Last Updated on: 5th July 2024, 01:47 pm

Cloud Based vs On Premises Accounting Software Systems

Cloud Based Accounting Systems

Cloud based  accounting software is hosted on remote servers. It provides capabilities similar to the SaaS (Software as a Service) business model. Data is sent into “the cloud,” where it is processed and returned to the user. Application functions are performed off-site, not on the user’s desktop.

In cloud computing, users access software applications remotely through the Internet or other network via a cloud application service provider. Using cloud computing accounting software frees the business from having to install and maintain software on individual desktop computers. It allows anyone to access same data and the same version of the software, from any location through Internet.

Such systems provide powerful Data security, Data backup and Disaster recovery features, providing full data protection.

Many of the Cloud based application providers typically charge based on usage – compared to site license fees associated with traditional accounting software deployments.

Customer need not invest in new hardware or software. Instead, customers pay their cloud provider a subscription fee or pay for only the resources they use. Simply by filling in web forms, users can set up accounts and spin up virtual machines or new applications. More users or computing resources can be auto scaled on the fly, in real time, as per workloads demands.

Both cloud accounting and traditional accounting, use the same accounting principles, fundamentals and statutory compliance requirements. It is all about operational flexibility, financial data security, scalability & Cost to consider and decide which way they want to go.

Cloud vs Traditional Premises Based Accounting Software

Cloud Storage involves stashing data on hardware in a remote physical location accessible through Internet. Clients send data to a data server maintained by a cloud provider instead of storing it on their own hard drives so that it can accessed from any point through Internet.

Cloud accounting software utilizes the cloud to store accounting data, to make financial information accessible through Internet, any time, from any place. In traditional accounting software, the data resides in Company’s computer in which accounting software is installed and financial data is recorded (referred as Premises based system). Data can be accessed exclusively from the same device where data is stored (like single user system), or multiple machines connected in a LAN or multi location devices connected with a server, through Internet. However, only devices connected with the server can access data.

So, Cloud system has far more superior connectivity than Traditional System. Deployment is quick & easy. Upfront Cost & Capital Investment is minimal. Data is more secured due to automatic back up, quick recovery process.  Cloud accounting system can be accessed through diverse platforms & devices, while traditional system can work with very limited systems & devices

Both cloud accounting and traditional accounting, use the same accounting principles, fundamentals and statutory compliance requirements. It is all about operational flexibility, financial data security, scalability & Cost to consider and decide which way they want to go.

Advantages & Limitations of Cloud Accounting System

Here we discuss the Advantages and Disadvantages of Cloud & On-Site Accounting Systems

When Cloud Accounting Software is preferred

• Companies that have a small budget, may prefer cloud accounting due to quick deployment, low start up cost and easy visual interface than traditional accounting software.
• Businesses with multiple location, having employees working in different or remote places, would benefit by the convenience and accessibility of cloud solution.
• Small companies who cannot provide themselves with adequate internal security, as cloud computing companies can keep information safer from security threats of employees.
• Larger online service would be able to provide more security than you can  have yourself. However, you also have to depend on the service to give you the level of security you need.
• In case of Traditional premises based accounting applications, companies using them are responsible for user access management as well as for digital and physical storage of documents. These operations are, usually, time consuming and costly. Cloud computing accounting solution significantly reduces time & costs
• Moving to a new cloud based system is much easier than traditional installation. Updates are automatic and often provided automatically by the cloud service providers, and do not do not require physical installation on the client’s work stations. Service providers can provide global support services remotely.
• The accounting application can be easily accessed through a browser in any platform. No compatibility issues. All users get the same updated version of the software, eliminating the potential problems caused by versions incompatibilities.

When Premises Based Traditional Accounting System is preferred

Control on System and Data : Some businesses wanting to have absolute control over accounting data may be scary about keeping at any place other their own premises. Such organisations don’t want any third-parties to have access to it, and want themselves to have complete by keeping data in-house.

In a cloud based system, the company loses the control over the application, and becomes dependent on the vendor for the maintenance, update and management of the application. Companies have to take the risks that, in case of a faulty performance, the application becomes unusable until the problem is fixed by the software provider. Nevertheless, this risk is also present for traditional accounting applications purchased from a third party.

Data Security Issues : It is mainly perceived security issues that often drives organisations to go for Traditional internal server based system.  Many organisations fear moving from an on-premises system to unfamiliar Cloud ERP,  holding concerns over ownership and location of financial data, backup and recovery, availability, security, and moving to a different new system.

Security perception is however largely a fallacy. Much of the confusion about the Cloud is spread by legacy software vendors who lack solutions with a true Cloud architecture. Many of the risks of moving to Cloud put forth by legacy vendors are unjustified.

Internet Connectivity : Cloud based system rely on Internet connectivity. So, any hold up in the Internet connectivity will cause disruption in the Accounting process. However, all organisations are using varied Interent Applications, other than Accounting Applications alone. So, such organisations must be maintaining good back up system to run all internet based applications smoothly. So, Internet connectivity issue is not exclusively related to Cloud based system.

Upgradation or System Change :  In a cloud hosted application, on updation of old application, or new module being added, the previously generated data becomes unusable. Companies become dependent on the service provider to convert the old data into compatible form. However, this risk is also present for traditional accounting applications purchased from a third party

The company becomes dependent to a cloud hosted and run application. In case a new accounting application is to be used, the previously generated data becomes unusable or impossible to be accessed through the new application.

When a company changes a premises based application, old data remains with the Company, but in case of Cloud based system, old data remains with the application provider.

Modern Trends towards Cloud Computing

However, modern trend is leaning towards Cloud Based ERP System. All major reputed Accounting & ERP System are gradually moving to Cloud based solutions. People are already working with cloud based systems like e-mails, social networking, providing high security features, putting trust over security issues on cloud based system. Cloud systems are providing more secured and reliable system, that small organisations with limited resources and technical expertise, can provide.

Organsiation with progressive outlook and growth focus, having high trust in technology are choosing cloud accounting services over traditional accounting programs, since cloud accounting can offer them the value, security, and level of convenience they need.

Start-ups and SMEs gain most by adopting Cloud accounting technology, due to high flexibility and scalability. Cloud offers smaller firms the ability to effectively leverage high processing power, having a small Budget. Very simple and user friendly interface, provide much better operational simplicity, than traditional on-premise system. Sole proprietors, who are constantly on move, will be particularly enthralled having every info of their organisation, synched and accessible by themselves (no staff support required) and ready on the laptop and mobile, any time, any place.

Successful Cloud solutions have evolved to match the demands of small organisations. The finance people have to overcome such misconceptions and seize the benefits to Cloud Accounting, which clearly outweigh the negatives.

Though cloud accounting offers many advantages, security is the most perceptible threat.

Lot of Accounting data uploaded to the cloud by companies contains sensitive data, breaching of any data security would be a huge loss to the Company.

Security Issues in Accounting Systems

Security in Accounting System is one of the most important topics in computing these days, because cybercriminals are still active. They are capable of adapting to and exploiting every change in technology and user habits.

At first glance it might seem that there is security risk in placing data to a third party on cloud, the opposite is also true. Data is safer with a secure cloud host, like money is safer in the hands of Bank, or valuables are safer in a safe deposit vault, who have huge infrastructure in safety & security, which the individual cannot possess.

A good host has the resources to implement all the latest and greatest security measures. So, they can provide far better protection against data intrusions than any small business could afford to invest in. When the newest cyber-attack hits the Internet, your provider will probably be protected against it almost immediately.

In our next articles, we would discuss about such misconceived perceptions by discussing the perceived security issues of Tally.ERP 9, the most popular on-premise traditional accounting system.

Security of Accounting Software System

Upscaling of Accounting Systems

In a premises based system, a lot of investment would be required when additional resources are required for Accounting System upscaling in case of growth or extension of the system. A cloud based system would readily provide additional resources required. The user pays only for the resources & services used.

In a cloud based system, you may fall back upon to your earlier system, should the new system is found unsuitable, without much loss. However, abandoning a premises based system, everything already invested in the system, would be lost.

Upscaling of Accounting Software System

Types of Cloud Software services

• SaaS (Software As A Service) : Such service provider deploy the software in cloud platform. The user provided data is processed in Cloud platform and retuned to user. Users periodically pay for the actual quantum of services received and resources used. No additional Investment by the user. No software installation needed. Software Auto updated.
• IaaS (Infrastructure As A Service) : Such service providers basically offer storage and compute services on use & pay basis. In addition, they provide extensive powerful features like : Highly scalable databases, virtual private networks, Large Data analytics, Developer tools, Machine learning, Application monitoring, etc.
• PaaS (Platform As A Service) : Such service providers offers sets of services and workflows for developers, like shared tools, processes, and APIs to accelerate the development, test, and deployment of applications.
• FaaS (Functions as a service) : FaaS, the cloud instantiation of serverless computing, adds a layer of abstraction to PaaS, so that developers are completely insulated from everything in the stack below their code.

While SaaS is targeted for all sorts of Cloud based service users, IaaS is targeted for large users. PaaS & FaaS are targeted for developers.