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9am lowdown: Xero accused of muscling in on auditors

25th Aug 2015
Practice Editor AccountingWEB
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AccountingWEB

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Xero accused of muscling in on auditors

Xero CEO Rod Drury stoked controversy after he said the integrity of cloud-based software is fast reaching a level where it could be used to “provide assurance” of the integrity of clients’ data.

“We are pro-auditors,” said Drury. “But a lot of things [auditors] spend weeks and weeks checking we can do automatically in cloud accounting,” he said.

Drury suggested rather than getting accounts audited to secure a bank loan; accountants could use Xero's new “assurance dashboard” and model of “continuous certification” to increase SMEs access to capital.

Drury has reeled back his enthusiasm a little after his comments drew concerned feedback from auditors. “It shows a complete misunderstanding of what the audit process involves,” said Leanne Smith, an audit partner at Australian accounting firm Intentus.

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Deloitte partners share £593m profit pool

Partners at Deloitte will share a profit pool of £593m after a surge in revenues from its consultancy business.

The profits mean that 721 partners will receive an average payout of £822,000, up almost 10% from £750,000 last year. The increase in profits was driven by a 10.5% rise in consulting revenues, with the group’s core auditing practice growing by just 0.3%.

It is the first time in three years that Deloitte partners have enjoyed an increase in the payout

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Five arrested for £1m tax evasion

Five men have been arrested in North London, on suspicion of smuggling, after an operation by HMRC to tackle an estimated £1 million tax fraud.

The men were caught unloading suspected illegal cigarettes from a vehicle at an industrial unit in the Tottenham area.

In total, HMRC officers seized 3,500,000 cigarettes and over 150,000 cans of beer and cider from the industrial units. During searches of the men’s homes and vehicles officers seized £40,000 in cash.

Anthony Swarbrick, HMRC assistant director fraud Investigation Service, said: “The criminals behind the illicit trade in alcohol and tobacco effectively steal over £3.2 billion a year from the taxpayer.” 

Replies (23)

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By Bob Harper
25th Aug 2015 10:01

Love it
Nice - build in lender alters based on the budget compared to actual results - far better than waiting months after a year end.

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By Old Greying Accountant
25th Aug 2015 15:16

Just goes to show ...

... what a bunch of idiots Xero are, as Leanne Smith points out.

Checking the accuracy and integrity of financial data is only a small part of a modern audit.

The main thrust of an audit is risk and threat management.

It doesn't matter a fig to lenders that the accounts balance, what matters is whether the business is viable - the accounts are just a small part of that analysis.

Most big auditors working for big companies use software to check systems and integrity and have done for years.

Anyway, cloud systems don't do anything different to desk based systems, the difference is in access not method surely?

 

 

 

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By DMcIver
25th Aug 2015 15:40

Over-egging the "cloud" again!

“But a lot of things [auditors] spend weeks and weeks checking we can do automatically in cloud accounting,”

This guy has no idea what auditors do! How can you just expect the "cloud" to do it for you? It's a piece of book-keeping software! Big expensive bespoke ERP systems produce figures that need to be checked. Ever heard of a systems control test?

What on earth makes you think that your £20 per month package produces 100% accurate reports? It doesn't! It doesn't feed accounting policies through from the FRC and apply them automatically - decide on appropriate treatment that's correct! It still requires human decision input - which as we all know - can be misleading and just plain wrong at times! 

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By mrme89
25th Aug 2015 16:35

Arrogance

Xero is just another Sage.

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By mabzden
25th Aug 2015 17:16

God Bless Xero

Once again they save the world from pesky accountants using their online system that adds up the numbers people put into it.

Thanks guys.

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By garyturner
26th Aug 2015 10:54

Some balance

You can't blame journalists for making mischief by stoking the fires of a theoretical conflict, but we are definitely not suggesting that can or should be 'muscling in on auditors'.

The point that's being missed is that for small and micro-businesses, the vast majority of which sit well beneath any kind of standard audit threshold in any event, the fact that - in future - a small business that utilises online accounting software along with certifiably secure transaction services such as direct bank feeds, online connections with HMRC and other proven financial systems, then the integrity of their financial records will be markedly superior to a business that runs out of a shoe box, particularly when it comes to trying to obtain capital or lines of credit.

Gary Turner
Managing Director, Xero
@garyturner

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By exceljockey
26th Aug 2015 11:04

I like Xero but

I use Xero for all my clients and I also dabble with ReceiptBank and CrunchBoards. I like cloud accounting because it gives me flexibility. It is not the solution for everyone but it is for me and my clients.

However, I do have an uneasy feeling that us accountants are the pawns in our own demise. As bookkeeping and compliance are automated, Xero et al say we must add more value to our clients. Fine, but how long before intelligent software takes even that away from us (or auditors)? As 'big data' grows, software will be able add 95% of the value we provide clients, the remaining 5% being, being able to pat the client on the back and say everything will be OK.

I recently told my account manager at one of my cloud accounting software providers (I wont say which) that I wasn't their salesman, I had spoken to my client about their software and the client didn't want to use it, period. He couldn't get it and got frustrated with me because I wouldn't push his product. And for me it was a real eye opener on how the cloud solution providers see us accountants.

Business development takes a huge amount of energy (well for me it does) and I am wondering whether spending my most productive years building something (a cloud based accounting practice) that is ultimately leading to its own demise, is worth it.

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By Sheepy306
26th Aug 2015 11:08

So are you suggesting Gary that a finance company will be more willing to lend to a company or sole trader purely because they use Xero and bank feeds? The final outcome of the set of accounts, whether it's a shoe box or using Xero, should be the same,

Infact it could be argued that the shoe box client will provide a higher quality of accounts because they would have instructed an accountant to prepare them, whereas a Xero user 'may' have tried to finalise the accounts themselves having relied on bank feeds and automation.

Just to clarify, who is it that is 'missing the point'? Is it Richard, Drury, Leanne Smith or Aweb users?

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By Bob Harper
26th Aug 2015 11:19

Excel

@Sheepy - no, most businesses will retain an accountant - they would just spend less time/money on bookkeeping/accounting

@ExcelJockey - Agree, the Internet is going to change the profession. 

Give Xero credit, they have:

Stated outright that they are disruptiveAre supporting accountants through the change

I wonder what you think of these options:

Hang on and hope the change is small and slowSell up now (while you have practice value) and start again with a new modelSet up a separate brand and attack yourself and every other firm

Bob Harper

Crunchers and the MORE network

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By Sheepy306
26th Aug 2015 12:23

Bob - are we agreeing? (on one thing)

Bob Harper wrote:

@Sheepy - no, most businesses will retain an accountant - they would just spend less time/money on bookkeeping/accounting

@ExcelJockey - Agree, the Internet is going to change the profession. 

Give Xero credit, they have:

Stated outright that they are disruptiveAre supporting accountants through the change

I wonder what you think of these options:

Hang on and hope the change is small and slowSell up now (while you have practice value) and start again with a new modelSet up a separate brand and attack yourself and every other firm

Bob Harper

Crunchers and the MORE network

So if most businesses will retain an accountant then integrity of financial records, certifiably secure transactions, HMRC connections, proven financial systems etc etc has nothing to do with it, it's purely a time-saving matter which as a result may lead to a cost-saving in accountants fees. You say "no" to me but actually you seem to agree with me in that the end result will be the same in terms of quality of records, because they use an accountant.

I'm happy to give Xero credit, they've produced a very neat bit of software, their marketing department is very active, and Gary is very quick to respond on Aweb, I have a couple of clients that use Xero and if I didn't prefer QuickBooks Online (and if QBO wasn't cheaper) then I would have a number of other clients using it too. My eyes are open however to the fact that for a lot of clients the simplicity of Excel spreadsheets and the speed of VT Cashbook etc is far more suited to their needs and gives me (as an accountant) everything that I need, it just doesn't look as pretty.

I slightly disagree with the notion that 'Xero are supporting accountants through the change', Xero make a lot of money by getting accountants to promote their product, it's not entirely altruistic.

I'm not entirely fussed about either of your 3 scare-mongering options, I already use the Cloud, I love technology (I have the receipts to prove it!), I provide value added services to those clients that require it or are happy to pay for it, I provide basic compliance services to others, I make decent money, I'd even suggest that after 3 years I'm "comfortable", but certainly not complacent. I am a realist though, and like the majority of other Aweb members on here, I generally know what I'm doing (commercially and technically), have my eyes open to opportunities and threats, and I act upon them (but in a considered way, not a knee-jerk reaction to media hype).You've rather assumed that this isn't happening within any other practice.

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By mabzden
27th Aug 2015 13:41

Disruptive yes - but mainly in their own heads

Bob Harper wrote:

Give Xero credit, they have:

Stated outright that they are disruptive

As it happens I don't think Xero is disruptive. It gives business owners a new option for entering and organising their bookkeeping data, and the fact it's online makes it easy for the business owner and accountant to share access to the data. This is a good thing. There might be a few unlucky people out there who's sole job is to enter receipts sent from clients in a shoebox or a carrier bag, and they may be terrified about losing their jobs in a 100%-Xero world. But most accountants despise this type of work and will be delighted if their clients do their own basic bookkeeping.

It's possible Xero believes they're a disruptive technology - but only because they think accountants sit at their desks all day jotting down income and expenses in some huge dusty ledger book, adding up totals with an abacus. If that were the case then, yes, Xero would be a disruptive technology.

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By garyturner
27th Aug 2015 14:55

For the record...

mabzden wrote:

Disruptive yes - but mainly in their own heads

It's possible Xero believes they're a disruptive technology - but only because they think accountants sit at their desks all day jotting down income and expenses in some huge dusty ledger book, adding up totals with an abacus. If that were the case then, yes, Xero would be a disruptive technology.

Actually, while others might choose to describe Xero as being a disruptive technology, we generally tend to avoid that label ourselves. The general theme of technology disruption is broad ranging across many industries these days; Uber, Airbnb etc. and therefore often creeps into conversations like this one, but the common currency of conversation inside Xero tends to orbit around building, creating and adding value - not simply how we can jump on some kind of notional disruption bandwagon. Occasionally that may be the end, but it's certainly not the means.

Gary Turner
Managing Director, Xero
@garyturner

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By exceljockey
28th Aug 2015 12:16

Disruptive yes - not only in their own heads

garyturner wrote:

Actually, while others might choose to describe Xero as being a disruptive technology, we generally tend to avoid that label ourselves. 

Whilst you may not use that term yourselves I do believe you have been disruptive (in a positive sense) otherwise I do not think that you would have had the uptake that you've had. 

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By garyturner
26th Aug 2015 11:40

@Sheepy306

Yes, it's already happening.

MarketInvoice is a good example of a new kind of lender that speeds the alternative finance pathway by sucking data directly out of Xero.

John Stokdyk did an interview with them earlier this year.

Gary Turner
Managing Director, Xero
@garyturner

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By exceljockey
26th Aug 2015 11:41

None of the above

Bob,

Personally I am of the sell up now and leave the industry frame of mind. I just don't see the point of staying in the industry much longer or having it as my main income.

The three biggest risks are:

1. Technological change reducing need for accountants. A lot of clients are not interested in the value add. They are just too small and a lot of them don't want to grow at all. There is a need for value adding accountants but value added services will not sustain us all as compliance dwindles.

2. Flood of new entrants as large companies automate financial function / outsource offshore leaving trained accountants who can't find work and so start accounting businesses. 

3. Legislation changes that will reduce the amount of contractor clients. Whilst i don't market to this group, it is by far the biggest area of my business that has grown via word of mouth. There is little value you can add to compliance services in this area.

It is easy to say I will leave and do something else but a lot harder to do in reality. However possibly the time is now right to honestly assess the future for accountants. I am a huge admirer of what Xero has done to the industry and I don't even think they have fully grasped how quickly this industry will change going forward (maybe they have and just don't want to frighten us).

But I am conscious of the whole boiling frog syndrome. 

 

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By Sheepy306
26th Aug 2015 12:01

Thanks for the quick response Gary, I think your response clarifies it a little in that you say that Xero 'speeds the alternative finance pathway', which is a little different from what I understand previously from your comment.

I've watched the video, from what is said it seems that MarketInvoice just extract the sales invoice directly from the clients Xero, the benefit compared to normal invoice finance (factoring or whatever anyone chooses to call it) is purely the time saving to the client who previously had to upload sales invoice data to the finance company portal manually. Depending on the size of the business, this could be from 1 invoice per month upwards. It's good that Xero have partnered with MarketInvoice and made that time-saving, but it's still just normal invoice finance which has been around for years, so nothing drastically new there.

Laura didn't mention anything about "certifiably secure transaction services such as direct bank feeds, online connections with HMRC and other proven financial systems", or "the integrity of their financial records will be markedly superior to a business that runs out of a shoe box, particularly when it comes to trying to obtain capital or lines of credit", or any words to that effect, admittedly it was a short interview and she was being a little vague on a few subjects. Do MarketInvoice actually interrogate and have access to the clients complete accounts package or is it simply extracting the sales invoice data?

MarketInvoice, I assume, suffer the same risk as any other traditional invoice finance business in that any client can raise a false invoice in order to receive an 'advance' from the finance company on a short-term basis.

Are you able to expand upon how MarketInvoice are different from traditional invoice factoring? I don't have any clients that currently would benefit from invoice finance (and I'm slightly sceptical of that finance anyway in that it's incredibly difficult to get out of once you've adopted it, although it is very good for certain types of client) but it's something that I would bear in mind for future. 

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By Bob Harper
26th Aug 2015 12:08

Light at the end of the tunnel

@ExcelJockey - yes, there is always the option of selling up and doing something else.

You're right there will NOT be enough added value work to sustain everyone so get out quick and establish yourself.

Bob Harper

Crunchers and the MORE network

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By garyturner
26th Aug 2015 12:16

@Sheepy306

It's early days and in relation to the whole continuous certification aspect we are hypothesising about the future direction in response to a question from an Australian journalist about a soon to be released new Xero feature called Assurance Dashboard.

This video recording of the original interview should shed more light.

Apologies for the clipped responses, first day back after two weeks holiday and I'm in mortal combat with my inbox (and losing).

Gary Turner
Managing Director, Xero
@garyturner

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By Sheepy306
26th Aug 2015 13:00

Pushing on

garyturner wrote:

It's early days and in relation to the whole continuous certification aspect we are hypothesising about the future direction in response to a question from an Australian journalist about a soon to be released new Xero feature called Assurance Dashboard.

This video recording of the original interview should shed more light.

Apologies for the clipped responses, first day back after two weeks holiday and I'm in mortal combat with my inbox (and losing).

Gary Turner
Managing Director, Xero
@garyturner

Thanks Gary, interesting video, I like that Xero are pushing ideas forward. It will be interesting to see whether the UK banks are willing to 'partner' and incorporate such features into their online banking and also whether finance companies are willing to accept a 'continuous certification' standard, I'm not sure whether this is a standard that is specific to Xero or whether it's a widely recognised phenomenon. Some consistency from lenders would at least be welcome.

Any idea on timescale, certainly with regards to the assurance dashboard from Xero?

One thing I don't agree with Rod on is that he mentioned that audit work is low margin, personally on the few audits that I undertake I recover my full hourly rate and therefore these represent good fees. The fact that I don't enjoy audit work, that the audit thresholds are increasing, and that I would rather be doing more productive work for the client is probably besides the point! Unfortunately the types of clients that need an audit are very unlikely to use Xero, for example my audit clients are solicitors and charities, Xero don't have a decent solution for either of these sectors at present.

 

PS Welcome back.

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By Bob Harper
26th Aug 2015 21:33

@Sheepy - the percentage of businesses that retain an account will (I believe) be determined by legislation, not technology. 

If HMRC push cash accounting and make it compulsory for micro businesses accountants will really be in trouble. I think there is a good business case for HMRC to simplfy the tax code for micro businesses, so it may happen.

But, regardless of that - accounting fees will be lower and fewer accountants will be needed.

I do accept I could be wrong about all this and/or the timing.

Bob Harper

Crunchers and the MORE network

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By qad999
26th Aug 2015 15:20

grasping at straws

I understand why Xero need to do something ....  they are continuing to hemorrhage cash..

but on that one they are completely out of their depth

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By garyturner
26th Aug 2015 18:51

@qad999
If it would help illuminate the broader point about our losses, when I get the chance I would be happy to write up the fundamentals of our business model and explain the relationship we see between funding short term revenue growth and customer acquisition (which is a loss making activity in the year a customer is acquired) and then the long term value we subsequently obtain from having those customers pay us monthly for many years to come after their acquisition.

Gary Turner
Managing Director, Xero
@garyturner

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By qad999
04th Sep 2015 23:41

remember

garyturner wrote:
If it would help illuminate the broader point about our losses, when I get the chance I would be happy to write up the fundamentals of our business model and explain the relationship we see between funding short term revenue growth and customer acquisition (which is a loss making activity in the year a customer is acquired) and then the long term value we subsequently obtain from having those customers pay us monthly for many years to come after their acquisition. Gary Turner Managing Director, Xero @garyturner

in the long term we are all dead, 

do you think customers are that loyal long term ? what happens to your pricing structure as more providers enter ?

all i see is gross revenue not quite doubling each year , but costs more than doubling

and in qtr 6/15 - all cash inflow from customers being eaten up by just staff costs and marketing , surely it has to turn around soon ?

share price has plumetted from a high of 45 to about 13 last time i looked

looks like shareholders are funding this.. with about 1/3rd of that capital gone due to losses

then again ...who knows

if any of the above is factually incorrect , i am happy to stand corrected, just trying to get a simple overview of things

in my experience if people  try and make things seem too over-complicated ... be wary, ...most things in life are quite simple.. and i am quite happy to be a simple organism

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