Why do small businesses need Chartered Accountants when we’ve cloud accounting apps like QuickBooks?

Many jobs are made obsolete with the emergence of apps in today’s digital driven world. How does this affect the way businesses handle their financial books? Does it mean we don’t need Chartered Accountants since reports are easily customized and generated for DIY-financial-analysis?

Let’s first understand more about cloud accounting apps in the likes of QuickBooks and Xero that have gained traction among small business owners. Simply put, they are data-entry tools that manage the bookkeeping of businesses. Not only are these tools user-friendly, users don’t need to be proficient in accounting knowledge to use them.

All users need is to learn how to use the apps (self-learn from online tutorials or sign up for a 1-day course) and they are ready to get to work. Given that these cloud apps are modular, affordable and customizable, they are the perfect DIY solutions that fit the needs of small business owners.

Does this mean that small business owners can do away with accountants and let cloud-accounting apps guide them in the number crunching?

Absolutely not. It’s because these apps are only productivity tools. They are not programmed with robust AI traits to recognize and correct illogical accounting patterns, nor are they financial analytical tools to help business owners make wise financial decisions.

Without the supervision of a sound accounting mind in overseeing the flow and reporting of funds, businesses might run into 3 common problems:

1. Data-Entry Errors

Small businesses may engage temporary staff to do bookkeeping data entry. Not only do temporary staff come and go, but they may also not have accounting knowledge. Without proper understanding of accounting principles, there is high chance that data entry methodology may be inconsistent. Numbers could be posted to different accounts each time. For example, some could be against payables (accruals basis) while in other instances directly against P&L (cash basis). The inconsistency in data entry will result in the generation of inaccurate financial numbers, which business owners then use for analysis.

2. Gaps in Governance

Without foundations in accounting, small business owners may not appreciate the importance of “menial” accounting related task such as performing bank reconciliation monthly. To save costs, bookkeeping is probably performed yearly alongside the preparation of annual financial reports for statutory purposes.

This practice opens the Pandora’s Box to a serious governance issue: lapse in internal control leading to possible embezzlement. For example, if a staff knows that bank reconciliation isn’t done monthly, forgery of receipts can be carried out and monies can be diverted to personal accounts. Without a check-and-balance system in place, this mistake may only be uncovered months or years down the road.

3. Problematic Tax Reporting

When the earlier problems are not rectified, they snowball into a more dire problem: inaccurate tax reporting. This usually surfaces during year-end tax filing season when companies prepare Financial Reports for statutory reporting. The last thing business owners want is a visit from the Tax Authority to audit financial books.

So, what’s the proper place of cloud accounting apps? As productivity tools, they can only store financial data. They don’t provide business owners with sound financial advice. The records and reports generated by QuickBooks and Xero are based on historical data. They assist business owners with invoicing, and basic bookkeeping needs. But data are just numbers and on their own, they do not tell a financial story, and they don’t perform “what-if” analysis for business directions.

In today’s dynamic economy, business owners need accountants to perform and explain the numbers in the form of financial performance analysis, forecasting, capacity planning, business analytics and “what-if” analysis, which are all critical in making informed business decisions on a timely basis.

In a nutshell, in the space of accounting, there are inherent financial and regulatory risk implications that small business owners should not view lightly nor undertake accounting roles with no trained guidance.

The writer, Ms Valerie Tan, is a Chartered Accountant and she is a partner with AGILIT Consultancy LLP. If you’d like to find out more in this area, drop her a line at valerietan@agilitconsultancy.com.sg