Cloud Accounting – Part 2

… Transcending from the brick and mortar era, the Act in its newest avatar gives cognizance to the changed situation. …

Let me now wear the professional hat and see how the Regulators (Ministry of Company Affairs – MCA) deals with this change — the way books of accounts of a Limited Company in India is now starting to be kept in the cloud.

In the erstwhile 1956 Companies Act, Sec 209 (1) required a company to keep  their Books of account at its registered office with respect to:

  • (a)all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place;
  • (b) all sales and purchases of goods by the company;
  • (c) the assets and liabilities of the company.

Transcending from the brick and mortar era, the Act in its newest avatar gives cognizance to the changed situation.

Sec 128 of Companies Act 2013 provides that the company may keep such books of account or other relevant papers in the electronic mode in such manner as prescribed by the Rules.

And as per Rules of Chapter IX notified in this regard a company is required to intimate to the Registrar on an annual basis at the time of filing of financial statement-

  • (a) the name of the service provider;
  • (b) the internet protocol address of service provider;
  • (c) the location of the service provider (wherever applicable);
  • (d) where the books of account and other books and papers are maintained on the cloud, such address as provided by the service provider.

For the purposes of this rule, the expression “electronic mode” includes

  • “electronic form” ( as defined in clause (r) of sub-section (1) of section 2 of Information Technology Act 2000 (21 of 2000) (“electronic form”, with reference to information, means any information generated, sent, received or stored in media, magnetic, optical, computer memory, micro film, computer generated micro fiche or similar device; ) and also
  • includes an electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000).( “electronic record” means data, record or data generated, image or sound stored, received or sent in an electronic form or micro film or computer generated micro fiche”) and
  • “books of account ” shall have the meaning assigned to it under the Act. Thus it is required to mention these technical details at the time of filing annual books of accounts with Registrar Of Companies.

What the regulators want is ease of access to the records by the MCA, Audit Committee and the Board as and when required by defining the manner of books of account to be kept in electronic mode.-

  • (1)  The books of account and other relevant books and papers maintained in electronic mode shall remain accessible in India so as to be usable for subsequent reference.
  • (2) The books of account and other relevant books and papers referred to  in sub-rule (1) shall be retained completely in the format in which they  were originally generated, sent or received, or in a format which shall  present accurately the information generated, sent or received and the  information contained in the electronic records shall remain complete and  unaltered.
  • (3) The information received from branch offices shall not be altered and shall be kept in a manner where it shall depict what was originally received from the branches.
  • (4) The information in the electronic record of the document shall be capable of being displayed in a legible form.
  •   (5) There shall be a proper system for storage, retrieval, display or  printout of the electronic records as the Audit Committee, if any, or the Board may deem appropriate and such records shall not be disposed of or  rendered unusable, unless permitted by law: Provided that the back-up of the books of account and other books and  papers of the company maintained in electronic mode, including at a place  outside India, if any, shall be kept on servers physically located in India on  a periodic basis.
  • (6) The company shall intimate to the Registrar on an annual basis at the time of filing of financial statement-
    • (a) the name of the service provider;
    • (b) the internet protocol address of service provider;
    • (c) the location of the service provider (wherever applicable);
    • (d) where the books of account and other books and papers are maintained on the cloud, such address as provided by the service provider.

 

It has now become clear, that so long as the Company ensures proper reporting of IP address to MCA, we accountants can definitely reap the benefits of cloud accounting. It will be mandatory for us to get a formal communication regarding the IP address from the service provider of cloud accounting software.

I welcome you to the world of ‘cloud accounting’ and open up the platform for conversations on the subject.

P.S.   Luca .. are you listening!

Anjan Sen
CA, Proprietor
A.Sen & Co.

Cloud Accounting – Part 1

It was some 600 years ago that Luca de Pacioli (he is to accounting what Thomas Alva Edison is to the world of electricity) published his work on the double entry system of accounting …

It was some 600 years ago that Luca de Pacioli (he is to accounting what Thomas Alva Edison is to the world of electricity) published his work on the double entry system of accounting – it is he who gave us the two words Debit and Credit. Little did he anticipate that the tenets of his publication would remain unchanged even after 6 centuries; especially with the advent of new technology each day.

Every transaction has 2 facets i.e. double entry, debit and equivalent credit. Arithmetically debit = credit and hence like a 2 person zero sum game their summation has to be always 0. This formed the basis of writing the fundamental accounting application program and of the host of accounting software that has come up worldwide today.

Technology has contributed greatly to simplify how we do trade and commerce – a la e-commerce. It has also changed the way businesses functions internally. It has brought in controls in the business processes; has resulted in great savings of time and has improved the administration of business itself, greatly.

Accounting being the guardian cog in the wheel of business, accountants around the world have adopted the latest technology of their age – from the humble standalone accounting package, to — as it stands today – a part of the Enterprise Resource Planning package based on the power of the internet.

Internet has changed the way we do accounting too; all thanks to ‘cloud computing’. Now what is this animal on the prowl?

To borrow from Wikipedia Cloud computing involves deploying groups of remote servers and software networks that allow centralized data storage and online access to computer services or resources. Simply put, it is the delivery of on-demand computing resources—everything from applications to data centers—over the Internet on a pay-for-use basis.

Now, businesses are increasingly relying on remotely maintained hardware and software, accessed through the internet or intranets in a virtual setting that has been collectively dubbed “The Cloud.” Instead of buying or leasing software and investing in the hardware on which the programs would run, businesses are increasingly adopting software as a service (SAAS) models. In the SAAS model, capital investment in hardware is reduced because the performance demands on the user’s machine are much reduced, as is the need to constantly update software versions on that hardware. A large corporation that sought in the past to manage data and reporting across global geographies no longer needs to maintain its own server farms and enterprise software packages, instead giving its employees access to such functionality from anywhere a secure web access is available.

I am no IT person to probe into the ‘bits and bytes’ of cloud computing . Did you know online banking is nothing but ‘banking on the cloud’? Did you know you purchased your favorite book online by ‘shopping on the cloud’? Ever used Google Docs to create documents or Dropbox to save / share files? Yes, it is true – we have all been on the cloud long before we knew what it was.

Now then… when the entire world, powered by ‘cloud’, is moving this fast can we accountants stay far behind?

Absolutely not!

Accounting on the cloud’ has brought the tremendous benefit of – “anytime, anywhere”. The financial position of your business is now only a ‘fingertip’ away. Entrepreneurs no longer have to wait long hours to get those numbers before a critical business decisions. You can work from the comfort of your home and yet stay in control of your business. What’s more; your data has never been this secure. You no longer have to worry about your computers crashing or data being lost to virus attacks. It’s all safe – up in the cloud – protected by the best data security applications one can imagine. No one can access your data but you.

Accounting on the cloud is a relatively new phenomenon in India. That said, there are plenty of accountants and Small Business Owners who are reaping the benefits of having taken the first headlong plunge. While we do concede that much needs to be done before cloud accounting fits well into the relatively complex Indian business scenario, we are sure that the future lies here.

In the days to come, accounting on the cloud may well be a robust alternative to traditional accounting systems. It has the potential to put a smile on the face of its sternest critics.

I welcome you to the world of ‘cloud accounting’ and open up the platform for conversations on the subject.

P.S.   Luca .. are you listening !
Anjan Sen
CA, Proprietor
A.Sen & Co.