Can One Ledger be a reality?
I met up with Hamish Edwards and Darren Glanville from Xero online accounting software yesterday, when they dropped in to the Pearson & Associates offices.
It was good to meet Hamish for the first time, after previous telephone and cyberspace conversations. Most of the talk was about how Xero could help us with the process of converting clients from other systems, such as Sage and QuickBooks but we also discussed Xero’s broad development roadmap. Hamish revealed that one of the things they were working towards is what he described as a “One Ledger” concept.
Now, I must admit that I didn’t grasp the significance at the time but now, having had chance to think it through, it strikes me that One Ledger could have profound implications for most small accountancy practices.
So what are we talking about here? Well, the big idea (and it’s not rocket science) is to use the same data set (the client’s) for the production of year-end “final” accounts rather than what currently happens – which is that the accountant takes the client’s accounting data and transfers it into his own software for further processing and final accounts production. Using the One Ledger approach, the need for the accountant to produce separate working papers is eliminated, as is the chore of revisiting the client’s data after the final accounts are produced to make adjustments to correct the opening balances for the new financial year. The client’s accounting data IS the working papers and IS the lead schedules.
One significant development that will make this possible is what Hamish described as an intermediary coding structure which will allow individual general ledger account codes in a Xero (client’s) chart of accounts to be mapped to the appropriate code in the Xero statutory chart of accounts. It’s my understanding that, by default, this functionality will only be visible to users with the “Financial Adviser” role in Xero. Accountants typically reserve this role for themselves, where they have setup the client initially, but there is nothing in principle to stop a client using the extra functionality if they wish to. This means that, for instance, abbreviated accounts for Companies House can be generated without the intervention of the accountant. Now tell me that is not a fundamental shift in the balance of power of the client / accountant relationship.
I see this as a positive change, it allows the accountant to distance himself from the traditional compliance service and, instead, demonstrate how he can add value to the process, DURING the process – not just at the end by facilitating filing with the authorities.
Of course, the One Ledger principle cannot realistically work for desktop accounting systems such as Sage or QuickBooks, simply because the client cannot run their business without access to their accounting data during the time it takes their accountant to “do the books”. This is therefore a way of working that only web-based providers, like Xero, can offer.
I can see some potential problems – such as how to get the tax provision into a set of limited company accounts without first importing accounts information into the practice’s corporation tax software – but I can also see big benefits for both the client and the accountant. The accountant’s role will change though, to one of reviewing and correcting the client’s data before the client files the accounts, instead of owning the whole process – and charging accordingly.
When possible I try and implement the “one ledger” system with clients who are using SAAS accounts programs and Quickbooks Accountant’s Copy just to avoid duplication but always end up with the tax adjustments because I have to switch to our accounts production software.
I don’t see a problem with it other than the tax calculations which I gues will be more complicated than it seems.
Yes, I think the CT provision will always be an issue.
Hamish mentioned that some accountants had suggested Xero get into tax computations but I urged him to not go there and he seemed to agree that it would not be a good idea.
Now, if one of the tax software suppliers went Saas, then that would change the ball game. An API could be used to go grab the tax number and then drop it into the accounts.
This is the elephant in the room. I’ve been predicting this for years BUT – it requires more than simply making a GL. Much more. CT is only one aspect. On CT SaaS – watch this space (wink)
Hi Dennis, and thanks for stopping by.
Unfortunately, there was not much in the way of schmoozing (no beer, no food, no scantily clad ladies) just an informal chat in the office, but it was good to put a face to a name.
I have a Saas application in development now which, I believe, will greatly assist the practitioner to work efficiently in a “one ledger” brave new world. As you say, there are many more challenges than just the CT one and I am hoping to provide a good chunk of the way forward.
Will give you a heads-up (and a sneak preview) when the product is almost ready.
Hi Adrian, I like your article & the concept of the one ledger approach, and I have thought that this will be inevitable in the fullness of time – particularly tax SaaS software. The role of the accountant is changing rapidly.
Hi Gareth, thanks for your comment. Yes, I think that soon we will find that working directly in the client’s data is much more efficient for all concerned.