Adrian Pearson, senior partner at a Xero based practice has recently been schmoozed by Hamish Edwards, one of Xero’s co-founders and himself a practitioner. Adrian writes:
Most of the talk was about how Xero could help us with the process of converting clients from other systems, such as Sage and QuickBooks but we also discussed Xero’s broad development roadmap. Hamish revealed that one of the things they were working towards is what he described as a “One Ledger” concept.
Now, I must admit that I didn’t grasp the significance at the time but now, having had chance to think it through, it strikes me that One Ledger could have profound implications for most small accountancy practices.
aaah – the penny is starting to drop. Read on:
Well, the big idea (and it’s not rocket science) is to use the same data set (the client’s) for the production of year-end “final” accounts rather than what currently happens – which is that the accountant takes the client’s accounting data and transfers it into his own software for further processing and final accounts production. Using the One Ledger approach, the need for the accountant to produce separate working papers is eliminated, as is the chore of revisiting the client’s data after the final accounts are produced to make adjustments to correct the opening balances for the new financial year. The client’s accounting data IS the working papers and IS the lead schedules.
Kerrching! As Adrian says, it isn’t rocket science and neither is it a new idea. This is a natural outgrowth of the SaaS model and something I have been predicting for at least four years. The implications are obvious. Out go the Viztopia’s, IRIS’s, Sage etc of this world while Xero is able to upsell to its growing customer base. That’s highly disruptive but necessary. Well…not quite. As Adrian correctly points out:
I can see some potential problems – such as how to get the tax provision into a set of limited company accounts without first importing accounts information into the practice’s corporation tax software – but I can also see big benefits for both the client and the accountant. The accountant’s role will change though, to one of reviewing and correcting the client’s data before the client files the accounts, instead of owning the whole process – and charging accordingly.
This is a transitional but knotty problem. Building tax software is not trivial so it makes sense to partner with specialist providers that can offer appropriate access. But even then, that’s only part of the story. Adrian talks about working papers but they often need supplementing with unstructured data – notes if you will, that explain transactions. The logical way to overcome this is through tagging and not, as Xero are suggesting through some other coding structure. If they go the coding route then they’re opening themselves up to all sorts of mapping issues. If they use tags, then the process becomes a whole lot easier because tags can live independently of the chart of accounts. They can also be used for multiple purposes and in combination, allowing the tying between structured (ie accounts data) and unstructured (the notes that support the reasoning behind allocations.) However, that’s not Nirvana either because just as there taxonomy issues around XBRL, tagging magnifies that problem.
Another approach might be through open APIs. I am less confident of this working as a long term solution because every vendor will still have to map back to proprietary systems.
Still another is as Xero thinks, a ‘single ledger.’ That’s been a feature of best in class accounting software for 30+ years. The problem has come in structuring charts of account that retain their flexibility to accommodate change as it occurs. That’s another reason I believe tags are a better way to go. Simply adding more numbers to a COA is incredibly inefficient and time consuming over time. The industry requires some serious innovation here, not a retreading of past failed efforts.
The first vendor that manages to crack this nut is going to be in a very strong position to make the professional’s life a whole lot easier. SaaS accounting is on its first iteration. Vendors like Xero, Kashflow and others are offering client dashboards. That’s an interim solution to the need for dramatically reducing compliance cost. Xero’s roadmap is going in the right direction but it will be in the execution where they will win or lose. The company’s development choices now will shape its future and as we have seen in the past, those solutions can leave the customer with great accounting but something that’s the equivalent of concrete. Once it’s laid down, it’s a helluva job to dig up.
Of course – that’s not the end of the story. There is MUCH more to come.
Related articles by Zemanta
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=28cf5566-9279-424e-a828-c18f739d95f0)
