Cloud Computing 101

Source: The CPA Journal

In this article, the authors provide a useful overview of cloud computing, its advantages and disadvantages, and its impact on accounting firms and their clients. Essentially, cloud computing means “providing large-scale computing resources over the Internet.” It can be broken down into three general categories: Data storage, infrastructure/platform, and application software.

Small companies generally benefit the most from cloud computing, which offers reduction or elimination of capital investments in IT, lower IT labor costs, and scalability. Potential drawbacks include concerns about Internet reliability, data security, data and application ownership, and vendor financial stability.

To assist clients that are exploring cloud computing, it's important for CPA firms to understand its impact on business and its relationship with internal controls and the auditing process. Cloud computing providers are service organizations subject to Statement on Auditing Standards (SAS) 70, which will be superseded next year by Statement on Standards for Attestation Engagements (SSAE) 16.

Firms should educate their clients about the different types of audits of service providers and on the difference between obtaining an audit certificate and a detailed audit report. The former may not be sufficient to understand the provider's internal controls and the level of risk presented by the arrangement. “Control weaknesses in the infrastructure pose threats not only to IT itself,” the authors point out, “but also to the business processes running on the infrastructure. A control weakness in the IT infrastructure may cascade into many other business processes.”

To help clients minimize the risks associated with cloud computing, CPAs should take an active role.

For the complete article, read “Cloud Computing, Accounting, Auditing, and Beyond” on page 66 of the October 2010 issue.

From The CPA Journal, A Publication of the New York State Society of CPAs, October 2010.