Why accounting matters to your cloud computing plans

New accounting rules may not be on the cloud deployer’s Top 10 list these days, but they mean more than you think

Why accounting matters to your cloud computing plans
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Where do I get my cloud news? It’s almost never CPA Journal. But, more and more, accounting is becoming a larger part of cloud computing—no matter what side of the cloud you’re sitting on. 

On the enterprise side, it’s a matter of taxes to be paid. While you can typically find 30 to 40 percent better operational cost utilization when using cloud computing, that savings may be diluted by the fact that you’re giving up depreciation on hardware in the datacenter.

So, while cloud computing can save you millions of dollars a year, it may actually cost you money, at least in the short term. That’s something that I’ve run into from time to time with clients over the years.

At issue is that you need to consider net savings. That mean looking for the all-in cost of the cloud, including dealing with tax and other accounting implications.

Although cloud computing is typically a superior model, walking away from traditional hardware and software has a cost as well. Indeed, in a few cases I’ve found that a cloud computing solution that will save $10 million a year actually will cost $15 million considering the impact of taxes. The gross savings made sense for cloud, but the net savings did not.

So, how are cloud geeks supposed to deal with these accounting issues? By using business analysts to work up cloud ROI models. It’s not uncommon for these business analysts to be CPAs.

Even more complex is the fact that most companies are multinational these days, and so you to figure out not only the net cost impact for a single country, but for dozens of countries that have some pretty odd laws when it comes to accounting, especially tax issues. At this point, the ROI models become pretty complex.

But you don’t have to cede everything to the CPAs and lawyers. The good news is that current IT cost-governance tools for cloud computing do indeed consider other net cost issues. So you’ll actually see a truer cost of using a cloud service, versus just the cost of the cloud services—and for the operational life, not just the upfront ROI analysis.

Although it adds complexity to the cloud migration path, accounting is just a fact of life in business.

Who knows? Perhaps one day we’ll see this as a specialty in accounting. (Umm, I hope not!)