, checks it and reviews it and says that it will be meaningful data for the ATO. It is only after that review that the data should be used as a basis for working out any tax consequence.

Question:

Is the taxman, with open access to data, the right person to work out when the data is ready for them to either accept or get upset about?

Answer:

Not without a major change to the Australian business environment. Not unless income tax is made significantly simpler. Not until the ATO understands fully each and every business person.

In effect, not until every business person understands the full taxation act and records their business transactions to indicate the correct tax result at the time of that transaction, all the time, every time. Not until the taxman understands everything about the business and is prepared to spend the time working out what the business records really mean.

Conclusion

As good as software is getting, isn't software only a program that does what the programmer tells it to do, with the information that somebody else has put into the program? Then the questions are: does the programmer know what the law is and apply it generally correctly? Does the programmer apply the law specifically correctly every time for every kind of business? And does the person who puts that data into the program know what the programmer was expecting?

The kinds of changes we are talking about here will NOT happen without agents sitting in the middle of business and the taxman, to make sure the information is right before it reaches the ATO.

So how do we make this happen? We have a system of registered agents who provide tax expertise to the business owners - who do not want to do this themselves!

See this link for more detail on the ABS Business Use of Information Technology survey.

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