Getting to the Cloud: A Quick History of Accounting Software
By Mike Martin
Technology has been transforming the accounting profession for centuries. From the abacus to the calculator to the PC and now to the cloud, technological innovation has helped accountants save time, reduce errors and interpret data effectively.
Over the past 50 years in particular, advances in computers and software have changed the face of accounting and auditing by automating many menial tasks. This has allowed accountants and auditors to deliver more accurate financial statements and forecasts.
To fully understand and appreciate how today’s models are impacting the profession, let’s look at the many ways technology and accounting have intersected over the years.
The Dawn of Spreadsheets
Spreadsheets have been a staple of accountants for decades. The first spreadsheet program, VisiCalc (short for Visible Calculator) was launched for the Apple II personal computer in 1979. Until VisiCalc’s appearance, the spreadsheet process had been entirely manual. If one value changed, every related cell had to be updated by inputting new values by hand.
VisiCalc transformed spreadsheets by automatically changing values in related cells if the information in one cell changed. It was an instant hit, with 700,000 copies being sold in its first six years.
Other spreadsheet programs appeared shortly after VisiCalc, but none proved as popular until Lotus Software (later part of IBM) launched Lotus 1-2-3 in 1983. Lotus 1-2-3 took advantage of the improved memory and screen available in the IBM PC, allowing it to feature some database functionality and graphical charts in addition to spreadsheets. It also introduced macros, which allowed other companies to sell macro packages and add-ons to the program, increasing its ease-of-use and popularity.
Lotus 1-2-3 remained the dominant spreadsheet program into the 1990s, but with the rise of Microsoft Windows, it was eventually overtaken by Microsoft Excel. Excel had first appeared in the mid-1980s, but wasn’t widely adopted until Windows became the most popular PC operating system. Excel remains the most widely used spreadsheet program today, driven by its accessible graphical user interface and customizable macros.
Accounting and Bookkeeping Packages Emerge
Software dedicated to bookkeeping also first appeared in the 1970s. Peachtree Software introduced an accounting software package in 1978, followed soon after by an office suite that included a spreadsheet and word processor in 1981. Intuit’s QuickBooks accounting software followed in 1983.
The 1980s witnessed the launch of many other accounting software packages (including the first version of Caseware’s engagement workflow solution, Caseware Working Papers), which eliminated the need for calculators, pencils and erasers. These solutions made many manual and tedious accounting tasks unnecessary and gave accountants more time to focus on forecasts and analysis.
The Rise of ERP in Accounting History
Enterprise Resource Planning (ERP) software has its roots in 1970s manufacturing systems, but didn’t become popular until the 1990s when research firm Gartner first began using the ERP term. ERP packages took the software far beyond its manufacturing roots. Solutions from vendors such as Great Plains Software, Oracle, SAP, NetSuite and JD Edwards included modules for a range of business functions including accounting, finance, sales, production and human resources.
ERP solutions collected data from across a business, giving accountants who used it visibility across multiple departments. This helped them build a fuller picture of their business operations and make more accurate forecasts.
Early Accounting Software Setups
For early accounting packages the software setup was basic. Users would buy boxed software, which consisted of a series of disks. They’d then install the software from the disks onto a PC. While the installation process was relatively simple, the software solution was only as portable as the machine it was installed on.
As time progressed, computers became more networked and able to communicate with other computers, giving organizations more options in how they installed their software. Larger organizations deployed client-server architectures with their accounting or ERP software sitting on a central computer server, where it could be accessed by multiple users through their own PCs.
Client-server setups made accounting software more portable within an organization, but setting it up could be cumbersome. Organizations had to pay for the servers that would house the software, forecast how much server capacity they would need, and have backup servers in place in the event their primary servers failed. They also had to perform maintenance and updates on the servers to ensure they were running properly.
The Modern Accounting Software Era
Accounting software has evolved significantly over the past two decades. Internet-of-Things (IoT)- enabled devices, smartphones, sensors, video cameras and other technologies generate more data every year, giving accountants and auditors greater potential insight into patterns and trends.
In 2020, research firm IDC estimated society created or replaced more than 64 zettabytes of data. One zettabyte is equal to the storage capacity of about 17.2 billion smartphones holding 64 gigabytes of data each.
This rapidly growing volume of data, commonly called Big Data, can’t be processed or analyzed using traditional methods. It grows too quickly and involves information from multiple sources. Spreadsheets and simple accounting packages don’t have the power to harness the growth of Big Data. Accountants and auditors need data analytics software that allows them to assess risk, gather evidence and make informed decisions from multiple data sources.
The Emergence of Data Analytics and Audit Software
Data analytics software has existed since the 1990s when data warehouses – central repositories of data from multiple sources – became popular. But powerful, accounting-specific data analysis solutions didn’t emerge until later. Today’s data analytics software solutions, like Caseware IDEA 12, allow accountants and auditors to examine far more data than in the past to uncover more exceptions and generate better forecasts.
Traditionally, when faced with large data sets, accountants and auditors have turned to data sampling, analyzing a representative subset of the data pool. Sampling was an acceptable tool in the past because there weren’t other options to deal with large data sets. But that’s no longer true. Sampling in modern accounting and auditing is less effective because it assumes the sample is representative of the larger data pool, which leaves room for errors and inaccuracies.
Modern data analytics solutions allow accountants to examine complete data sets by applying artificial intelligence and machine learning to the data analysis. They automatically perform multiple types of tests on transaction sets, spot anomalies and assess risk. They are also able to examine data from multiple sources, allowing organizations to generate new insights and spot hidden trends.
A Big Time-Saver
For example, an auditor looking at sales invoices could use an analytics solution to run all current sales data and compare it automatically to historical data, or available industry sales data from outside the organization. This not only makes it simpler to spot anomalies, but it also saves the auditor time, allowing them to focus on more strategic tasks.
Saving time is important to auditors. In Caseware’s 2022 State of Internal Audit Trends Report, 31 percent of the auditors surveyed cited moving from manual processes to more efficient workflows as their top challenge, with 27 percent saying adopting new audit technology was their biggest concern.
Proving internal audit’s value to the board and CEO was an issue for 44 percent of respondents, with 27 percent saying they were having to do more work with less time and fewer resources. Adopting modern data analytics solutions and audit software can help with all these challenges because they allow auditors and accountants to get a full picture of their organization’s controls, governance and processes. This frees them up to focus on making strategic recommendations that boost efficiency, make their organization more competitive and prove their value to boards and executives.
The Shift to Cloud Accounting Software
Another major recent technology evolution in accounting is the migration of on-premises software to the cloud. Traditionally, accounting software has lived either on the PCs of accountants and auditors, or on servers belonging to their organizations.
Today, however, more companies are choosing to host their software in the cloud to benefit from more flexibility, cost savings and better risk mitigation. Gartner recently forecast more than half of enterprise IT spending will shift to the cloud by 2025, accelerated by the implementation of remote work business models in response to the COVID-19 pandemic.
Flexibility is one of the cloud’s key benefits. Accountants and auditors can access the software they need from any location, whether they’re at home, at a client’s location, or in the office. All they require is an internet connection, a compatible device and their secure login information.
Cloud-based accounting software makes engagements simpler. All documents, billing and time sheets can be stored in one central location where they can be easily accessed and updated. Online portals make sharing files with clients simpler and faster, with no need for on-site visits or courier pickups and drop-offs.
And they promote better collaboration with team members and clients by creating one centralized location where everyone can communicate, check deadlines and see engagement updates.
Simplifying Management and Workflow
The cloud also makes maintaining and managing software simpler. In a traditional, on-premises setup, the organization’s IT team has to maintain their own hardware and software, which costs time and money. Shifting to the cloud allows companies to change their capital expenditures on hardware and software to an operational expense in the form of a monthly charge. And it frees up time for IT teams to focus on building innovative digital solutions that make organizations more competitive.
Switching to cloud accounting software like Caseware Cloud means organizations don’t have to worry about maintaining backup data center sites and complex disaster recovery plans. The cloud has built-in resiliency, meaning the software will be available whenever accountants and auditors need to access it.
Another compelling aspect of the cloud is that it doesn’t need to be an all-or-nothing proposition. Companies that want to maintain their own software can still get some of the flexibility benefits of working in the cloud by moving to a hybrid environment, such as the Caseware Essentials Suite. In this scenario, accountants and auditors are still able to access the software they’re accustomed to using on their laptop, but their data will also be uploaded to the cloud. This lets them benefit from the cloud’s enhanced collaboration and simplified management capabilities.
What the Future Holds
As data analytics software becomes more powerful and the cloud more pervasive, accounting organizations that don’t digitally transform their operations risk falling behind their competitors. They’ll be less efficient, less productive and potentially less secure.
Cloud accounting solutions like Caseware Cloud are housed in state-of-the-art data centers boasting industry-leading physical and IT security features, as well as daily backups and encryption. There’s a significantly lower chance of a security breach, a request for information slipping through the cracks, or important files being misplaced.
While software solutions will continue to be central to the evolution of the accounting and audit industries, they are no replacements for skilled accountants. Instead, they allow organizations to create efficient, data-driven accounting practices that deliver complete, accurate results faster than in the past. This allows auditors and accountants to focus on providing sound strategic advice to the CEOs, boards and clients they support.
Mike Martin is a Content Marketing Writer at Caseware. He is a former IT magazine editor with extensive experience researching and writing about enterprise technologies. At Caseware, Mike reports on today’s top issues affecting auditors and accountants and how advanced technologies are helping them drive better results.