Risk management is a critical aspect of any successful business, and organizations of all sizes strive to identify, evaluate, and mitigate potential risks that could impact their financial stability, operations, and reputation. Accountants possess a unique set of skills and knowledge that enables them to assist businesses in effectively managing risks and ensuring their long-term sustainability.
Risk management strategy is aimed at keeping the losses to a minimum during the occurrence of any unfortunate event. As a businessman, implementing a dedicated strategy for the accounting department is a necessity simply because certain eventualities are beyond anyone’s control and accounting operations are generally indispensable.
In the recent years, the dependency of accounting on technology has escalated rapidly, to great heights. From tracking of transactions to authenticated auditing, almost every accounting task requires less human involvement due to growing aids from the numerous IT solutions available nowadays.
Therefore, borrowing a risk management strategy from modern IT technology can be a fitting and reliable solution. Cloud computing, which is controlling most of the business operations today, is aggressively providing solutions for various IT needs and has the potential of being a fail-safe backup plan in case of any disruption in local services.
What is the Role of the Accountancy Profession In Terms of Managing Risk?
The accountancy profession plays a vital role in managing risk by providing expertise in financial analysis, internal controls, compliance, and strategic decision-making. Accountants help businesses identify, assess, and mitigate risks, ensuring financial stability and sustainable growth.
How Are Accounting and Risk Management Connected?
Accounting and risk management are closely interconnected as accounting provides the foundation for effective risk management. Accounting systems generate crucial financial information that helps identify, assess, and manage risks. Accurate and reliable financial data enables informed decision-making, supports risk analysis, and facilitates the implementation of risk mitigation strategies.
Additionally, accounting frameworks and reporting standards provide guidelines for disclosing risk-related information, ensuring transparency and accountability in risk management practices. In summary, accounting and risk management work hand in hand to provide businesses with the necessary tools and insights to effectively navigate and mitigate risks.
What Risks Should Accountants Be Wary Of?
Accounting professionals do not rely on mere statements and often require factual backing to make their decisions. To analyze the reasons that make the cloud, the first choice of risk management strategy for accounting professionals, let’s first consider the accountant-specific risks that can hamper your business performance.
1. Data Loss or Theft
Technical glitches, nefarious minds, accidental deletions, etc. are some of the reasons that can cause loss of entire data of an accountant within seconds. And what could be worse than losing client’s accounting data is theft or letting an unwanted party gain access to it.
Such situations can easily turn into a dead-end. Manually performed data backup is a solution that most users prefer in this case. However, the time spent on it will be hampering performance in a big way.
DATA SOURCE: Data Health Check 2015 | Databarracks
2. Device Disruption
You can again blame technical glitches for this. Apart from that, there is the possibility of any unfortunate turn of events (natural or man-made) that may damage the local device. In such cases, not only is the data lost, but the entire working ability of the accountant is disrupted.
3. Structural Restriction
There are a number of reasons for which an accountant collaborates with clients, assistant, colleagues, interns, etc. Most of them rely on a well-defined structural network to work with different users. With time, when the existing users leave and the new users join in, the network may get stuck in a snag which will also affect the accountant’s operating abilities.
4. Wrong Communication with the Client
Clear and efficient communication with the client is an irreplaceable requisite for professional success. As an accountant, wrong communication with the client can lead to extreme consequences for the client’s business, which may eventually lead to similar consequences for the accountant as well.
5. Technologies Turning Outdated
It is probably as certain as death! Machines, software, networking topology, and all other technical solutions that an accountant is relying on is going to be outdated someday. Such situations will not only lower your performance but may also make clients switch to someone else.
6. Missing Deadlines and Target
Time is swift during the tax season; deadlines arrive faster than what it seemed when accountant picked a project. Moreover, meeting the promised tax saving target is an additional stress. All this could lead to mayhem at the accountant’s end. Not living up to the words, is one of the main reasons why clients leave CPAs.
How Cloud Is Important in Risk Management for Accountants?
1. Data Protection
Choose a reliable cloud hosting provider, where your data is backed up and mirrored safely so that you can always have the data available all the time. Talking of data protection, encryption is one of the most trusted ways to keep the data safe from theft.
Other security measures such as – hardware firewalls, TFA, threat detection systems, threat protection systems, etc. deployed by the hosting providers construct a safe data storage environment for accounting professionals.
2. Device Independence
Cloud operations are independent of the local device. Accessibility on the cloud is established using an internet connection and secure login credentials. This means even if the accountant’s workstation has turned to ashes, they can still access the data and application from any other internet connected device, irrespective of its portability, OS, and other such factors.
So, the cloud not only gifts accountants with device independence but also lets them work from anywhere with a laptop or a smartphone i.e. the accountant can keep on working even when the IT infrastructure has taken a beating.
3. Flexible and Adjustable Structure
Hardware independence, as mentioned above, allows different users to work from a virtual location and without being physically present at the office. It also facilitates the different users (like – clients, accountants, assistants, etc.) to work together on the same accounting file from different locations, simultaneously.
Depending on the choice of application and hosting provider, one can add any number of users. There is no geographical restriction. Plus, access permissions to sensitive data on the cloud can be edited with just a few clicks. All in all, cloud accounting ensures that you have a flexible setup that can be adjusted at will.
4. Better Collaboration With Client
Unlike the traditional file sharing methods where numerous email exchanges take place, the cloud lets client and accountant work on the same platform simultaneously, with the ability to track and retract any changes made. So the complications of file-sharing are well handled and confusions with multiple versions of the same file are eliminated.
Along with the real-time collaboration, you can get unified communication solutions to communicate while working. All this escalates the client-accountant communication to a whole new level.
5. Latest Technology – Always
Cloud services update automatically without any noticeable disruption in services. Moreover, since there is no hardware restriction, you can easily change the resources (server OS, RAM, etc.), which means ‘outdated technology’ does not exist at all.
Given that 90% of all business have “cloud first” strategy, the cloud is set to take the center-stage in the coming time and stats are almost similar with the accounting apps. Being on the cloud is your best bet to remain in sync with the latest technology trends.
6. Better Scheduling & Assigning Tasks
Accounting applications on the cloud are easier to integrate with other task management applications, such as – CRMs, ERPs, task schedulers, reminders, etc. Moreover, it offers updated reports to keep a track on the resource performance.
This convenience, added with the feasibility of working from anywhere and anytime, scales up the chances of growing on the performance metrics and meeting the set targets easily. Eventually, the accountant is able to deliver what they promised to the client and maintain a better client retention rate.
It’s almost impossible to get rid of almost every challenge and risk in one go. But, by deploying some smart solutions you can mitigate them considerably. Cloud computing is certainly a dependable solution for the accounting professionals in many ways, as mentioned above.
Loss of local infrastructure and software glitches are the top risks that can bring down operations at the accountant’s end. Cloud Computing is able to overcome these issues and reinstate operations within minutes or even seconds.
All these benefits come without any compromise on the performance, which makes the cloud a definite favorite for risk management strategy.
Q: What is risk management in the context of accounting and CPA?
Risk management in accounting and CPA refers to the process of identifying, evaluating, and addressing potential risks that can impact an organization’s financial stability, compliance with regulations, and achievement of objectives. It involves assessing risks, implementing control measures, and monitoring their effectiveness.
Q: How do accountants and CPAs identify risks?
Accountants and CPAs identify risks through a combination of methods, such as reviewing financial statements, conducting internal audits, analyzing market trends, evaluating operational processes, and assessing compliance with laws and regulations. They also rely on their expertise and industry knowledge to identify potential risks specific to the organization.
Q: What are the common types of risks accountants and CPAs deal with?
Accountants and CPAs typically deal with various types of risks, including financial risks (such as credit risk, market risk, or liquidity risk), operational risks (such as inefficient processes or system failures), regulatory risks (such as non-compliance with tax laws or accounting standards), and reputational risks (such as damage to the organization’s image or brand).
Q: What role do accountants and CPAs play in mitigating risks?
Accountants and CPAs contribute to risk mitigation by implementing control procedures and recommending risk mitigation strategies to management. They may design and implement internal control systems, perform compliance audits, develop risk management frameworks, and provide guidance on best practices to reduce risks and improve organizational performance.
Q: How do accountants and CPAs monitor risk management activities?
Accountants and CPAs continuously monitor risk management activities by regularly reviewing and evaluating the effectiveness of control measures and risk mitigation strategies. They may perform internal audits, conduct periodic risk assessments, analyze financial reports, and stay updated with changes in accounting standards and regulatory requirements to ensure ongoing risk management compliance.