Using cloud accounting tools for assurance work
Editor’s note: The following article is provided by the folks at Xero, a strategic partner of the MACPA and the Business Learning Institute.
By Sarah Hopen
The goal of assurance work is to confirm that an organization’s financial position is fairly presented and that its financial operations are open and honest. Confirming the validity of financial operations is a desirable goal for any organization. A third-party assessment of financial process and position with the aim to improve the reporting outcomes? Bring it on!
So why does the phrase “year-end audit” strike fear into the heart of many SME clients? Mention the word “assurance” in the accounting world and you usually get a weary sigh and an “ugh!”
No doubt, year-end audits are challenging. They require clients to apply often limited resources to a rigorous and intensive review. And from the accountant perspective, wrangling documentation and pushing for client compliance on timelines and information can be frustrating and time-consuming. It’s a constant dance between spending hours doing excellent work and staying profitable.
Cloud accounting tools provide an opportunity to shift this audit paradigm because of the inherent focus on transparency and collaboration. Shared platforms, app integration, and digital communication can reduce much of the heavy lifting. With some front-end changes to preparation and communication, this traditionally challenging engagement can become a genuine opportunity for clients to refine the financial process and increase efficiency. Auditors too can focus their resources on analysis and reporting rather than data wrangling.
So how do we take advantage of the cloud ecosystems for audits?
Shared ledger The major benefit of cloud-based accounting programs is the single shared ledger. Rather than working from separate copies of the general ledger (GL) program or (even worse!) Excel copies of the financial statements, all members of an internal and external accounting team can work inside the same ledger regardless of location. This removes the need to share large volumes of sensitive information via email or a document sharing platform. Auditors with a Xero practice can use Report Templates to set up practice-wide reports that will map their clients’ GL to a customized template without the need for import or export. The time spent e-mailing, sharing, and formatting can be significantly reduced.
Many public accountants and bookkeepers have moved to this shared ledger system to complete ongoing compliance and advisory work. Most assurance firms, however, have yet to move to the cloud. The challenge falls in two areas: setting up the practice-wide templates, and reviewing client files to ensure their accounts are set up correctly and map accurately to the template. While this set-up and review requires some upfront work and change in process for the audit kick-off, the time savings across multiple clients could be huge.
Documentation One of the “easiest wins” of the cloud accounting ecosystem is the automation and centralization of source document collection. Pre-accounting tools like Receipt Bank and Hubdoc allow for a single repository of documents, accessible from any location and searchable by multiple fields. Bank statements, receipts, contracts, etc., can be made available to the entire audit team by providing firm access to the Receipt Bank or Hubdoc account. Also, if an organization is using these tools correctly, the source document images can be pushed through to the general ledger platform so that each transaction also has its original source documentation available right inside the GL. The auditor can confirm transaction information with one click!
The challenge with pre-accounting tools is ensuring that an organization is using the tools correctly. Are they submitting all documents or only a selection? Are they naming them correctly to allow for easy searching? A proactive conversation with the client in advance of the audit can go a long way to ensure these tools do actually save time for everyone, rather than becoming a disorganized roadblock to sharing information. For example, the auditor can provide guidelines for clients around how documents are processed in Receipt Bank or Hubdoc (much as they do for physical or digital document repositories) to create some consistency and efficiency across client accounts.
Audit trail In addition to having source documents inside the general ledger, cloud accounting platforms like Xero create a digital audit trail with the app integrations, allowing for a quick overview of the digital “breadcrumbs” associated with that transaction.
At the bottom of each transaction is a list of associated events that allow you to follow who (or what) created that transaction, how it was paid, who modified the transaction etc. For example, payments completed by platforms such as Plooto or Payment Evolution pull transaction information directly from Xero. The payment is completed in the payment platform, and then the payment information is synced back to Xero. This sequence of events is recorded automatically inside the transaction details within Xero. It becomes very straightforward for the auditor to review process and controls from directly inside the ledger. Additionally, many of these platforms have multiple user permission levels for a robust approval process that is easy to track and confirm.
The world of accounting is changing rapidly and more and more businesses and organizations are using cloud tools in their day-to-day operations to develop efficient and powerful workflows. In the world of assurance accounting, we can also grab this opportunity to increase collaboration and create a smoother, “pain-free” process for both the client and the auditor. Because the pace of change is so fast, it’s important to communicate with our clients about best practices as the tools evolve. But by staying ahead of the game and incorporating cloud technology, we can become the champions for the “cloud-audit” and stress-free accounting for our clients.
Sarah Hopen is the principal at Star Company Inc., a cloud accounting firm offering highly integrated bookkeeping services to SME, and charitable and not-for-profit organizations. She is a Certified Professional Bookkeeper, Xero Advisor, and Local Xero Ambassador with more than 15 years of experience developing effective bookkeeping solutions that maximize resources and provide valuable reporting for managers and owners.