The Cloud Reaches Critical Mass in Accounting and Finance. Are You Ready?

To get a sense of where we are in the cloud computing revolution, consider the latest financial results of New Zealand’s Xero Limited, which sells online accounting software for small businesses and their advisors.

In the year to March 2017, Xero reported net additions of 318,000 subscribers worldwide, up 44% from fiscal year 2016, to more than 1 million. In constant New Zealand dollars, subscription revenue grew 52% year-on-year to NZD$290 million.

What resonate with CFOs and accountants with regards to the cloud are mobility, ease of use, automatic updates, integration with other systems, and the ability to access and analyze financial and non-financial data

Then there’s behemoth Oracle. After a couple of years of falling earnings and sales, the 800-pound gorilla of on-premise solutions surprised the market last week by reporting a 15% increase in fourth-quarter net income to US$10.8 billion – helped mainly by a 58% surge in cloud revenues to US$1.36 billion.

Some two-thirds of Oracle’s cloud users are new, with the remaining third large on-premise customers shifting to the company’s cloud offering. Larry Ellison, Oracle’s founder and current chairman, concedes that existing on-premise users are moving to the cloud slowly.

But, he declares: “I believe that we will get all of our existing customers on-prem, roughly speaking, moving to our cloud infrastructure over time.”   

Opex vs. capex

It seems that cloud computing for accounting and finance is reaching critical mass, as the smallest businesses to the largest conglomerates grow more confident about processing financial transactions and storing financial data on public cloud platforms using solutions like Xero’s and Oracle’s.

Cost is not the only impetus. Cloud vendors do talk about the advantages of no longer having to allocate large amounts upfront to pay for servers, data centers and IT support and maintenance staff, along with software licenses. On the cloud, such capex gets turned into opex.

But in the long run, the opex costs can turn out to be larger in comparison with capex, since opex is open-ended while the capex investment is a one-off that gets amortized and ends at some point (and in some jurisdictions, are eligible for tax concessions that are not always extended to opex).

Still, the idea of parceling out expenses over time and, in effect, outsourcing the purchase and maintenance of data centers and other infrastructure is appealing to many organizations.

“The principle is pay-as-you-go, and you pay by credit card,” says Matthew Li of accounting services and financial firm Nova Group in Hong Kong. “You don’t have to buy software that you don’t know how long you will use.” Subscription to Xero’s cloud accounting software starts at US$20 a month.

Beyond cost savings

What resonate with CFOs and accountants are mobility, ease of use, automatic updates, integration with other systems, and the ability to access and analyze financial and non-financial data.

When you use cloud software, says Paul Gardner, founder of accounting services provider Fresh Accounting in Hong Kong, “you can log in anytime as long as you have Internet coverage.” And you are not limited to a desktop in the office, but can work anywhere using a laptop, tablet or smartphone.

Providers of cloud-based services tout the ease with which the software is updated, similar to how Windows and Apple automatically update their operating systems. “You come back to the office on a Monday and we already had updated the software over the weekend for each and every subscriber,” says Zakir Ahmed, Vice President and General Manager, Asia, of cloud ERP company NetSuite, which has been acquired by Oracle.

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