Cloud accounting is a delivery model rather than a category of software. The general ledger and the records it holds run as a hosted service on the vendor’s infrastructure, reached through a browser or an app, and served to many customers from one pooled set of resources rather than installed once per firm. The alternative is a locally installed program whose company file sits on a machine or a server the firm or its client owns. The bookkeeping itself is unchanged. What moves is who runs the software, who decides when it updates, and whose premises the records sit on.
What Makes a Ledger Cloud and Not Just Online
Being reachable over the internet is not the test. The National Institute of Standards and Technology defines cloud computing as a model for enabling on-demand network access to a shared pool of configurable computing resources that can be rapidly provisioned and released with minimal management effort or service provider interaction. That model is composed of five essential characteristics, and the standard does not name any one of them as the dividing line. The one that describes how a hosted ledger is sold is resource pooling: the provider’s computing resources are pooled to serve multiple consumers using a multi-tenant model, with different physical and virtual resources dynamically assigned and reassigned according to consumer demand (NIST Special Publication 800-145, The NIST Definition of Cloud Computing). Multi-tenant is the term of art for that arrangement: one running service, many customers, no installation of your own.
A ledger delivered that way is software as a service: the consumer uses the provider’s applications running on a cloud infrastructure and does not manage or control the underlying cloud infrastructure, or even individual application capabilities, with the possible exception of limited user-specific application configuration settings (NIST Special Publication 800-145).
What Hosting Changes Inside a Firm
The practical differences all follow from where the software runs, not from any product’s feature list.
One live ledger replaces a file that gets passed around. Because the application and the data both sit on the vendor’s infrastructure and are reached over the network, a preparer, a reviewer and the client work on the same records rather than on copies that have to be reconciled later. Who may hold a sign-in, how many of them there can be, and whose subscription grants access all stay product-by-product questions, worked through for the two ledgers a firm most often inherits in QuickBooks vs Xero and for access ownership in whose account each outsourced bookkeeping tool sits in.
The release calendar belongs to the vendor. A firm cannot hold a hosted ledger on last season’s version the way it can postpone a desktop upgrade until after the filing deadline, because the application it works in is not the one it installed.
The records end up somewhere the firm does not own, and often somewhere it cannot name. The same definition describes a sense of location independence, in that the customer generally has no control or knowledge over the exact location of the provided resources but may be able to specify location at a higher level of abstraction such as a country, a state or a datacenter (NIST Special Publication 800-145).
Which side of the subscription your firm sits on also decides an independence question where the firm does attest work for the client, meaning an audit, a review or another attestation engagement. The AICPA’s hosting services interpretation treats acting as the sole host of an attest client’s information system as a nonattest service that impairs independence outright, with no safeguard able to cure it, while an arrangement in which the client contracts with a third-party provider for its cloud software and grants the firm access to do the work is not a hosting service at all. Both halves are read out in best accounting software for CPA firms.
Where the Records Duty Lands
Hosting moves none of the recordkeeping duty. The Internal Revenue Code requirement to keep books, and the Treasury regulation that names the permanent books of account, are set out in bookkeeping, and neither one turns on whose hardware the records sit on.
One IRS procedure does speak to books kept on someone else’s system, and its scope is narrower than the phrase suggests. An electronic storage system is a system to prepare, record, transfer, index, store, preserve, retrieve, and reproduce books and records by either electronically imaging hardcopy documents to an electronic storage media, or transferring computerized books and records to an electronic storage media using a technique that allows them to be viewed or reproduced without the use of the original program, in section 3 at .01 (IRS, Rev. Proc. 97-22).
A live hosted ledger holding the original entries is not that arrangement on its own. A firm that images its source documents into a hosted store is squarely inside it, and what that storage system then has to do, including the rule that using a third party does not relieve the taxpayer, is worked through in invoice processing automation.
Hosting also brings security duties the definition itself says nothing about. The FTC Safeguards Rule and the written plan it requires are covered in cybersecurity for CPA firms, and how to read a vendor’s actual report instead of its badge is in SOC 1 vs SOC 2 and is outsourcing accounting safe.
Cloud Accounting Versus Hosted Desktop Software
Cloud accounting and a hosted desktop deployment are reached the same way and are not the same shape. A hosted or remote-desktop deployment is an installed desktop program running on a machine somewhere else, opened over a remote session: there is still a company file, and still an installed copy that somebody has to keep on a supported release.
A third shape sits between the two. Sage 50 Remote Data Access shares a Sage 50 company so another person can open it, and for simultaneous multi-user access Sage lists the currently supported release of Sage 50 installed on your computer among the requirements (Sage, Successfully using Remote Data Access).
The company file is what travels there, while the program stays local on each person’s own machine, and what that arrangement asks of a bookkeeper is worked through in Sage bookkeeping services.
The useful test is not whether you can get to it from home, because all three pass that. It is whether a new preparer can be admitted by invitation with nothing installed, and removed the same way.
Questions Firms Ask About Cloud Accounting
The same work an accountant does anywhere. The phrase describes how the client’s ledger is delivered rather than a credential or a scope of practice, and the work a CPA license actually reserves is set out in CPA vs enrolled agent. Because the ledger is reachable at any point in the month rather than only when a file is handed over, the work can lean toward review and exception handling through the month instead of a reconstruction at the end of it.
The delivery model does not answer that question. Which ledger, tax suite, document store and portal a firm should buy runs off its client mix, and off rules that narrow the field before any feature does, which is the subject of best accounting software for CPA firms.
If your firm’s client ledgers are already hosted and the constraint is reviewer time rather than access, a trial task puts a block of your own work through Accountably’s review chain before anything is riding on it.
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