Yesterday we learned that IRIS has invested in SaaS accountancy software supplier FreeAgent, the financial details are undisclosed.  This news was something of a surprise to me and, since the benefits to FreeAgent seem very clear, got me to thinking what’s in this for IRIS?

It seems obvious that the arrival at IRIS of Phil Robinson, ex Salesforce.com, heralded a renewed interest in SaaS (Software as a Service) or Cloud applications.  So, the link with a SaaS vendor could be expected – and there are likely more to come.  However, what is IRIS specifically trying to achieve here?

The press release states that IRIS will:

“.. gain exclusive rights to collaborate on and resell FreeAgent Central developed products and services to UK accountancy firms.”

And Phil Robinson is quoted as explaining that the “strategic partnership” has been formed to:

“develop and deliver innovative new SaaS solutions for the UK accountancy sector.”

Use of the word “collaborate” in the first quote above is most significant in my opinion.  I think that what we are now going to see is a “forking” of the FreeAgent code, with a new product being created just for UK accountancy practices.  IRIS are effectively purchasing a copy of FreeAgent to develop for their own purposes without having to acquire FreeAgent completely.

This is a smart move and, I think, makes it clear that IRIS have no interest in having their own SaaS accounting product for the general market.  The UK online accounting software market already has significant players, with Xero and Kashflow being two established “big guns” amongst a host of others.

IRIS currently counts 14,000 accountancy practices as their customers (their figure).  However, when one looks at how their accountancy practice software fits into the overall workflow for annual accounts production, a core task for which IRIS provides an integrated solution, there is a “gap” of probably 75% where manual work is required, before IRIS kicks-in to help.

The manual processes I refer to include the accountant getting hold of the client’s accounting data, extracting that data, processing it, reviewing it and producing working papers to evidence the checks undertaken.  Only once all of this heavy lifting has been done, can the numbers be entered into IRIS, for IRIS to then automate much of the final stages of the job, through tax computations to filing with the authorities.

But, if the accountant can leave the data where it is (in the client’s own accounting system) and work with it live, before squirting it into IRIS automatically, then that’s a game changer.

This is where the deal with FreeAgent is expected to pay-off, in my view.  IRIS are now looking to provide solutions to help accountants with the manual processes in the 75% gap in blue above – and delivering these on the back of a SaaS accounting product is the only way to do this.  It’s the “One Ledger” approach I wrote about previously, an approach that Xero are, it seems, well down the track on already.  To play catch-up IRIS had no option but to “buy-in” a Saas accounting application.

So, I applaud Phil Robinson’s vision and wish IRIS every success with this.  Change is always good and this is a potentially a major shift in the dynamics of UK accountancy practice.

Then again, I may be reading entirely too much into this.

Regular readers will be aware that I follow goings-on over at Xero very closely – although let me point out that I have no affiliation with them at all.

News is just coming through from the other side of the planet (New Zealand and the ONYAs to be precise) that Xero has won three out of the four awards it was nominated for, namely “Most Outstanding Website”, “Best User Experience” and “Best Web Application”.  They missed out on “Most Innovative” but, hey, this is accounting software we’re talking about.

Of course, being web-based software, this is the same stuff that we use here in the UK, so these awards are equally relevant this side of the world – although the other potential UK nominees would, in my opinion, put up a stronger challenge.

Well done Xero.  Hopefully they have laid down a marker for others to up their game.

Looks like users who have previously signed-up to play with Xero on a free trial will have received this email this morning.  Clearly, the marketing ploy is to prompt fence-sitters to make the switch before the start of their new financial year, which for most businesses begins 1st April.

The offer has 43 days to run, so represents a saving of about £26 for a business using Xero’s “Medium” plan.  Is this enough of an incentive?  Personally, I am not convinced but it is a clever way of getting into the inboxes of prospects without looking spammy.

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.