We live in an era of rapid innovation in financial technology that is transforming how banks, private equity firms and other investors evaluate business opportunities and quantify risk. Yet the prevailing methods for exchanging private company financial information among key stakeholders such as CPAs, corporate management and lenders and investors have largely not kept pace with the sweeping change in this sector. In short, the system is broken, leading to a greater risk of fraud in transactions and delays in the lending process, which could ultimately result in CPAs playing a less significant or relevant role – or worse, being pushed out of the process altogether.

Audited financial statements are arguably the gold standard data source for assessing the current health and prospects of a private company. But the current delivery methods employed by CPA firms for that information – emailed PDFs or mail courier, for example – put them at a distinct disadvantage in a banking industry increasingly reliant on data that flows over a secure, digital infrastructure. To put it simply: if you’re the bottleneck in a process dedicated to driving out inefficiencies, you’re a problem.

The good news is these problems can be addressed, and CPAs can strengthen their position in the value chain for the long haul. But first let’s talk about the place we currently find ourselves in.

CPAs have always played a critical role in lending decisions for private companies. About 40 percent of small business principals turn to consultants such as accountants for guidance on financing decisions – the largest category of advice givers behind banks and lenders themselves, according to the Federal Reserve’s 2015 Small Business Credit Survey.

With strong links to their communities, CPAs also are a key bridge for connecting private companies with local banks. This relationship banking role will continue to be an important one for the profession, but the rise of alternative lending platforms – where analytics and algorithms rule, not personal ties – creates different priorities and needs.

About one-in-five small businesses currently seek financing from online lenders, according to the Federal Reserve, and that number is only expected to grow. At the same time, you also have many of the large commercial banks evaluating alternative lending platforms as potential private-label solutions, which would replace and power their increasingly obsolescent legacy systems.

Because of this, online lenders and traditional banks both have a critical need for reliable, third-party information – the kind that’s available instantly, in digital form and from an unimpeachable source. In the public company sphere, the SEC’s EDGAR filing system fills that role but there is no central hub for private companies. Instead, lenders tap business tax filings from the IRS and credit reports from commercial databases, among other sources.

Because of liability risks, , CPA firms often choose to not confirm the validity of financial statements and other documents to outside parties such as banks and investors. In practice, private company management controls the distribution of these materials, which creates a window of opportunity for unscrupulous companies who can change numbers in a legitimate document or create an altogether fictitious report. The lack of a defined confirmation process can have implications for a CPA firm’s reputation if fraud is later discovered, even if the firm was completely unaware of the wrongdoing.

At CPA.com, we believe financial technology is an area of significant opportunity for CPAs, and we’ve thought long and hard about the barriers that might prevent that promise from being fulfilled. That’s why we and Confirmation.com developed RIVIO Clearinghouse, a secure platform designed to rationalize the flow of documents between CPAs, private companies and lenders and investors. Here’s how it helps solve some of the problems for CPA firms we discussed above:

• The system ensures that financial statements and other key data was provided by a licensed CPA firm. Fictitious or sanctioned firms are weeded out, reducing the risk of fraud.
• Private companies have broad control over who can view their encrypted financial information on the secure, cloud-based platform, but cannot alter critical data uploaded by a CPA firm. That gives end users peace of mind that the data is accurate and complete, and CPA firms have assurance their reputation is protected.
• Because the distribution of financial statements to authorized users is blind to CPA firms, they retain privity defense and other legal protections – and have greater control themselves because end users will be automatically notified if the CPA firm withdraws a statement or makes other changes.

Perhaps most importantly, RIVIO restores the primacy of CPA-produced financial information in lending decisions by creating a digital clearinghouse that solves a critical marketplace need for authenticated data from a validated, trusted source. RIVIO helps ensure that CPA-produced financial information stays front-and-center in private company lending and investment decisions – right where it should be.

It’s a new world in banking, one characterized by the digital flow of key financial information, and I’m confident CPAs will take the necessary steps to adapt to changing demands from the industry. With the RIVIO Clearinghouse, we feel we’re off to a good start.

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Erik Asgeirsson is the President and CEO of CPA.com. He has more than 20 years of experience in leading technology organizations and driving business growth. Over the past ten years Erik has driven CPA.com's focus on cloud computing and the transforming opportunities available to accounting firms and their business clients.

How can CPA firms, their clients and the investors and lenders with whom they do business easily access shared documents? How can CPA firms ensure that their signature won’t be used fraudulently or that there won’t be unauthorized changes in their financial reports? I spend a lot of time speaking with CPAs across the country, and these are some of the questions on the minds of firms that serve private company clients.

Public companies have a simple solution for sharing financial information in a secure environment. The Securities and Exchange Commission’s Electronic Data Gathering, Analysis and Retrieval (EDGAR) System collects, validates, indexes and forwards submissions from public companies’ SEC filings. It was launched in 1984 and offers public companies an efficient way to share corporate information, but there has never been a similar system to fit the needs of private companies.

That can be a problem, as I’ve heard from practitioners. Here’s one scenario that illustrates why: A CPA firm’s client has an opportunity to work with a new investor who will offer a capital infusion as well as possible improved access to new markets. The client is thrilled about the possibilities, but there’s one hitch: The investor has received altered financial information in the past and is demanding reassurance about the security and authentication of the data it receives. The client turns to their CPA, hoping for a solution.

Over the last several years, my team at CPA.com has been researching how today’s technology can allow private company clients to access information from their CPA firms and share this financial information with investors and lenders, as well as ensure that data has been submitted from an authenticated source. In addition, as part of our market research we found that many banks were beginning to have increasing reliance on IRS-sourced business tax returns due to their concerns around fraudulent audited financial statements. Based on this research we realized that it was critical to have a clearinghouse-type solution that would ensure the audited financial statement, one of the core services of a CPA firm, is part of the digital information highway. We also believed a solution which delivered these audited statements digitally to banks and other key users would help firms distinguish themselves in the marketplace.

This spring, in partnership with Confirmation.com, CPA.com introduced its Repository of Intelligent Validated Inputs and Outputs (RIVIO), an online financial clearinghouse that features robust controls, easier collaboration and reduced risk for all parties. Transmissions through the RIVIO Clearinghouse are secure and verifiable unlike traditional delivery paths such as print or email, which leave open the possibilities of loss or misuse of data. The RIVIO Clearinghouse houses audited financial statements which only can be uploaded by appropriately licensed CPA firms as well as other key financial documents. The client then shares this information with specific banks, private equity firms or other users. We sought the experience and insights of the AICPA’s audit and accounting teams to ensure RIVIO supports and enhances the high level of CPA firm services, and we made sure it helped to advance the goals of the profession’s Enhancing Audit Quality initiative.

Benefits include:

• Clients can efficiently share financial documents with key users without raising security or privacy concerns.
• Firms can recall documents such as a withdrawn audit report. They can also restrict distribution of reports.
• Audit reports stored in the system can’t be forged or altered.
• Firms can differentiate themselves in their markets based on their efficient report distribution. Banks and other third parties know they can rely on the documents they receive from firms employing RIVIO Clearinghouse.

RIVIO is not intended to replace firms’ existing portals. Portals will remain valuable tools that allow efficient digital collaboration between firm and client while RIVIO will facilitate the controlled distribution of client documents to lenders and investors. RIVIO basically adds another option to the practitioner’s audit toolkit because of its ability to validate users, authenticate documents and ensure financial reliability.

As with any new tool, it will be important for firms to get comfortable working with RIVIO. That will be easy to do, since CPAs are invited to try out the service at no charge. CPAs add value by identifying opportunities for clients. This new option can help them address clients’ and firms’ security and authentication concerns where important documentation is concerned.

Erik Asgeirsson, President and CEO, CPA.com

The accounting profession faces many issues in a fast-changing world, and cloud usage with all of its attendant requirements ranks among the most important.

AccountingWEB spoke with Erik Asgeirsson, president and CEO of CPA.com, whose mission is “empowering CPAs and businesses for the digital age,” about the progress being made in embracing the cloud.

AW: The CPA of the Future report released in December 2014 indicated that 90 percent of CPAs believe digital business processes will be a key differentiator among accounting firms in the next five years. Yet, only 8 percent indicated the profession is ready for the future. Why is technology and, specifically, cloud services apparently so difficult to accept?

Erik Asgeirsson: I actually think there is some strength in that data point in the fact that CPAs are self-aware. They need to do a lot more. When we looked at this in 2010, you wouldn’t have the 90 percent saying that it would be the key differentiator. So, that’s great, and now they are saying they aren’t where they need to be. They aren’t saying they are there when they aren’t, and that’s very important.

We’re seeing a lot of that 90 percent who need to do more being very focused, much more involved, and engaged in how to leverage these new cloud accounting capabilities. So, they are accepting it. Now they are really working on putting in place plans to more aggressively adopt it. The challenge is putting in place the business and practice plans to adopt it.

AW: Have you determined how many CPAs also are hesitant to do anything in the cloud, such as online banking, shopping and purchasing, booking travel, streaming TV, and so on? Or is the concern specific to their type of business and security issues?

Asgeirsson: I think it’s a very high percentage, similar to what you’d find in the broader consumer market, who have moved to online banking, shopping, purchasing, and streaming. This technology revolution we are living in started on the consumer side with Google, Facebook, and online banking.

The business marketplace in the past few years is absolutely making a more aggressive move to cloud services. I think one thing that’s changed when you look at the past decade is the ubiquitous nature of high-speed Internet access. That’s really important because as firms move from doing things on desktop applications or in their server environment to moving it all to the cloud, it is very important that the services work in a very efficient manner. I think that’s taken some time. Online banking is absolutely there; streaming videos is there.

In cloud accounting, QuickBooks got online and working at a first-year level with their big relaunch about 18 months ago in fall 2014. Now, QuickBooks is turning up over 100,000 businesses per quarter onto QuickBooks Online and clearly surpassed the turn-ups related to QuickBooks desktop. There’s no comparison. That’s occurred over the last couple of years and that’s why this is slightly behind online banking and purchases.

As to the security point, it’s not just about the CPA firm moving to cloud accounting. Their business clients have to as well. High-speed access is like electricity. You have to have it to be in business. The firm can support them in the cloud accounting environment. I do think the firms have moved in a more measured fashion than on the consumer side due to questions about security. Fundamentals had to change, and they have. And the firms had to get more comfortable with the data being stored at these cloud vendors.

AW: One cloud issue that’s been frequently mentioned in industry publications concerns not just cloud security but the security of SaaS vendors. How can firms verify what vendors’ security measures are and that they stay up-to-date?

Asgeirsson: Firms need to make sure that the cloud services they use are following security best practices. That means that they have SOC [Service Organization Control] 2. There’s a big difference between SOC 2 and SOC 1. With SOC 1, the internal controls in place were around financial reporting. SOC 2 reviews the principles and those are the security that’s in place, confidentiality in place, privacy rules in place, processing integrity in place, and availability in place. You look at those because that’s what you want reviewed. It’s not about “will the data be breached” or if the data will be available. It’s how that company is addressing the confidentiality and privacy of that information.

What I’ve seen in the marketplace is that sometimes companies try to pass off a standard like SOC 1 to look like it’s SOC 2. A firm should absolutely know this and look for appropriate standards in their due diligence and a review of cloud standards. And SOC 2 has to be current, not done two years ago. They should be very familiar with these standards.

AW: Much has been discussed and written about succession planning as many older accountants prepare to retire. How does cloud usage factor into that when they are trying to attract younger managers and CPAs?

Asgeirsson: I hear from firms all the time about this. If they want to attract millennials, know what they are looking for. They are looking for flexibility, to work in a modern way, which means that it’s not always in the office. You are supporting remote work, and when you do that, you need to do it in an effective fashion. And it all starts today with cloud technology: attending internal meetings, using things such as video, desktop-sharing tools, meeting with clients in that fashion, managing workflow in the firm with cloud-based tools, and automating the inputs.

Millennials don’t want to do data entry. You have to use the technology or practice to automate inputs for cloud accounting in your tax area, and now automation is occurring more in the audit space as well. That’s almost a must if you want to engage and attract younger managers. In the CFO area when you have bank feed automation, automating of the bill payment process, you are focused on setting up dashboards and reports for your clients that they view in an online fashion. For small firms, all they need is Internet access and it doesn’t matter where their staff is located, and that’s important.

I think firms will have a lot more value by adopting technology. Firms will have a much bigger return if they automate. You don’t know what you don’t know. The last thing you want to say is “I sold my firm but didn’t know my value and the buyers modernized it and dropped another 10 percent on the bottom line.” Some of these really laggard firms are attractive just for that reason – there is up potential. That’s an embarrassing reason to be bought because you don’t understand your own potential.

AW: At last year’s Annual Executive Roundtable, you were quoted as saying “to be successful, firms need to rethink what their business strategy is. The technology is the easy part.” But apparently it isn’t. It seems that it’s going to take firms longer than five years to differentiate themselves digitally. Realistically, how long do you think it’s going to take for the majority of the profession to be in the cloud?

Asgeirsson: It’s hard to say. I think you’re right. To be totally in the cloud, we’re in the early majority. We really need to look at the adoption curve, which the book Crossing the Chasm made famous. You start with innovators, then reach a chasm with the early majority, and the early majority really gets going once there is a pragmatic way to build out new capabilities. We’re in the early majority in every part of the firm – from virtual CFO controllership services, the modern ways to support your tax business, to audit. Audit I see as slightly behind, but virtual controllership is leading from the digitalization standpoint. We’re there in the early majority. There might be one system that doesn’t make sense to migrate into and you want to do it in components.

To get to that full adoption, we could be five years out, but the real statement to make is that we are clearly in the early majority, clearly have great vendor training and case studies of best practices on how to go about this. That takes the early majority to late majority, which is getting well above 50 percent of the profession. We’re under 50 for the profession right now that are clearly 100 percent cloud-based. But we’re well on the road to full cloud adoption.

It’s a question now of when, not if. When I give talks, it’s not “I’m not sure about this” that I hear. It’s “I’ve got to get on this, have to get my talent better and practice better, and I need to be vigorous in vendor selection.”

But to do this right is not easy and will take time.

As accounting firms increasingly rely on cloud-based technologies and services, they are also seeking tools that can help them optimize their workflow and streamline and automate client services.

The winners and finalists for the 13th annual Tax & Accounting Technology Innovation Awards reflect this focus on workflow and automation, which allow firms and their small business clients to operate more efficiently and profitably. The awards were presented on June 1, 2016, by CPA Practice Advisor during a reception and ceremony at the California Accounting and Business Show & Conference in Los Angeles.

CPA Practice Advisor provides a variety of independent digital and print resources for accounting professionals, including practice resources, technology reviews, interactive tools and content that helps firms achieve greater productivity.

The 2016 Innovation Award winners are:

• Avalara, for TrustFile,
• Bill.com, for the new Bill.com iOS App,
• CPA.com and Confirmation.com, for the Rivio Clearinghouse,
• cPaperless, for SafeSend Returns,
• Sage Software, for Sage View,
• Sageworks, for its Electronic Tax Return Reader, and
• Thomson Reuters, for Onvio.

Six Innovation Award Finalists were also recognized by CPA Practice Advisor:

• Confirmation.com for its Legal Confirmation Services,
• Doc.It for the Doc.It AutoFiling Service,
• Karbon, for its Task Management system,
• Sage Software, for Sage Impact,
• Fujitsu, for the ScanSnap iX100 mobile scanner, and
• Xero, for Xero Tax Touch.

The Innovation Awards were first presented in 2004, and honor new or recently enhanced technologies that benefit tax and accounting professionals and their clients through improved workflow, increased accessibility, enhanced collaboration, or other means.

“We are constantly seeking new technologies that can benefit tax and accounting professionals, and their clients” said CPA Practice Advisor Editor-in-Chief Gail Perry, CPA. “As the profession continues to embrace new workflows and processes that optimize the potentials of these technologies, firms are improving their efficiency and focusing their practices on more profitable service offerings that, at the same time, are more beneficial to the small businesses that rely on them for advice and strategy." Perry also manages a tax practice and is the author of more than 30 books, including Mint.com for Dummies, and Idiot's Guide to Introductory Accounting.

In addition to the winners and finalists, more than 40 technology products and services were nominated for this year's Innovation Awards:

ATX Integrated IntelliConnect Browser Search Tool and Tax Research Menu

BEPS Global Currents

BigTime IQ Pro

BNA Income Tax Planner Web

BNA State Tax Analyzer

Canopy Tax, Inc Tax Resolution

CCH CodeConnect

CCH iFirm Practice Manager

Client Centric Communications

Depre123 Depreciation System

Eaglefiling

eFileCabinet SideKick

Exact for Accountants

FloQast

Gravity Software LLC

Industry Newsletters

Intacct Subscription Billing

Intelligize

Intuit Trial Balance

ONESOURCE Indirect Tax Certificate Manager 2.0

PPC’s Guide to Tax-Related Identity Theft

QuickBooks Self-Employed

ReceiptBank Practice Platform

Credits and Incentives Pinpointer: Statutory and Discretionary

Thomson Reuters myPay Solutions Direct

TSheets Scheduling

Winners of the Innovation Awards are selected from nominated products by CPA Practice Advisor’seditorial board and awards committee, which include thought leaders and professionals from across the country. The digital resource and print publication is the leading independent source of practice management resources and technology information for tax and accounting professionals in public practice. www.CPAPracticeAdvisor.com.

The nomination period for the 2017 Innovation Awards will open in February 2017.

For several years now, the specter of change has hovered over the accounting profession, driven largely by shifts in how its clients work and, of course, in technology and processes. But what haunts the profession most these days is not just change itself, but change management.

This was one of the main themes on accountants’ minds and discussed by CPA profession leaders, including AICPA Chairman Barry Melancon, here at the association’s Practitioners Symposium and TECH+ Conference.

In his own words, “change management, not just change itself, has become a major concern among CPAs,” said Melancon. He also stressed that, for small firms in particular, the AICPA and CPA.com were doing their best to ensure they enable relevancy in the marketplace.

As for how firms can best adapt and specifically manage the changes impacting the profession the most, Melancon advised that “the evolution of CPA core services is a must in order to keep position of trust relevant in a changing world.”

It has been hammered on accountants time and time again that simply providing compliance services may not be enough to sustain their relevancy to clients. But what tools are they given outside of trying out new products that will, in theory, help expand their service offering and “evolve,” as Melancon noted? This is likely where so-called “soft skills” or “success skills,” as some are calling it here at the conference, comes into play.

Author, speaker, and CPA Bill Reeb of the Succession Institute regularly works with accountants on the aforementioned skills and took the time to address attendees in a keynote here at the event. He touted CPAs as “natural overachievers” who often can’t get out of their own way and, ultimately, “get stuck.”

“Common wisdom is to develop your strengths and surround yourself with people whose strengths are your weaknesses,” said Reeb. “You can’t go through an evaluation of things you do when you are frustrated. As soon as you think I should be further along or I’m failing, that’s when you get stuck.”

Reeb went on to note that accountants need to take the time to understand what they are trying to achieve, and more importantly, if they do decide to make changes in their firm, to be realistic regarding expectations.

“If you are not failing at the things you try, you aren’t getting better,” said Reeb. “There will never be a ‘right time’ to make the changes you need for your firm.”

Useful sound bites aside, the fact still stands that no one in the profession is coming to a conference to say the same. In the same right, accountants don’t necessarily want to be constantly told “to change.” They want to know how and, moreover, how to manage that change. This again was a major theme here at the conference and I suspect at more to come.

As ever, your thoughts on the issue are what matter most.