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February 11, 2015

The latest seismic shift in accounting

By Rich Preece*

Accountancy has been a feature of business for thousands of years but, like almost every single business process, it has evolved significantly over time. As Winston Churchill once said ‘the farther backward you can look, the farther forward you are likely to see’. So what are some of the accounting milestones throughout history, and are we set to see another in 2015?

Accounting is nearly as old as the concept of money itself; its early development dates back more than 7,000 years to ancient Mesopotamia. People used clay tokens to trade goods and would then document their expenditures and goods received and traded. It was clear even at the birth of money that having a comprehensive view and strategy of finances was vital. Regardless of quality of stock, service or sales tactics, systems needed to be set in place to keep an eye on the financial health of the business. Few would doubt this remains true today.

Medieval mathematician Luca Paciolo is often viewed as ‘the father of accounting’, as he laid the foundation for how double-entry bookkeeping is applied today in his notable work, a ‘Review of Arithmetic, Geometry, Ratio and Proportion’ in 1494. Essentially the historical origin of debit and credit, Paciolo developed this method of accounting that was already being used by merchants in Venice during that period. He worked to formalise and publish the theory which business use even today.

Accounting progressed into an organised profession in the nineteenth century. The growth of large scale manufacturing and logistics demanded reliable accountancy and the profession became an integral part of the business and financial system.As a result, accountancy practices developed innovative ways to do their jobs faster. In 1885, William Burroughs invented the first adding machine, which accountants could use to reduce the time it took to make transactions. In turn, this freed them up to focus on growing practices and diversifying services.

Technology has changed business operations forever. From an accounting perspective when VisiCalc, the simple spreadsheet programme, was introduced in 1978, it changed the industry. Although basic software, it took 20 hours of work and turned it around in 15 minutes. It’s been 40 years since VisiCalc was released and it laid the path for technology to totally transform an industry.

So what’s next?Fast forward a few years and 2015 might well witness another milestone in the history of the books. There’s a strategic shift taking place within accounting practices globally, one that’s being driven by clients who are demanding additional, value-added services from accountants. Recent research Intuit conducted showed that 69% of UK SMEs now expect their accountants to be financial advisers, while 62% say that accountants need to introduce new offerings and strategic services in order to move into a valued adviser position. As a result, 71% of accountants expect their role to evolve into that of a financial adviser in the next five years.

So it seems that the next stage in the illustrious history of the books is for accountants to add consultancy and strategic advice to traditional number crunching. Accountants are, of course, evolving their practices and many place these consulting services amongst their most promising revenue streams.

At the heart of this shift is cloud computing. Consider instant access to clients’ financial information anywhere on the globe, real-time collaboration and an ability to complete processes in record time… all help accountants get closer to their clients while freeing up resource to focus on new services.

Cloud and mobile go hand in hand. Mobile continues to increase the ease with which accountants interact with clients, with consultancy available any time, any place and at the touch of a button in the hand.

These changes represent a major evolution in the way we manage the books and 2015 will see a tipping point for cloud adoption and an even greater appreciation of the opportunities it presents. Practices are set to reap the rewards through greater efficiency, a wider skill set, a deeper role in their clients’ businesses. These in turn will drive up the value of the consultancy, resulting in higher profits, higher gross recurring fees and more capital value.

The advances in accounting have been spread out over thousands of years but we’re on the precipice of the latest major shift, enabled by tech and the resulting change in the way accountants view their role within clients’ businesses. With any change comes opportunity. So the challenge for accountants in 2015 is to embrace this growing trend and make it profitable for their practice.

*Rich Preece is VP and country manager at Intuit UK

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