As an accounting firm, you deal in data.

Whether it’s your clients’ sensitive personal data or the incredible labyrinth of your human resources and internal data – in addition to decades of archived returns and so on – CPA firms are some of the most data-reliant businesses out there.

The big challenge – as any seasoned CPA manager will tell you – is how do you wrangle that data? How do you manage, interpret, and secure this data effectively? How do you secure it and how do you protect it long-term, so your customers can always trust you and your firm with their sensitive information?

In this guide, we’ll cover the main points of how CPA firms and data intersect – and how you can optimize your data strategy both now and in the years to come.

CPA Data – By The Numbers

CPA firms don’t only wrangle eye-watering mountains of digital and analog information, but their management of this data is critical to their continued success in the industry. Those who don’t handle their data correctly are doomed to fail – here are a couple of reasons why.

CPA Firms Handle Incredible Amounts Of Data

The American Institute of CPAs (AICPA) reports that an average mid-sized CPA firm processes over 5 terabytes of data per year. Keep in mind this is an “average mid-sized CPA firm”, so you could be handling 10x or 100x that!

The wild thing is this is almost all numerical or photographic data – it’s not dense or information-heavy data like video or photo content. Instead, this eye-watering amount of data includes a vast array of documents – from intricate financial statements, detailed tax returns, comprehensive audit reports, to advisory documents.

Considering how many pieces of paper it takes to make up a terabyte, it’s truly incredible to think about how much data your CPA company handles on a yearly basis.

The Monetary Impact of Data

How you handle this deluge of data is the critical part of this equation – a groundbreaking study by the Journal of Accountancy found that CPA firms harnessing their data effectively saw an increase in revenue of up to 25%!

If you own a business, you know how absolutely insane a 25% margin increase is – it allows you to use that increased margin to strengthen other areas of the business, creating a virtuous cycle of growth.

The financial incentive of optimized, streamlined CPA data handling can be attributed to enhanced decision-making, superior client services, and the capability to roll out value-added services rooted in data-driven insights – all of which come back to how well you handle data.

The 3 Pillars Of CPA Data Optimization

We could write a 50,000-word book on how to effectively handle CPA data (should we?) but let’s just keep it simple for the sake of this argument. If you want to optimize your CPA firm’s data handling, here are the three overarching concepts that you need to pay attention to.

Pillar 1: Protect and Secure Your Data

With cyber threats escalating at an alarming rate, the accounting sector has seen a spike in data breaches by 45% over the past three years. This is not only a massive increase in the amount of hacks or data breaches facing CPA firms, but it also represents a huge risk in terms of sabotaging your customer’s trust in your business.

CPAs handle the most critical and potentially embarrassing data that any company can produce – their financial reports. If a financial report leaks, it can cause massive damage to your client, which means they’ll almost certainly never bring their business back to you.

We’re not just speaking theoretically, either. A comprehensive report from IBM indicates that a single data breach can inflict a staggering cost of $4.2 million on a CPA firm. We don’t need to explain this cost to you – in many cases, that means the end of the firm entirely.

Considering the cataclysmic costs of a data breach for a CPA firm, data with robust security measures, such as advanced encryption and multi-tiered authentication, emerges as an imperative for businesses. Partnering with an MSSP can be an invaluable step in this process, as this minimal investment can create savings in the millions in avoided costs.

Pillar 2: Optimize Your Data Management

Now that security is out of the way, now’s the time to do the most significant and often most arduous part – analyzing, organizing, and streamlining your data management. This is where you minimize your costs while maximizing the things that are really working.

As we said before, streamlined data management can result in a 25% increase in revenue, but it also has a duplicative effect as optimized data management for CPA firms can save on operational costs by a whopping 20%.

Data management requires a top-down, bottom-up approach, where you analyze the entirety of your organization’s data management, identify key areas that you can fix, and start with the elemental, foundational elements that will create a solid foundation for the entirety of your data management systems to operate more efficiently. Use the 80/20 rule here – 80% of your results will come from 20% of the changes you make.

New tools, including cloud-based platforms and sophisticated data analytics software, are reshaping the contours of how CPAs manage and decipher data, so always be aware of the latest and greatest innovations in the space.

Pillar 3: Data-Driven Decision-Making

While the first two pillars are about protecting and optimizing your data, many CPA firms overlook the need to make data-driven decisions.

Chances are, you’re already using data to make your decisions, but the reality is that you’re probably underutilizing your wealth of data. A survey by Franklin University spotlighted that CPA firms embedding data analytics into their modus operandi are 40% more likely to outperform their rivals.

Considering the incredible wealth of information at the fingertips of CPA firms, there’s no reason you shouldn’t be leveraging that data to make smarter, sharper decisions – whether that’s using customer data to identify and find the perfect customer, or just optimizing when and how to deliver certain services.

The “New” Tools CPA Firms Are Using

Embracing the Cloud

Unsurprisingly, many – almost all – CPA firms are moving over to a cloud-based strategy to help handle the data load that CPA firms are faced with just by the nature of the business. It’s a process that was accelerated rapidly by COVID-19; now, a staggering 85% of CPA firms have transitioned to cloud-based solutions, as reported by Ace Cloud Hosting.

Cloud platforms not only promise impregnable storage, helping to protect your customer’s critical data, but cloud services also facilitate real-time data access from anywhere, at any time, allowing them to meet customer needs and maximize the resources needed to deliver success to clients time and again.

CPAs and AI

You can’t go anywhere these days without hearing about AI and how it’s changing the entire fabric of our culture – and CPA businesses are no exception. The upside is that data-centric firms like CPA and accounting companies can see more advantages from AI than most businesses out there.

A recent report by Forbes found that CPA firms that use AI and machine learning in their data management and analysis have shown a 50% surge in operational efficiency – talk about a big swing!

AI will only continue to become more advanced and more capable, especially when it comes to handling massive data. These powerful technologies can now forecast financial trajectories, automate mundane tasks, and curate personalized financial counsel – but they still require significant hand-holding from your employees to be deployed effectively.

However, 2023 is just the tip of the iceberg when it comes to AI. In the next decades, AI will revolutionize the entirety of our reality – but in the meantime, CPA firms can take advantage of all of the efficiencies and optimization opportunities that AI presents to the world.

Data Challenges Facing CPA Firms

The Regulatory Landscape

With ever-evolving (and ever-tightening) financial regulations being placed upon how CPAs handle data, CPA firms are under constant pressure to ensure compliance, especially when it comes to protecting and securing customer data.

The Sarbanes-Oxley Act, for instance, mandates stringent data retention and reporting standards. Non-compliance can lead to hefty penalties for CPA firms – in many cases leading to penalties that cause the firms to shut down, either directly or indirectly, for violating Sarbanes-Oxley.

A strong, robust, resilient, and standardized data management structure makes it so that regulatory compliance for CPAs is an automatic procedure, rather than a choice or a conscious action.

A good CPA firm has pages and pages of standard practices to ensure compliance and protection of CPA data. Effective data management means taking away any sort of ambiguity or uncertainty revolving around how data is stored, shared, transmitted, or otherwise handled by your firm.

A CPA firm that is successful in its data management not only puts into place an overarching framework that ensures compliance of all data at all times, but specific and robust company-wide operating procedures that make federal, state, and local regulatory compliance a certainty – not an option.

Data Precision

In the deluge of data that pours into CPA firms every year, maintaining precision and relevancy is a difficult, but necessary task. There’s simply so much data that comes flooding into your company’s servers every year that it can be extremely hard to separate the data wheat from the information chaff.

Cutting-edge automated data validation tools have demonstrated a reduction in data discrepancies by an impressive 60%, ensuring CPAs can bank on their data reservoir for pivotal decision-making. These tools validate data according to the parameters you’ve set out – so that you can quickly and easily identify the data that is most relevant to your bottom line.

By siphoning out all of the critical data from the giant well of often-irrelevant information (my client’s social security number does nothing for my CPA firm), you’re able to more quickly and effectively get to the things that move the needle – both for you and your client.

Understanding And Acting On Data

The real conundrum isn’t just amassing data but extracting coherent insights from it – something that can be difficult without the right tools and perspective. Lucky for us, we have effective tools for making sense of and acting on, the dragon’s hoard of data you hold as a CPA firm.

The most frequent tools that CPAs find themselves using are advanced data visualization instruments that empower CPAs to sift through colossal data volumes in a way humans can understand. Charts and statistics help distill meaningful patterns and trends about the data presented and give CPAs a way to decrease the tax burden for clients in a way that is legal and compliant.

It’s essential for a successful CPA firm to use data analysis tools to dissect data, uncover opportunities, and ultimately act on those revelations to maximize revenue and minimize the time, energy, and financial costs of data underutilization.

CPA-focused data analysis tools have slashed the time investment in data analysis by a remarkable 70% – which means your CPAs can spend more time putting those insights to work in a way that makes you more money!

Client Expectations in the Digital Age

Finally, we’ve got the clients, who just seem to get more demanding by the day. With the advent of smartphones and the always-on, always-connected, mind-breaking, internet-addicted culture we live in now, CPAs must be more attentive than ever to the microscopic attention spans and insatiable lust for information that many business owners present to the world.

Many clients expect their CPAs to provide instant insights and forecasts, whenever they need them to. With this in mind, creating an easy and efficient way for clients to dig into the data that you’re collecting and using is a way to improve client retention.

You see this movement towards client satisfaction in the rise of client portals and mobile accounting apps – allowing customers to find their data and analyze it at their pace. Effective data management requires you to constantly iterate on this concept, making data more accessible for the end customer.

By deploying an efficient, effective data management perspective towards your client’s need for data and information, you increase trust between you and the client, making them feel taken care of – which means repeat business (and in the CPA world, that can mean decades of work!)

If you’re a CPA firm in 2023 and you think you can get by without adopting robust, resilient data management practices going forward, you’re in real trouble. Sure, there are situations where maybe you’re the only game in town and you can survive – right now – on filing cabinets and a team of junior accountants.

But the reality is that data and data management are becoming more critical to everyday life, and there will come a time when every CPA firm must have good data management to survive. Better to get a jump start on that now – rather than face extinction in just a few years’ time.

American Institute of CPAs (AICPA) – Data Dynamics in CPA Firms
Journal of Accountancy – The Financial Implications of Data
IBM – Comprehensive Data Breach Analysis
Franklin University – Data Analytics in Modern Accounting
Ace Cloud Hosting – The Cloud Transformation in Accounting
Forbes – AI and Machine Learning: The New Frontiers in Accounting