How It Works

The popular notion prevalent today is that the idea you could automate workflow is lost because every client is unique in what software, what version, what platform their accounting is on. You have to get their file and by the time you get it in, you are in tax season, so there is not a way to do it. The Journal of Accountancy discussed the problem in the April 2010 issue of their magazine. They cited the experts at the Project Management Institute (PMI) when describing the process ...

“every accounting job is a ‘project’ because it is a temporary effort to create a single, specified, unique result. For CPA's, a ‘unique’ project is one focused on client-specified deliverables, such as a tax return, company audit, or balance sheet. And, because those deliverables are unique to each client, every project is one-of-a-kind, relevant only to that client for their particular purpose. The accounting processes developed to complete any one project are almost always different, even if only slightly, from every other accounting project, so each requires an equally unique approach and process from all other projects, as well.” Journal of Accountancy, April, 2010

BaCoSoft addresses that by looking at the what, the when, and the how we gather the necessary information to assist a client with the preparation of their financial statements, tax returns and projections of taxable income throughout the year.

Every year the typical CPA goes through the same thing for every client. They get emailed excel sheets or pdfs of client trial balances, income statements and balance sheets. Some clients include agings of payables and receivables and the detailed transactions in accounts like fixed assets. Some clients send QuickBooks backups or give us the ability to log in to their online accounting solution or remote access into their server to open their software and export those same reports. Information is typically transferred into excel and that is uploaded to our audit and tax prep software. All of this requires a myriad of different user names, and logins to access the data which differs for every client. Even clients on a platform like QuickBooks all operate on different versions of the software, so a firm must maintain up to a dozen, if not more, versions of QuickBooks so entries can be posted and returned, if a client sends an accountant’s copy of their file. Opening a client file takes time and some clients have dozens of files that need to be opened, exported, and evaluated for prep. All of this takes place in the months of February and March, causing accountants to open, close, update, assess and determine income all in time for the preparation of the tax return. It’s the same thing every year and there is not an end in sight.

Each year every CPA says the same thing, I am going to get ahead of it this year, I am going to be better but then life happens, things we can’t control enter into the flow of data and the annual chaos ensues. We are stunned that clients are always going out of town on deadlines and can’t believe someone would have the gall to have a wedding, the birth of a child during busy season, an illness or heaven forbid, a death in the family during tax season. We have things that pull us away for a couple of days and never catch up. Then normal things like an IRS audit or inquiry, tax notices, disruptions or changes in business plans all come to light during those same couple of months so that promise to get ahead, never happens.

It is often said that insanity is doing the same thing over and over again while expecting different results. That saying is often used when describing someone fighting an addiction or the consequences of a lifetime of crime. We don’t often think of it when it comes to accounting and tax returns, but maybe it’s time to start.

The notion that you can’t automate workflow stems from focusing on the things that are different for every client, not the things that are consistent. It also assumes you can’t do anything about the timing and what you have to do to get this information. Technology has changed those things, clients have applications online and using things like SDKs or APIs, we can access client data without opening accounting software or maintaining dozens of different credentials to get into files.  

That is where BaCoSoft steps in, it changes the what, the when and the how for gathering the information needed to prepare financial statements and tax returns.

The What

BaCo soft changes the “what” from a balance sheet, income statement or trial balance prepared by a variety of different accounting packages to the individual transactions that make up those reports. Journal entries or the entries posted by the different accounting modules are all very consistent. Debits entered increase assets and expenses while decreasing liabilities, equity and revenues. Credits decrease assets and expenses while increasing liabilities, equity and income. The individual transactions are very consistent, the same things happen in every transaction for every client.

The same can be said for where those transactions end up or get summarized, on a client’s audited, reviewed or compiled financial statements and their tax returns. For financial statements, CPAs aggregate their client’s record into lead schedules that tie to the financial statements at year end. The items in the current asset section of financial statements are determined and defined by GAAP, how the balances are displayed or identified on the year end balance sheet may be unique, but by in large, Cash, AR, Prepaids, and Inventory are all current assets on a balance sheet. There are unique circumstances where they may be long term, but that only needs to be identified one time for a client. The same goes for the other major sections of most client’s financial statements, fixed assets, long term assets, current liabilities, long-term liabilities, equity, revenues, expenses and other income and expense.  How clients identify and aggregate the transactions in that section are unique, but once they are identified as belonging to that section, they, typically remain in that section and are consistently identified from year to year. GAAP exists for one reason, to make sure the results of operations are consistently reported, so the users of financial statements are operating from one level playing field. The idea the Journal of Accountancy said each set of financial statements is unique, when they are the group that defines what is and isn’t an accepted accounting principal, challenges their core value and quite simply isn’t true.

From a tax standpoint, certain accounts may include activity that has to be reversed for tax purposes. Reserve for bad debt, prepaids, accrued expenses, accumulated depreciation, accounts receivable, and accounts payable all may include activity that needs to be handled differently at tax time, but the individual transactions inside each of those are the same and once it is determined how a balance in an account impacts taxable income, it is handled the same way every single time.

So BaCoSoft gathers these consistent items from a client file, the individual transactions, and it does the summarizing and reporting for GAAP and tax purposes. Entries are entries and the entries in these accounts are what we need to focus on for proper disposition at the financial statement and tax return.

The How

Instead of waiting on clients to run reports that don’t have the details, BaCoSoft uses SDKs and APIs to gather all the transactions for a client. No longer do we have to rely on multiple logins and versions of software to see the results, but all of our client’s information is aggregated into one platform and the transactions in a client’s file are aggregated and reported inside that platform. The client also has access to the platform, so we are working in synergy with our clients. The same transactions important to us are important to them.

When individual transactions are included in one of these accounts, an alert is created that notifies the preparer that there are transactions in an account that may or may not need his attention. The balance sheet accounts as well things like entertainment, penalties, insurance, gifts, that the expense section of income statement may not be eligible to include as an expense that is deductible for tax purposes. Classification in those categories needs to be examined so both a client and the preparer can learn together what should be recorded where. If a gift is limited to $25, what constitutes a gift? If a client calls it a gift, when we get to an audit, so will an auditor, so teaching a client what a gift is and then notifying them when they use it in a memo or create an entry in that account can be a good thing, so they don’t make incorrect assessments in the future.

Many of you are now saying, that’s great, except now my work has gone up during tax season a ton. I am no longer looking at 50 to 100 account balances, but perhaps thousands of individual transactions that make up those balances and I still have to do it all during February and March. That gets to the final change with BaCoSoft

The When

BaCoSoft gathers the transactions every day, so the day after they are created, the issue is identified and can be resolved.

How can that possibly be effective? That part is the genius behind BaCoSoft, one it gives the accountant one platform to operate under, no longer does he need to log into twenty different packages or websites to get client data that he can’t identify the status for, it’s all on one website. Each client group is represented by a tile and the tile changes colors and bubbles to the top when new transactions are created that need to be addressed. The CPA can dispose of the notification by updating the file with a journal entry, updating depreciation schedules, communicate with the client, update plans and prepare future adjustments, all from that platform, track their time, prepare engagement letters and let you know when a client has not engaged you for the work being performed. Fees can be collected; past due clients can be identified and services can be cut off. You can text, or send an email, from that platform.

The other thing is that the software can be trained, so that transactions that create unique needs for a tax return, can be disposed of during the year and once it is done, the software remembers what was done last time and automatically repeats it going forward. The adjustments are aggregated together for a CPA to review as needed, but not every entry needs to be addressed. Other things like a client put a $10 trash can in fixed assets and their capitalization policy is only assets over $1,000 can be identified and assigned to the client to move, so they learn how to avoid the mistake in the future. If you want to move it yourself, you can post the journal entry from the platform, without opening the client’s accounting file. Your files are aggregated for client approval or can be emailed for them to upload themselves. However, most clients want CPAs to fix the problem.

BaCoSoft then aggregates those transactions to get included on the proper lead schedule or routed to the right line item on a standard tax trial balance, which is set to post directly to a tax return.

An Example

How does that all work, well let’s take prepaid expenses, a current asset on most company books and on audits but for tax purposes those transactions should be expensed when paid if the taxpayer is a cash basis taxpayer. When the first transaction shows up, the software flags the transaction and an interview is conducted to determine what kind of activity makes up that transaction. For financial statement preparation purposes, it can be determined if the balance is material or the transaction is individually significant and then an entry is proposed that would amortize the prepaid over the period in question, automatically. This can be set up and performed from the client side or the CPA side depending on the independence constraints for the engagement or the level of accounting expertise that a client has. The accounting machine asks if the entry should be automated, automates the process and updates the prepaid schedule. These items are transparent to the CPA firm so it can be flagged if the balance is material at year end, or the transaction that created it is individually significant. Inquiries can be made and the prepaid expense section can have a “projected year end balance” that is managed, and able to be audited in the interim section of the audit.

For tax purposes, if the expense side of the entry will be reversed when the tax return is prepared and then, depending on whether the balance sheet is a cash basis balance sheet or an accrual basis balance sheet, the asset is either removed or an entry is made in a special M-1/M-3 section set up in the
equity section of the tax trial balance. So when a prepaid is created, the expense is increased and the asset is disposed of the day after the transaction is reported.

The last question asked is “would you like to repeat this procedure for each transaction in this account going forward?” Clicking “yes” creates a path that will replicate the above procedure each time an entry is made in the future, automatically. So as the entry is amortized, the reversing entry is made each month, exactly like the original entry was handled. The expense increases on the books are decreased for tax purposes and an alert is created if a prepaid expense has a balance or a basis of anything other than zero for a tax basis taxpayer. If the prepaid is recurring, the following year BaCoSoft will set off an alert if a new “insurance prepaid” is not in place or it will look for unusually high numbers in an expense.

 You saw we have a patent pending somewhere and are asking what a CPA firm could have a patent pending for. Well good news, we have a patent pending FAQ ...

 What will our patented technology do?

It will leverage technology to eliminate overtime by providing a seamless integration of our clients’ accounting system into our workflow.

 I assume everyone has to change to the same software..

 It’s an integration of our clients accounting system into our workflow, so no … it works regardless of the software a client is on, currently integrated with QuickBooks Desktop, QuickBooks OnLine, and working on integration with NetSuite and Microsoft NAV. It also works regardless of what tax or audit software we choose, it’s middleware and it’s new, so you don’t have to replace anything.

 Currently working? Does that mean you are using it?

Yes, we went live in April, our first client on the platform asked that we add his entire staff because closing with our platform was easier for everyone than logging in and out of 6 different QuickBooks files.

 Wait, your client logs in? How does that work, what does a client get out of the platform?

First and foremost, a CPA on the same page as they are, working on the same page, looking at this year’s data, not last year’s data. It will change our role from a referee that comes in after the play and penalizes you for what you did wrong to something like an offensive line coach, helping develop strategies that open holes and protects our clients from some of the things that seem to come at clients like a blitz. Not a head coach, GM or coordinator, we don’t pretend to know enough about client’s business to run it, but we can help protect them from what we do know. It also gives our clients

•  online consolidated financial statements with drill down detail
•  automated tax forecasting
•  auto distribution of reports at close
•  restricted access to open periods for financial users
•  Up to the minute updates for depreciation changes, etc

 That sounds like more work, not less, how will you eliminate overtime with more work?

 It’s when we do it, right now, not right before the deadline.

•  We can make adjustments from the website to the client file if we want, it’s integrated in with our engagement letter and will produce a rep letter that includes our adjustments and changes with a summary effect of the changes and then complete detail, so we can get rep letter signed and stay independent if necessary.
•  Proposed changes can be proposed, so client approves before posting, or you can make them yourself, without opening their accounting software, by clicking an approve button
•  No logging on to different sites, getting backups, different versions, wrong data in excel, or a pdf. It’s the information we need, integrated into our workflow, for all of our clients on one website.
•  Smart notifications, that instruct, for things that need our attention or impact the tax return so we will work as we go, the software learns, so we automate the adjustments for the tax return, it prompts and asks if we want that repeated the next time a similar transaction is posted.
•  Tracks the adjustments to automatically complete M-1s and M-3s.
•  We get notified the day after
  •  retained earnings changes
  •  inter-company activity doesn’t balance zero balance accounts have a balance
  •  capitalization is below the client’s cap policy,
    • it remembers how we classified fixed asset additions in category before, prefills info and upon approval, exports directly to our depreciation module in tax prep software.
•  If clients code things to accounts that have special tax consequences, we get notified, for things like “is that a deductible penalty?” and tax expense includes a transaction for the same amount as owner state and federal estimated tax payments or extension.
•  For audits, we can get notified of individually significant transactions, related party activity, material deviations and we can do audit samples at interim and manage the data for what was sampled and an indicator that data changed after we sampled. If they add an entry in a period we sampled previously, we get notified totals changed or we can just include that transaction(s) in subsequent samples.
•  Monthly reporting is in the same format as year end, summarized by lead schedule with drill down detail for line item amounts or transaction detail.
•  Reports are basically produced in excel, so you can save report if you like.
•  Trial balance is ready to post import into your audit software or can be pushed in if you have a SDK or API for it.
•  Patented process is integrated with automated engagement letters with menus for services provided and AICPA language for the text, delivered online with DocuSign and credit card authorization. (If a client requests a new service, you can generate the engagement letter for him while you are on the phone and he can sign it from his. Integrated site with engagement letters, site turns off for clients when their engagement letter expires).

That’s how we will do that, it is accounting software designed by an accountant, in public accounting.

How complicated is this?

It’s based on an existing accounting principal or concept that is so simple you will be surprised it has not been done before and disappointed you didn’t think of it first because now some CPA in Farmers Branch will hold the patent on it.

A Disruptive Technology Developed by Ford Squared Technologies LLC

BaCoSoft is solution that impacts 100% of an entire industry, every segment of that market will be impacted. 20 years ago, a solution for a single segment of that industry was sold for $400,000,000 ¹. While that solution had a sizable share of its segment, the overall impact may have been closer to 5% of that market. BaCoSoft impacts the entire industry by serving every segment and can reach 100% of that market because it's the subject of a patent application currently on file with the US Patent Office. If that seller had reached 100% of his industry because they held a patent and nobody else could do what they do, what would that have been worth then, what would it be worth 20 years later, especially if that industry has grown steadily since 1998? Their services are in such demand that it is one of the most sought- after career paths for students enrolling in college today, with most schools boasting 100% of their eligible students finding jobs well before completing their education. Our team here has put a lot of our eggs in this basket and we are excited because we already see it working in our company today. We are in that industry; we have a tool nobody else does and a patent application in place to protect it. We can do things nobody else can and we all know we have not even scratched the surface for what we can do with it.

What’s the industry?

Its public accounting and if you just yawned a little, isn’t that what you want? To be part of a safe, stable, and growing industry in high demand? This is not a .com idea that nobody has heard of, its accounting, used by every business in the world.

What will it do for the CPA?

• Integrates client workflow into their own, automatically, seamlessly, every day. Reporting through a web-based command center that a CPA can manage and complete client projects from:
• That benefits Tax Practices by
  • tax adjustments can be automated and real time, updating a CPA's tax prep software automatically with 1 click or even none.
  • Real time adjustments mean real time projected taxable income, annualized, multiplied by shareholder users with ownership percentages
• That benefits Audit Practice by
  • Real time audit field work with lead-based reporting integrated to report on client’s individually significant items, material amounts and related party activity. Samples can be made based on previously audited.
• That benefits Accounting Service Practice by
  • Automated reporting for monthly accounting clients integrated with online report distribution, adjustments to client file can be posted from the platform or proposed and maintained as proposed adjustments based on client preferences, adjustments that can be summarized with supporting details so clients can receive the necessary disclosures for independence to be maintained if needed.
• That benefits Consulting Practices by
  • ushing data into your workflow where countless opportunities can be found to assist clients. When they call with a question, CPAs have their financial statements in front of them, so they can see what needs to be done even if the client doesn't ask.

What does it do for their client?

• nline consolidated reporting with drill down detail across all entities
• Business owners automatically receive their preferred financial statements online with one click, currently 25 options exist for their preferences
• Summarized smart phone reporting
• Controllers and bookkeepers maintain the ability to control the flow of information with monthly status settings. 
• eal time up to date tax projections, annualized. 
• educe client time in the preparation part of year end accounting to zero hours
• Minimize the need for extensions and waiting on returns, except where they wait on entities not on this platform from other CPAs.

How complicated is this going to be?

Even if, like a lot of people, you aren’t really sure what your CPA does all day, don’t assume this solution must be complicated. It is not, the solution is right under our nose. It is the most fundamental part of any accounting system. It does not a change to the client's accounting software (with limited exceptions) or the CPA's tax software. It has always been the core of an accounting system, BaCoSoft is only building from it as middleware that synchronizes those fundamental elements of a client's accounting records to a CPA's workflow. The platform we are describing does not exist, it has not even been contemplated, so we don't demand anyone change from theirs to ours. 

How can it be that simple?

How can something so simple be the key to so much? Often, the simplest things contain the answer to apparently complex problems. How do employers pay employees that are located across the country, that are paid using different compensation and that submit their time and compensation calculations using smartphones, web-browsers and desktop applications then directly fund employees' bank accounts, savings accounts and debit cards unless they want a check after calculating retirement plan contributions and all the federal and state payroll taxes they are subject to, withholding those taxes and retirement contributions along with employee portions of medical benefit plans, child support and uniform costs in a system that can be managed by a payroll clerk? Simple, the employers choose solution providers that focus on what they can do with basic raw data. Get the hours, rates, and locations compiled into a central location and then start calculating. They don't try to solve for how to extract data from a faxed in report or that was sent to their customer support representative in an email. They get the raw data that someone is writing on the fax before they write it down because that is the only way to run an accurate and timely payroll with a short deadline. This entire process is repeated weekly at some companies and there are dozens, if not more, service providers for payroll. That payroll is a far more complicated distribution of data and string of calculations than what we are doing, and CPAs have over a year to make sure the data is flowing to the right place on their tax returns and year-end financial statements. The place those numbers land in a CPAs tax software never changes from year to year. Rarely changes from year to year, and if it does, we have some time to break it out and flow it into the new location. We designed this on a spreadsheet, and it automated 5,000 adjustments for a client that had a trial balance with over 7,000 line items for every entity when combined. It produced a consolidated, by state, and by separate entity that we exported directly to the tax software in a couple of minutes after we pasted the trial balance into the spreadsheet. 

If it is that simple, why isn't it being done? 

his one is asked a lot; therefore, we have had an opportunity to work through the answer. There are a couple of things we have experienced over our careers that help explain why this hasn't been uncovered yet. 

1. There is a saying we have all heard over the years, "the definition of insanity is doing the same thing over and over again while expecting different results." It is applicable here because our entire industry is based on "what did we do last year." If you haven't worked in public accounting, ask your CPA what that statement means and he will likely reply, that is how we do your tax return. That is the plan even though it is the plan he followed last year that was filled with lots of overtime, stress, and often a bit of chaos because of unexpected challenges that get in the way of their 16-hour workdays. If asked what they plan on doing different, they will likely reply try to get ahead, which means try to stay less behind because that typically translates to start working overtime earlier in the spring and working on extensions earlier in the summer. They aren't the only ones that think that way either, according to the experts at the Project Management Institute, every accounting job is a "project" because it is a temporary effort to create a single, specified, unique result. For CPAs, a "unique" project is one focused on client-specified deliverables, such as a tax return, company audit, or balance sheet. And, because those deliverables are unique to each client, every project is one-of-a-kind, relevant only to that client for their particular purpose. The accounting processes developed to complete any one project are almost always different, even if only slightly, from every other accounting project, so each requires an equally unique approach and process from all other projects, as well. The idea that every project is different when GAAP exists to provide a consistent platform of reporting for users of financial statements, that every tax return goes on to one of a handful of forms and that they all use accounting software to deliver the data to us does not speak well to how thoroughly the experts at the Project Management Institute researched what a CPA does but every CPA believes that because his focus is always on last year, either the tax returns or how we work on tax returns is all based on the prior year. 
2. PAs in smaller firms are too busy and are really focused on what must be done for last year to think about next year. Even if they did think something all the way through, they don't have the IT resources or expertise to even understand how they would go about doing it.
3. arge firms with IT staff are spending their IT dollars on specific output-based needs, a simple solution like what BaCoSoft is based on and what it could do gets overshadowed by actually complicated problems. How do you deliver hundreds of thousands of publicly traded K-1s out to investors. K-1s that change every year as the tax law is updated for both federal and state tax purposes, updated with changes that often aren't received until a few weeks before the tax is due, and the return must be filed or extended. That is a tall order and circumstances like that present themselves every year.
4. CPAs, by nature, are not demanding of their solution providers. CPAs take what we get and must convert that to something we can report on in a very short deadline. We just don't think we have time to wait on something more efficient when the truth is that we don't have the time to be inefficient. It's the culture we all were raised in. If our boss came to us with a project due and handed us printed financial statements and ledgers and we asked if they could send it to us in Excel, they would tell us "key it in by hand, I'm not asking my client to do that." We eventually learned not to ask. It's our job to accept what we have and get to work.
5. The simple answer has been buried where we hardly see it anymore. We think about the idea as a one off, when every accounting solution is built around simplifying how users apply it. It's been buried by options and user interfaces but it's in every meaningful thing the accounting system does. 

lthough I have found a handful of reasons that answer why we are here, note they don't include current client satisfaction. Clients of a CPA firm typically aren't happy with the status quo. Across the board, clients find the entire process too complicated and would be willing to make changes that would get them their tax liabilities faster, to utilize technology and implementation and to reduce their workload. 

here is also a new one that goes on that list now and it's the only one we couldn't have overcome. Other CPAs can't develop what we are doing now because what we do has a patent pending, a patent retroactive to 2019, it's not for the easy part, it's for what we do with the easy part for auditors, for tax preparers, for client users. We are literally years ahead of someone that may realize now this can be done. Even if they start down the road, they will have to base everything they do on something more complicated for the users. Like Amazon's patented "click to purchase" button, every future competitor will have to develop this to flow through the equivalent of a shopping cart before it gets to the tax return. The patent includes so many features that others won't be able to provide and without those features, they will only have one alternative, to buy it from Ford Squared Technologies and if they don't, they will just compete against the firms that do, the ones with all the best CPAs, rested with no overtime, discussing client questions real time, often before they are asked by looking at updated financial statements and projections that has notified them of issues before they even look.

In summary

We can change how CPAs work with their clients. Currently we are perceived as referees who, after the play is done, penalize companies by informing them of large tax bills for decisions they didn’t know the impact of. We can turn them into a coach, that advises, trains and prepares their clients for what they might expect next April or how to reduce it right now, not next time. Clients have an expectation of taxes that are due and can budget for what the impact is. Clients get more from their accountants in the form of online financial statements and they do less to get them. It is a value proposition their clients will be hard pressed to resist and will solidify their relationship with their CPA forever.

What's next

We know this works because we have already developed the platform. We have clients actively using the financial reporting today. They manager their closeouts using it. It's not pretty but it produces what clients need and we are far more efficient with the clients we have on-boarded than we are with those that we have not. By year end we will finalize the tax adjustments and next tax season we will do more than every other CPA in less time for higher fees. Fees we earned by developing a platform that makes it possible, but fees the next firm can use to multiply times their marginal investment in this platform.

We have done what we need to do to get this off the ground and functioning well enough for us. With our platform, a video and a programmer on hand, we will have plenty of opportunities to expand what we do with our clients. We can grow this for a couple of years and wait on someone to come in and offer us far more for to take this product and our measured results to market. It's the path we started on but before we do, with all that we have learned, we wanted to see if there was anyone out there with ideas they might have to get what we need now. We have the firm to cover our overhead and help us make it more functional, we are the beta client and will cover all the overhead. We need to fund an entry level developer or maybe two, a front end designer, someone to take on a lot of my duties in the firm from the tax prep and review side and, most importantly, a customer experience manager that initially builds the brand, finds interest in the product, and distributes a newsletter that describes the profound change BaCoSoft is having on our practice that builds the demand for the product that's ready to  ell as soon as next busy season ends and most CPAs are eager for a solution.

f you have some thoughts or would like more information, please call Ford Baker directly at 214.827.9117 or send an email inquiry to ford.baker@bacogroup.com.

¹ In 1998 Larry Lacerte sold Lacerte Software (a federal and state tax preparation and filing solution) to Intuit Inc for $400,000,000. Intuit owns QuickBooks, Quicken, TurboTax and several other accounting related solutions. These accounting and tax platforms by Intuit are only seamlessly flowing together for the BaCo Group, but every CPA firm could experience these benefits if they were to subscribe to BaCoSoft once available. We have registered for a booth at the Intuit QuickBooks Conference in San Jose California. This is not intended to infer that Intuit has expressed any interest in purchasing the product, they just will know about what we can do and the interest we generate later this year.