XERO ACCOUNTING SOFTWARE AS A CLOUD-BASED ACCOUNTING SYSTEM

PIA DE LARA

ELEANOR MENDOZA

ADAROSE ROMARES

APRIL 2021
 ACKNOWLEDGMENT

The researchers would like to express their deepest and sincerest gratitude to
the people behind the success of this endeavor, through the many effort, love and time
dedicated in this paper:

First and foremost, praises and thanks to the GOD ALMIGHTY, for His showers
of blessings bestowed the researchers, for the strength and wisdom that He alone is the
source of all and for the gift of life.

Ms. Sushmita A. Zamora, the research adviser, for giving the researchers an
opportunity to do research and providing invaluable guidance throughout this research.
Her sincerity, motivation, and consideration have deeply inspired the researchers.

Accountancy classmates and friends, for the help and assistance during the
research work. The researchers are helmed in all humility and gratefulness to
acknowledge their depth to their classmates;

Research team Adarose, Eleanor and Pia for the patience, dedication, hard work
and gathering different information despite the busy schedules for making this research
unique;

To the supportive family of the researchers, for unending and untiring support, for
their love, and prayers for the completion of the research paper. The researchers are
extending their heartfelt thanks for their support emotionally, financially and spiritually.
They are their driving force for putting so much dedication and love to the research
paper.

A million thanks to all of you. God bless.

EXECUTIVE SUMMARY

Business accounting has undergone a sea of change as a new breed of web-

based financial management devices has become accessible. These software providers
have removed the constrictions of desktop software, allowing many accountants to work
closer and more efficiently with their small business clients through the web. The
emergence of cloud computing allows Xero make huge strides in streamlining
accounting through the connectivity of its software. Xero is the primary accounting
software used by over 16,000 accounting firms and has been named the Forbes #1
Innovative Growth Company in 2014 and 2015 (Forbes, 2018). Thus, this paper
generally presents and introduces the Xero accounting software as a cloud-based
accounting system for Small and Medium Entities (SMEs) in the Philippines, including
its features mainly focusing on its data security, data integrity and trail of transactions.
Also, this paper includes the advantages and disadvantages of Xero accounting
software and its effect in the financial audit. This paper also focuses on the software's
overall contribution in the accounting system. In line with this, the paper plays a
significant role primarily for SMEs as this will give them a foundation on what Xero
accounting software is.

PART I. INTRODUCTION

1.1 Background of the Study

The world as we know it, is subject to continuous change. Globalization and the
increasing development of technology have impelled the need for economic innovation
in order to achieve performance and progress. In our constantly changing economy, it is
crucial for a business to be able to stay flexible and responsive with the information it
gathers, processes, and provides. Due to this fact, the relationship between information
technology (IT) and businesses has grown tremendously through the years. One of the
newest concepts from IT is cloud computing.

Cloud accounting is an accounting software that runs on a remote server rather than a
localized computing gadget such as the desktop (Dimitriu & Matei, 2015). The software
sends information to the cloud for processing and then returned to the user. Users can
access data in the hosted application using any internet-enabled device and then it can
be accessed off -site and without desktop application. Using the software has its share
of benefits and challenges to the business. According to Saasu (2013) cloud accounting
refers to online accounting that performs the same function as accounting software,
runs through servers and accesses by using a web browser over the internet.
Nowadays, various kinds and types of cloud accounting software have made
themselves available in the market and build its brand. And as a limitation of this study,
this paper will primarily focus on presenting one kind of those- Xero accounting
software.

In 2007 Xero, an accounting software, was introduced into the market. It

originated from the country of New Zealand Xero is cloud-based accounting software
designed specifically for small businesses. Xero is the forerunner of the cloud
accounting market, and is renowned for having anywhere, anytime access on any
device. Xero boasts 500+ add-on applications to tailor Xero to your own business
(xero.com, 2017). Xero is one of the fastest growing software as a service companies
globally. It is the leading cloud market in New Zealand, Australian, and the United
Kingdom. As a matter of fact, Forbes identified Xero as the World’s Most Innovative
Growth Company in 2014 and 2015.

In the international setting, Xero (2017), the leading cloud accounting software
provider exceed quarter of million subscribers has announces existing partnerships in
the United Kingdom with Hong Kong and Shanghai Banking Corporation (HSBC) and
Banco Santander to deliver banking services on Xero cloud accounting platform for
bookkeepers and accountants to run their entire back office.

In the Philippines, Xero is a leading cloud-based accounting software for small

and medium entities. It eventually changed the game for small business. This cloud-
based accounting software connects people with the right numbers anytime, anywhere,
on any device. For accountants and bookkeepers, Xero helps build a trusted
relationship with small business clients through online collaboration.
With all of these, it is a great interest of the researchers to make a study focusing on
this accounting software alone. This research paper aims to generally present and
introduce the Xero accounting software including its features, advantages and
disadvantages. In line with this, the paper plays a significant role primarily for small and
medium entities as this will give them a foundation on what Xero accounting software is.

1.2 Statement of the Problem

This study aims to present the Xero accounting software as a cloud-based

accounting system for Small and Medium Entities (SMEs) in the Philippines.
Specifically, it seeks to answer the following questions:

1. What are the features Xero accounting software in terms of:

a. Data Security

b. Data Integrity

c. Trail of transactions

2. What are the advantages and disadvantages of Xero accounting software?

3. How such pros and cons of Xero affect the financial audit?

1.3 Objectives of the Study

This research paper primarily seeks to introduce Xero accounting software as a cloud-
based accounting system for SMEs in the Philippines. Secondly, this investigation aims
to do the following:

1. Present the features of Xero in terms of its data security, data integrity, and trial of
the transactions.
2. Discuss the advantages and disadvantages of Xero accounting software.

3. Know the effects of these pros and cons in financial audit.

1.4 Significance of the Study

This research paper plays a significant role to the following individuals:

• Accounting Professionals- the result of this study will give the accountants,
bookkeepers or auditors a concrete foundation on what is the Xero accounting software
all about. It helps them appreciate the software and eventually, it will aid the accounting
professionals in assessing the system's credibility, security, integrity and usefulness.

• Small and Medium Entities Owners- this paper is beneficial to the small and medium
sized enterprises in a way that this primarily discussed the Xero accounting software as
a leading cloud-based accounting software for SMEs. Results of this study will give the
owners a handful of information about the software and its related concepts that would
be a significant contribution to SMEs.

• Company's Management- the result of this study is significant to the Xero

management in a way that this will give them a picture and an initial feedback of their
software's contribution to the accounting world and how the users find this software.
Information will be relayed to them which may lead to the system's improvement and
progress as they will continue giving their service.

• Information Technological Experts- this study is beneficial to the group of experts

as this will serve them a basis on how to improve the quality of cloud accounting
systems. Moreover, results in terms of the software's data security, data integrity and
other aspects would help them in assessing what's more to consider and what aspect
needs to be address and solve especially in the area of disadvantages.

• Accounting Students- with the massive change in the accounting world and trends,
students will gain knowledge how Xero accounting software works and eventually, if
possible, will lead them in patronizing the software and using it in its best way and
capacity.

• Future Researchers- This study may be used as reference for future researchers
who will conduct a similar study.

1.5 Scope and Limitations of the Study

Generally, the study sought to present Xero as one of the cloud-based accounting
software used by businesses especially the small and medium entities. Also, this study
was designed to discuss the features of the software specifically in terms of data
security, data integrity and trail of transactions. Lastly, this paper presents advantages
and disadvantages of the said accounting software and how such will affect the financial
audit.

On the other hand, due to various commonly used accounting software

nowadays in the market, this paper is limited only in discussing the Xero. Other types of
softwares are not included. Another limitation of this study is the availability of time and
resources of the researchers given the fact that deliberations and discussions within the
group were done online.

PART II. REVIEW OF RELATED LITERATURE

Cloud Accounting

The most widely accepted the definition of cloud computing is proposed by the National
Institute of Science and Technology (NIST). This definition is commonly used as a
foundation, where later studies derive their interpretations of cloud computing based on
these factors (Hoberg, 2012). According to NIST, cloud computing is defined as:

“a modelfor enabling ubiquitous, convenient, on-demand

network access to a shared pool of configurable
computing resources that can be rapidly
 provisioned and released with minimal
management effort or service provider
interaction” (Mell & Grance, 2011).

The introduction of cloud-based software has revolutionized the accounting

world, producing results that are more timely and less compliance-oriented than older
systems (Tankersley, 2014). Cloud-based software works in real time, from live bank
feeds, making business decisions more effective and relevant (Computer Weekly News,
2012). A study carried out in 2014 by Xero found that small businesses who used Xero
were getting paid 30 days faster than they were in 2011. The resulting increase in cash
flow and productivity has been significant (Computer Weekly News, 2012).
A study developed in 2012 by ACCA and IMA has listed a set of drivers of
change that would shape the business and consequently, the accounting landscape for
the next decade (Burroughs, 2018). The economic uncertainty and information
technology transitions are factors of change included in this study. Rapid advances in
science, demographic change determined by globalization, and the promotion of new
business models, will collectively form different expectations and economic values. The
increasing complexity of the business environment, along with enhanced competition at
a global level and the reduction of the business cycles are preconditions that would
challenge the accounting profession.

On the other hand, the continuous need for global accounting standards and
practices is also influencing the future of accountants regarding the development of
technology, companies and therefore the accounting department are generally
influenced by: the digitisation of business, the intense potential created by cloud the
implications of big data and the growing importance assigned to data mining. In this
context cloud computing made its way and created new business models. The impact of
cloud computing is presently undisputed and will provide the basis for future
metamorphosis of the economic field (Gray, 2017).

The advent of cloud-based software applications have influenced the

development of accounting software used by accounting firms, small and medium
enterprises (SMEs) (Marakarkandy & Yajnik, 2013; McHaney). Since the invention of
cloud-based accounting software applications, firms and individuals alike have adopted
cloud-based software applications in their company to facilitate accounting practices
and to produce a more efficient and effective working environment (Abdinnour‐Helm,
Chaparro, & Farmer, 2015: Heilman & Brusa, 2016).

The change to cloud accounting software is something that has been

acknowledged by accountants, but has not been implemented into practice by a
majority of accountants (“Management of Accounting Practices Survey,” 2015). In the
article The CPA of the Future by CPA.com, a subsidiary of AICPA, they found that “90%
of the CPAs surveyed agreed that the delivery of digital business processes to clients
will become a key differentiator among accounting firms in the next five years” (Drew,
2015, para. 5).

However, the 2014 Management of Accounting Practices (MAP) survey by the

AICPA Private Companies Practice Section (PCPS) and the Texas Society of CPAs
(TSCPA) involving around 1,750 firms revealed that the cloud industry had a lot of
catching up to do. As shown in Table 1, in the category of bookkeeping software,
anywhere from 73% to 82% of firms utilized on premise accounting software and 1% to
9% utilized pure cloud software.

The increasing adoption of cloud-based software applications drew much needed

attention from researchers and practitioners to develop a suitable and feasible
framework to evaluate cloud computing applications. Hence, researchers and
practitioners alike began to use frameworks addressing studies of such

Xero Accounting Software

 Xero is a cloud-based accounting software platform for small and medium-sized
businesses. Cloud computing was developed by an American psychologist and
computer scientist Joseph Carl Robnett Licklider in the 1960s (Miertschin & Willis, 2010;
Mwansa & Mnkandla, 2014) and of which played a major part in the development and
transformation of the information systems (IS) industry (Mwansa & Mnkandla, 2014).
Cloud computing can be characterized as a model for enabling prevalent, ideal, on-
demand network access to a shared pool of configurable computing resources (e.g.,
networks, servers, storage, applications, and services) (Mell & Grance, 2011).
Furthermore, these resources can be rapidly provisioned and released with minimal
management effort or service provider interaction (Mell & Grance, 2011). Armbrust et
al., (2010) refer to cloud computing as both the applications delivered as services over
the internet and the hardware and systems software in the data centres that provide
those services (Armbrust et al., 2010).

Accounting software like Xero had experienced exponential growth in terms of

popularity, market share and share price since 2008 (Xero, 2014). Cloud-based
accounting applications have been perceived by the accounting industry as
potent threats against conventional accounting practices, if their features are not as
comprehensive as their desktop counterparts.

Xero’s success can partly be attributed to its rapid innovation cycles, which
provide free features and enhancements to their existing software. Xero is committed to
making life as simple as possible for small businesses and entrepreneurs (Computer
Weekly News, 2012 & Tankersley, 2014).

Advantages of Cloud Accounting

 The main advantage of cloud accounting is its ability to store large amounts of
data and provide readily accessible and recoverable historic information contained in
backups (Pacurari & Nechita, 2013). The information in the cloud is stored in multiple
servers; data is saved in many places, making it easier to access backed up data
whenever paper files are lost during an emergency. Loss of critical data in emergency
situations, such as earthquakes, can have damaging consequences on a business that
uses traditional accounting software whose servers are in-house whereas a business
that operates cloud accounting systems can return to normal operations quickly with the
use of data backups. Unlike traditional methods, cloud accounting provides improved
system accessibility which in turn improves efficiency. For instance, there are no
limitations as to when or where users can access information using the internet
connection and a variety of devices (Dimitriu & Matei, 2015). Employers and employees
can both work outside the office and still manage their teams and collaborate with their
personnel more effectively. Moreover, the program’s ability to provide real-time access
to critical accounting data speeds up the decision-making process thus enhancing
efficiency.

Forbes (2018), predicted 83% of United State small businesses will entirely adopt
cloud computing systems by 2020 which the present percentage is 63. Stripe is the
online payment company that aims to be a top spot on 2017 Cloud 100 list, followed by
Dropbox the file storage and sharing company, Slack Company, DocuSign the e-
signature and digital transactions company in the top five lists is Dutch online-payments
company Adyen (Forbes, 2017). Cloud Security Alliance (CSA) and Information
Systems Audit and Control Association (ISACA) association’s survey report on Cloud
computing maturity study 2012 perceived by 252 participants from cloud computing
users, service providers, integrators and consultants from 48 countries addressed that
enterprises seem to be attracted by increase productivity, cost reducing, the agility and
flexibility of the service.

A cloud accounting software can be essential savings tools. To begin with, the
company does not need to acquire computer equipment and IT staff members since the
provider is responsible for managing data backup (Dimitriu & Matei, 2014). The
business does not ne ed to incur capital expenditures as the cost of the software is
paid periodically, monthly, which also offers an opportunity to change software if not
satisfied, and eliminates the risk of losing capital investment in case of short-term
business failure. The periodical payments help ease for the organization’s cash flows
which would not happen if payments were made in bulk. Moreover, the software
provider is responsible for maintaining and upgrading the software hence saving the
business such overheads.

The fact that cloud computing requires practically no up-front IT investment was
perceived as a very desirable trait. Since cloud based services are charged based on
usage or subscription, businesses are able to acquire new IT systems without incurring
significant costs in acquiring the necessary IT hardware, software licenses or the
ongoing maintenance cost (Du & Cong, 2010; Grubisic, 2014).

There are many accounting software choices for companies today, and almost all
of them depend on the cloud to function properly. One of the most important questions
that a small business can consider is whether or not to use Xero. Of course, a
company's requirements will decide if Xero is a good option, but there are much more
advantages than drawbacks to using Xero as the accounting software of choice for a
small business (bookkeeper hub, 2016). As a company, Xero is on a platform that
emphasizes the importance of small businesses to our global economy. According to
Martin Mellor (2017) The ability to use add-ons to tailor Xero to your particular business
needs might be the primary benefit for users, but here are some other main ways SMEs
can benefit from the app.

Moreover, studies have shown that Xero cloud computing has been satisfied with
the substance of the various IS, AIS and web-based systems software and have
benefited from the formats and the ease of use of this software accessible to them (Nor
& Yamin, 2015; Parthasarathy, 2018). Moreover, the development and growing
popularity of Xero cloud computing has provided benefits such as reduced hardware
failure, software malfunctions which do not result in data loss because of networked
backups, it provides more data storage, better security, infrastructure, accessibility,
mobility, quality control, more flexibility, increase collaboration, automatic software
updates and sustainability to both users and organizations (Catteddu, 2019; Dudin &
Smetanin, 2016).

For some firms, it was a decisive factor to adopt cloud computing (Sobragi et al., 2014).
The ability to change the amount of computing resources provided allows firms to
control their operations and IT infrastructure more effectively,and significantly reduce
the development time to release new products (Morgan & Conboy, 2013;Yazn et al.,
2013).
Software applications that are more straightforward and intuitive can ease the process
of transitioning employees onto the new, cloud-based services (Morgan & Conboy,
2013).
The benefits of cloud-based accounting software are intended to appeal to non-
accounting professionals, rather than accountants themselves. According to Xero
(2016), the software is designed with non-professionals in mind, not accountants. Xero
is designed in such a way that hides the ugly accounting behind its intuitive interface.
Accountants, on the other hand, don’t necessarily find Xero to be any easier to use than
what they’re used to in a way, some accountants are ‘forced’ to adopt cloud-based
software because that’s what their clients want (Gorbes and Alsulaiman, 2019).

Disadvantages of Cloud Accounting

As with any new technology, there are always plenty of concerns that hold
people back from investing in the new trend. In 2013, CCH, a software and information
services provider for tax, accounting, and audit workers, conducted a survey on cloud
accounting with 1,018 small business owners and 212 accountants. In this survey, they
asked the accountants why they had not adopted cloud accounting software. Table 2
showcases the top concerns given by accountants during the survey to why they have
not adopted cloud computing. I have separated the results of this survey question into
the following four categories for discussion: transferring to a new system, data security,
lack of features, and knowledge of the software.
 There are several drawbacks or disadvantages of the Xero program reported.
Many Xero users think the software's reporting features are not as advanced. For
example, certain Xero reports must be exported to a different external file (i.e. general
ledger). The customer service of Xero is another drawback for which some critique was
made. Xero hasn't got an active customer support phone service yet, and many users
are stuck in support, problem solving and tech inquiries. Although it supports online FAq
forums and chat on a 24/7 basis, many subscribers find it is uncomfortable for users to
receive the assistance they need due to its lack of help by telephone. (Farkouh,
Furman & Faccio, 2017).

Prior cloud computing adoption studies have found that the most important factors that
prompted businesses to adopt cloud computing are cost reduction, scalability, and
ease of use. On the other hand, the most prominent impediments to adopting
cloud computing are concerns regarding the security and privacy of cloud computing.
Cost reduction is often viewed as the key factor that led to the adoption of cloud
computing, if not the dominant one. Sobragi et al. (2014) found cost savings to be a
decisive factor for firms to adopt cloud computing, and Morgan and Conboy (2013)
found that cost savings were strong motivators towards adopting the cloud. Small
business studies, such as Oliveira et al. (2014) and Carcary, Doherty, Conway, and
McLaughlin (2014), also found that cost reduction was the most common benefit
experienced by small businesses.
However, the importance of the cost benefit was not supported by all studies. In the
Asia-Pacific context, Gupta et al.(2013) found that cost was the third most important
factor, with ease of use, and privacy and security perceived to be more important than
cost. Likewise, while Yazn et al. (2013) recognized that the low capital expenditure
encouraged smaller firms to adopt the cloud, particularly start-up micro businesses, the
discussion of the cost aspect of cloud computing is very limited. A possible
explanation for this difference could be due to different business environments.
Yazn et al. (2013) studied firms in information- based service industries, such as
IT, business services & education. The Asia-Pacific context ofGupta’s (2013)
study is also likely to giverise to contextual differences in the operating environment.
Accounting Software Features

One of the smaller concerns brought up was about the cloud software’s
features. 12% of surveyed accountants in New Zealand stated that they thought cloud
accounting software would not be worth the cost, and 6% of all accountants surveyed
even added that they saw no benefit in the cloud accounting software (“Management of
Accounting Practices Survey,” 2015). Accountants are concerned that this new software
will not supply them with features that will allow them to utilize the software the way that
they want. If software cannot perform to expectations, then there will be no reason for
an accountant to want to make the cloud-based accounting.

Data Security

Flaherty, 2018 highlighted that the issue of data security in the cloud must be
taken into consideration. This is one of the most publicized concerns of the cloud.
Accountants worry that their information will not be as safe as when it is stored on their
personal computers. Since cloud information is stored on the internet, it is perceived as
being easier to access and to hack into. Accountants want to know that the service that
they are provided through cloud accounting software will allow for proper protection of
their important data and files.

Concerns of cloud computing primarily stemmed from uncertainty over the security of
the data. A considerable portion of security of the cloud system relates to the business’
loss of ownership over its data, and the associated privacy concerns. The cloud
computing model induces uncertainty and concerns from users due to the fact that the
users may not be fully aware of the security implications of cloud-based systems
(Benlian & Hess, 2011). Yazn et al. (2013) found that the business’ trust towards the
cloud provider is crucial in alleviating the security concerns. This trust can be built by
the signing of confidentiality agreements between the client and the cloud service
provider, as well as geo-restriction conditions that stipulate where the servers and data
are physically stored (Sobragi et al., 2014; Yazn et al., 2013). Some, however, perceive
cloud to be secure enough, and smaller firms were generally more willing to trade
security for convenience (Gupta et al., 2013; Oliveira et al., 2014; Sultan, 2011).
Cloud-based accounting software embodies inherent risks and uncertainties for its
users. As cloud computing is provided by a third party over the internet, data is stored in
remote servers, rather than onsite. As a result, cloud computing requires businesses to
relinquish their physical control over their data, and may give rise to anxieties
regarding the security, reliability and privacy of the users’ data (Armbrust et al., 2010).

The security of cloud-based storage is a concern particularly for CPA firms (chartered
accountants), due to the fact that accountant handle sensitive and confidential
information (Du& Cong, 2010). The anxiety over security primarily stems from the
fact that business user thatadopt cloud do not have physical control over their data.
The data may be lost or exposed to unauthorized parties, and users must rely on the
service providers to implement proper controls and security measures. However, there
had been an expanding pool of literature that refutes this concern. Molnar and
Schechter (2010) suggested that the user’s data are in fact safer in the cloud, as cloud
providers have better economies of scale to implement proper access controls. In
comparison, businesses that host their IT infrastructure in-house may not be able to
implement the equivalent level of security measure, due to the lack of resources.
Moreover, more recent empirical studies suggest that smaller firms perceive data
security less importantly than their larger counterparts, and small businesses are in a
better position to negotiatea trade-off between the benefits of cloud computing and
perceived data security (Gupta et al., 2013; Sobragi, Maçada, & Oliveira, 2014; Sultan,
2011).

Data Integrity

According to Xero (2016), without data integrity, financial advisors can’t depend
on it, and anybody else – such as a bank or other third party – will too battle to require
the figures seriously. What constitutes a high integrity data is more than fair making
beyond any doubt that numbers include up. That’s a key portion of it, but eventually to
know in case the information is valid you have got to see it end-to-end. That
incorporates how the data makes its way into your accounting framework, what
happens to it when it’s there, and what controls are in put to recognize and amend
mistakes.
 Rype ( 2016) added that they understand what controls are in place to monitor
the accuracy and integrity of data, ideally on an on-going basis so that one will not
react to situations months after they’ve occurred. And if one doesn't know what to look
for, consult the financial advisor, who can either work with to identify any anomalies, or
can provide ongoing assurance services.

The detachment of physical control gives rise to the issue of integrity where businesses
fear losing access to their business process and data. One integrity concern is the
availability of cloud-based service, where businesses are concerned that cloud services
may become unavailable at any given time, resulting in lost revenue andhindrance to
business efficacy (Sultan, 2011). While reliability is a problem in all IT systems, the
user’s ability to insulate or mitigate against data loss and withdrawal of vendor
services is significant.

Withe these related literatures and studies, the paper is structured and made in relation
to the discussed works and journals

PART III. DISCUSSION

The Accounting Software and its Logo

One of the most popular cloud-based AIS or accounting software applications used
nowadays is Xero which was developed by New Zealand technology entrepreneur
Rodney Drury and Hamish Edwards in 2006. Accounting firms and SMEs have adopted
and implemented this software in their companies. There are approximately 1.6 million
subscribers or users of Xero worldwide and Xero had annual revenue of 407 million
dollars in 2018. The company has established offices worldwide in New Zealand,
Australia, the UK, Singapore, and the US. Xero is the primary accounting software used
by over 16,000 accounting firms and has been named the Forbes #1 Innovative Growth
Company in 2014 and 2015. This sections further presents the accounting software in
the foundation of its general features in terms of data security, data integrity and trail of
transactions. Also, this section will discussed the advantages and disadvantages of
using this form of cloud-based accounting and how such pros and cons affect the
financial audit.

Research Question 1: The General features Xero accounting software in terms of:

a. Data Security

The users of Xero accounting software have the assurance that usage of such
will ensure security of inputs at all aspect. Xero has been accredited as ISO/IEC
27001:2013 compliant, and is known as the world's top ISMS standard. Xero earned
certification by designing and implementing a comprehensive security management
program, which included an Information Security Management System (Xero, 2021).
The Service Organization Control (SOC 2) report was developed by Xero. This is the
result of an independent audit of the Xero cloud-based accounting system relating to the
security, accessibility and confidentiality criteria of Trust Services.

On other hand, According to (Merchant Maverick, 2021) Xero is known for best
cloud security. Security measures include data encryption, two-stage authentication and
24/7 multi-station monitoring. Data is backed up on different servers regularly and
routine security checks are carried out. Xero also has an amazing 99.97% uptime
record. Xero utilizes Advanced Encryption Standard (AES) 256-bit encryption to encrypt
data at rest and industry standard Transport Layer Security (TLS) to encrypt it while it is
being transferred. Xero also provides firewall, intrusion detection, and network
segregation services through third party security providers (“Security at Xero,” 2017).

Moreover, one of bits features involved authentication security. Two factor

authentication requires two authentication credentials rather than only one password to
enter the device. According to (Xero, 2021), the system provides standard software
access through a login and password. It also has the option of using multi-factor
authentication. This adds a layer of protection to every individual Xero account. It
blends what you already know (your user name and password) with something you
never have (an authentication app on your smartphone or tablet). This second layer of
protection is intended to prevent someone other than you from accessing your account,
even though they know your password.

Xero is a strong cloud-based platform that has a high level of accounting,

extensive integration and other great functions. It offers many automations, such as
automated sales tax survey, invoicing groups, and standard email templates, to save
your time. A good addition are the latest sales overview and the facts summary
sections. Moreover, Xero provides limitless booting users (Merchant Maverick, 2021).

• Network security

To protect client's systems and data, Xero employs a “defense in depth” strategy.
Multiple layers of security controls, such as firewalls, intrusion detection systems, and
network isolation, secure access to and inside our world. The security services provided
by Xero are designed, controlled, and managed in accordance with industry best
practices. The software collaborates with industry-leading security vendors to protect
client's systems by leveraging their expertise and global threat intelligence.

Moreover, as displayed in the software's website, Xero's servers are housed in

enterprise-grade hosting facilities with strict physical security measures to avoid
unauthorized access to the servers. These safeguards include round-the-clock
monitoring and surveillance, on-site security personnel, and daily ongoing security
audits. To reduce the risk of data loss or outages, Xero maintains numerous
geographically separated data replicas and hosting environments.To detect and handle
risks, Xero's Security team actively tracks security networks, event reports, updates,
and warnings from all systems.

• Security Noticeboard

Xero's Security Noticeboard contains information on known phishing and other scams
that threaten groups, as well as recommendations on how to defend yourself from
them. On the Noticeboard, the system will also post every other security-related news
from Xero. Below are the security noticeboard interface (first) and the noticeboard
email (second).

• Additional security at log in

When you log in to Xero, multi-factor authentication (MFA) provides an extra layer of
protection by verifying that it is truly you. It combines the username and password with a
smartphone or tablet authentication app. This second layer of protection is intended to
prevent someone other than you from accessing your account, even though they know
your password. According to the company, in using industry standard data encryption,
the knowledge is transformed into unrecognizable code. This safeguards client's
personal and financial information. Xero securely stores data, and has complete control
over who has access to it. All of software's servers and data centers are subject to
stringent physical security measures, as well as 24-hour monitoring and surveillance. As
a matter of fact, replication of data is done through several data centers to ensure that it
is always accessible when you need it. Because of multiple layers of data protection,
Xero is up and running 99.9 percent of the time, causing no interruption to the client's
company.

• Data ownership

The Data remains in the client's own, as do all Intellectual Property Rights in it.
However, the access to the Data is conditional on timely payment of the Xero Access
Fee. The client grants Xero permission to use, copy, transmit, store, and back up Your
information and Data for the purpose of allowing users to access and use the Services,
as well as for any other purpose relevant to the provision of services to You
(Zendesk,2020).

• Data backup

According to Zendesk (2020), users must keep copies of all data entered into the
service. Xero follows best practices policies and procedures to avoid data loss,
including a regular machine data backup regime, but makes no promises that data will
not be lost. Xero specifically disclaims any and all responsibility for data loss, regardless
of the cause.

• Third-party applications
 and your Data

If users allow third-party applications to be used in conjunction with the Services,

users agree that Xero can grant the providers of those third-party applications access
data as needed for those third-party applications to work with the Services. Xero is not
liable for any disclosure, alteration, or deletion of data as a result of such access by
third-party application providers (Utakedigital Zendesk,2020)

b. Data Integrity

For little businesses, the significance of information takes on a diverse

measurement. It’s the backbone by which you make choices, how you survey your
execution and is eventually the key to deciding whether you'll be able to remain in
business. If we’re relying on this information, at that point we have to be sure beyond
any doubt it’s as precise and secure as it can be. It has to have integrity (Xero, 2016).

Whether a small company or a large, the need for an effective and convenient
accounting system is unavoidable in order to handle finances, from keeping books to
staying on top of cash flow. The days of old-fashioned manual accounting and even
computer-based accounting systems are over with the introduction of cloud-based
accounting software.

According to IDO Consultancy and Business Support, Inc.(2019) Xero

accounting is online accounting software that provides high integrity accounting, is open
and simple to work with through cloud accounting, and protects financial information via
multiple layers of security.

With cloud software, your data can be populated around the clock. By storing
your financial information in the cloud, third-party systems can send you data as it
comes in. There is also a low risk that someone unwanted can come in and tamper with
it. Security, resiliency, performance and availability all become key requirements of the
supporting infrastructure that runs these systems (Xero, 2016). Once the information is
in your accounting platform, you need to make sure you can monitor its integrity. In
Xero, features such as the upcoming Assurance Dashboard are designed to help
advisors identify anomalies in a client’s data. It also has tools like Find & Recode to help
advisors fix mistakes quickly.

• Assurance Dashboard

In Xero, internal controls are incorporated directly . They're intended to ensure the
bookkeeping framework is being worked appropriately and to help with recognizing
mistakes and oddities. Presently, the Xero Assurance Dashboard makes those controls
exceptionally noticeable so you'll get an alarm to exchanges or events that need
consideration.

Xero satisfies its main goal to give truly helpful business instruments by utilizing
innovation to do the hard work with the arrival of the Xero Assurance Dashboard.
Combined with Xero HQ, it's set to turn into the benchmark for the bookkeeping
instruments expected to convey remarkable assistance to customers. Most
bookkeepers ordinarily survey a customer's bookkeeping exchanges a few times per
year, which may not be frequently enough to give ideal help to your customers. In the
present circumstance, inconsistencies are hard to spot and frequently the impacts of
blunders or altering don't appear until it's past the point of no return. In case you're
doing the records and no more, they may not be found by any means (Xero, 2016).

Presently, because of constant information streams, robotized banks take care of

and the confirmation dashboard, one can assist customers with recognizing potential
inner control issues ceaselessly consistently. The confirmation dashboard in Xero
expands straightforwardness. It unites the key data expected to screen the exactness
and uprightness of your customers' monetary information, in one spot. One can rapidly
recognize and fix blunders, or reveal movement which may not be to your greatest
advantage's. With information taking care of into Xero from solid sources including
banks, other monetary establishments, bills and solicitations and applying coding rules,
we can depend increasingly more on exchange subtleties being precise.
Checking User Activity

The User Activity tab provides rich information on who has accessed a client’s file. It
also provides a high-level view of what the user has done and how long they have been
active for. You can use the information presented in this tab to:

 See what users are doing and highlight someone who might be working in areas
they should not. For example, if you know a client’s staff member is just meant to do
bank reconciliations, but has spent time using Contacts or Bills, it might be worth
qualifying with the client what this staff member’s role is.
 A client may be struggling to keep on top of their finances if they are spending
lots of time on certain sections, but not getting the work done (e.g. performing bank
reconciliations). This could provide an opportunity for you, as an advisor, to offer a
helping hand.

Monitoring Bank Account Activity

The Bank Accounts tab shows the details of any manual bank account updates,
specifically manually deleted statement lines or manually reconciled transactions. Prior
to the release of the Assurance Dashboard, the only way to see activity for bank
accounts was to drill into each bank account – one by one – and look at the statement
tab and account transaction tabs. Now advisors can see everything under the
Assurance Dashboard’s Bank Accounts tab. Use this to:

 Help prompt you to look at bank accounts to ensure they are in balance: if there
are manual and deleted lines, the live bank feed accuracy may be out. You can use this
to check and then contact the client if there are issues, adding value.
 If an account is out of balance, going straight to this tab allows you to see which
user may have entered manual lines or deleted lines, and exactly what they changed,
which could be the reason why the account is out of balance.
 If an employee isn’t meant to be using bank reconciliation, but they have been
deleting statement lines and manually adding in new ones and then reconciling them,
this could be cause for concern, providing an opportunity to contact the client. A similar
situation could result if an employee of the client is the person doing the bank
reconciliations and making substantial quantities (or even regular and consistent
quantities) of manual changes: this could also be cause for concern.

Using the Contacts Tab

The Contacts tab shows any contacts that have the same bank account recorded in
Xero, or whose bank account has been edited. This helps identify any errors or
potentially fraudulent activities where funds for multiple contacts are being directed to a
single bank account. Very simply, a review of this tab could give reason for accountant
to contact client if:

 Different contacts now have same bank account numbers.

 A contact has had bank account records changes multiple times. This could
indicate the account has been changed to a false number and then back again.
 You know a client staff member should not be changing contact records but has
been doing so.

Checking for backdated Invoices and Bills

The Invoices & Bills tab shows invoices and bills that have been backdated. Such
backdating could be legitimate or could indicate that someone has attempted to
manipulate records.

If invoices have been backdated, you could investigate to make sure any GST claims
have not been missed if backdated to prior period.

And if an employee is constantly backdating invoices and then adding in manual bank
statement lines which are “payments” or receipts related to backdated invoices, this
could indicate something fishy is going on
Also, if an invoice is backdated, statement line deleted and manual lines brought in and
also bank account change on contact record, all by same employee on same day,
provides a strong indication that some fraudulent activity could be taking place.

The Assurance Dashboard helps advisors identify and rectify errors in Xero, or
potentially uncover activity which may not be in the interests of a client.  How you use it
is up to you – either as part of your current services or to create new continuous
assurance  services; it’s a tool that will help you serve your clients’ needs and help
deliver high integrity accounting.

• Find and Recode

The feature of Find and recode is simply accessible to clients with the adviser role
job. Just a single consultant at a time in association should utilize discover and recode.
This feature is best suited to be done by bookkeeper or accountant. Recoding can bring
about huge changes to records and reports, and much of the time recoding enormous
clumps can likewise affect the exhibition of reports. One can recode the source
exchange or recode utilizing a manual journal . To recode a get in touch with means
one need to recode the source exchange. Whenever one recoded an exchange line, it
can't be fixed. To turn around the changes, recode the exchange line again or alter the
individual exchange. A recode can take as long as a few minutes to measure. To
forestall mistakes, stand by until the recode is finished prior to recoding extra exchange
lines. Recoding utilizing a manual journal doesn't change the first exchange. Xero
makes a draft journal that one can save or post, and adds a note to each recoded
exchange to reference the new manual diary.
Based on Xero (2020) manual, to start recoding, find the group of transaction lines that
match one or more conditions:

1. In the Accounting menu, select Advanced, then click Find and recode.

2. Click Find and recode.

3 Select All to search for transaction lines that match several conditions at once, or Any
to search for transaction lines that match at least one of the conditions you specify.

4. Click Add a condition, then select the search conditions.

5. (Optional) Click Add a condition, to add another, or click the delete icon Image of
delete icon. next to a condition to remove it.

6. Click Search.

7. (Optional) Click a transaction line in the search results to view the transaction details.

Once you’ve found the transaction lines you want to recode, use a manual journal or
recode the source transaction (Xero, 2020):

1. In the search results, select the checkbox for each transaction line you want to
recode.

2. Click the Recode arrow, then select Recode source transactions or Recode with a
manual journal.

3. Enter the changes you want to make. To change tracking, click Add, then select the
tracking category.

4. Click Review to see a summary of the changes.

5. Click Confirm, or click View Manual Journal, check the journal details, then save or
post the manual journal.

Xero (2021) states that the software ensures dependable information. Direct feeds from
banks, software apps, and financial institutions ensure the data reaches Xero unaltered
by human intervention. In addition, advisors can track the integrity of data in Xero using
tools such as the assurance dashboard, activity reports, account transactions, and
journals.

c. Trail of transactions

For purposes of security, any accounting software needs to have an Audit Trail. This
talks about who made changes to what, and when (Hong, 2019).

Xero accounting software has recently upgraded and added the Audit Trail feature. The
process includes the Get Accounting Data and Journal Report feature, but the only
restriction is that each template’s date range is limited to 30 days to avoid any timeouts,
interruptions, or failures.

• Journal Report
The journal report is the Audit Trail in Xero: Go to>report>all reports>Journal Report. it
will list all transactions, who processed them, the time. At this stage this is how we track
who did what, where and when.

Report options

Option Description
Order by Display the journals falling between the two dates chosen in
order of either:

 Journal date – the date in the transaction. For example,

the payment date on a spend money or the invoice date on an
approved invoice.
 Journal ID – the system ID assigned to the transaction.
Use this option to display journals in chronological order of
entry (by entry/posting date).

Show Tracking Display any tracking options applied to the transactions.

Show Posted
Manual Journals
Only

• History and Notes Activity

By choosing Get Accounting Data History/Notes, clients will actually want to see a past
filled with the progressions made to every exchange and any joined notes. History and
Notes information incorporates bank exchanges, solicitations, contacts, manual
journals, pre-installments, installments, excessive charges, and considerably more. For
instance, the History and Notes segment of a paid receipt shows the creation and
endorsement.

Beneath the transaction exchanges in Xero, one can see a past filled with the
progressions made to every exchange and any connected notes. This incorporates
solicitations, charges, contacts, stock things, and fixed resources. For instance, the
History and Notes part of a paid receipt shows the creation and endorsement dates,
paid and sent dates, and any notes. The History and Notes Activity report sums up the
set of experiences and notes across your association, the marking history, and any
check topic changes. You can look for all movement by period, thing, and client.
Whenever you've run the report, you can channel your outcomes to limit the hunt
further.

It is to take note that solitary clients with the consultant client job can get to the History
and Notes Activity report. Likewise, just financial advisers who are additionally Payroll
Admins can see finance exchanges.

According to Xero (2020), the following steps must be done to access the History and
Notes Activity:

1. In the Accounting menu, select Advanced, then click History and notes.

2. Select the Period to run the report on.

3. The options Last week, Last month and Last year run backwards from today's date.

4. (Optional) Under Items and User, select other options to apply to your search.

5. Click Update. The most recent items that match your search criteria (1000 maximum)
are shown.
Filter your history and notes results

In the Filter Results field, enter the letters or words from any of the results in
the Date, Item, Action, User or Notes columns. Your search results show immediately.

Research Question 2: The advantages and disadvantages of Xero accounting

software:

Xero accounting software has both benefits and drawbacks that users and experts
figured out.

According to Martin Mellor (2017), the ability to use add-ons to tailor Xero to your
particular business needs might be the primary benefit for users, but here are some
other main ways SMEs can benefit from the app:

ADVANTAGES OF XERO ACCOUNTING SOFTWARE

 • Easy invoicing

• Business performance at a glance

• Fast quotes

• Payroll and Pension

• Store your financial manager at a safe mode

• Currency conversion

• Ease in accessibility

• Users

• Mobile app

• Fixed asset management

Easy invoicing – personalize logo and business details for standard templates or make
your own custom invoice – then handle the whole process from one location. One may
even arrange an automated payment alert to be sent to the chosen date when the
invoice becomes excessive, if payment by credit or debit card or even via a PayPal. The
app can multiply invoices, submit bulk invoices and even collect popular invoicing
information to speed up the process – and if frequently away from the office, one can
do it from a smartphone.

Business performance at a glance – set targets, monitor performance, and collate

data from around the network to provide personalized reports, graphs, and charts so
one can see exactly where to stand at any moment, in real time. This instant access to
critical business metrics provides useful information that will assist in making informed
and accurate business decisions.

Fast quotes – Set inventories and details about prices so that one can easily generate
precise quotes. However, once provided, the system can update client activity so one
can see when a quote has been approved, rejected, or even commented on by a
prospect, allowing to know when and how to follow-up. When a project is finished, one
can convert the original quote into an invoice to submit right away – fewer admin,
quicker payments.

Payroll and pension – tracking, managing, processing and handling employee and
pension pay at a single place and granting employee access to schedule and online
leave. One may handle and adjust all aspects of payroll and pension activities. In
addition, one may send the details directly from 'to do' list to the HMRC and to the
pension agencies.

Store your financial manager in safe mode – one can set the device to safely share all
relevant data with the financial manager whether use an outsourced financial
manager/director or an internal bookkeeper to perform the job in real-time detail.

Moreover, Xero is a program that handles and allows users to maintain order on
the financial aspects of the company. But it has its own collection of advantages and
drawbacks for any new thing surfing the internet. According to Cheeky Transport
(2019), the fact that it is easy to use and understand is one of the greatest benefits of
this program. People think the program is good for beginners and has no accounting
experience. Another benefit is that it is a web-based app, which allows users to access
it from anywhere at any time. The software will also be able to add support papers that
will really benefit companies, as users can take photos of receipts and add them at the
end of the month for clarity. Finally, the program, which is very helpful to other
companies, can be easily incorporated into other systems such that several parts of the
company can be managed side-by-side.

Furthermore, according to (Farkouh, Furman & Faccio, 2017) Xero, is a cloud-

based software that assists its users with organizing and carrying out standard
accounting and bookkeeping functions. The company markets itself on a platform that
highlights the importance of small businesses to the global economy, boasting over
850,000 subscribers worldwide to date. Here are some general benefits and points
related to Xero based on their experience.

Currency Conversion- one selling point of Xero software is that it automatically

translates entries made in various currencies. Multi-currency is the only feature that
differs across the models. Xero only offers multi-currency on its Premium plan. It allows
the user to do business in over 160 different currencies. Currency preferences can be
made for separate customers and different currency bank accounts can be added
alongside the user’s local bank account. Reports can be displayed and changed to
different currencies with exchange rates that are updated hourly (“Multi-currency
Accounting in Xero,” 2017).

Accesibilition Ease- Many of Xero's feedback has shown that it appears more user-
friendly to users who have no accounting experience. According to one of the platform
users, the language used in Xero is simpler and much easier to understand for the
average individual (for example, the word 'Purchases' is used rather than 'Custom
Accounts').

The further advantage of the Xero platform is that almost every device can access it, as
long as it has an Internet connection. This feature is desirable for those operating small
businesses because it enables users to access their purchases and account details
anywhere. Users are provided with seamlessly updated processes that allow them to
remain on top of all payments, receivables, and transactions, as bank transactions are
automatically import and coded as they arrive. Another benefit of Xero is that users are
still able to upload and connect files for transaction support. This allows users to add
valuable information to their individual transactions as new journal entries are created
and when checking the previous entry, to look up backup information. Changes in each
transaction can be monitored and the accounting personnel's ability to remain on top of
all moving components further improved.

Users: Xero stands out from its competitors due to the fact that it offers the capability to
have an unlimited number of users across all of its models. Each user is also given
certain permissions, so each person can have a certain amount of control and limits
(Fraser, 2017).

Mobile App: The Xero mobile app allows for the user to reconcile bank transactions,
capture and approve expenses, create and send invoices, and communicate with
customers. Permissions can also be set up for users on the mobile app (“Xero Mobile
Accounting App,” 2017).

Fixed Asset Management: Xero is the only option of the three that offers fixed asset
management. Xero offers the ability to keep track of the company’s fixed assets and
can depreciate them automatically. When a fixed asset is put into the system, the user
can choose between the straight line method and the declining balance method.
On the other hand, according to an article on the Pros and Cons of Xero Accounting
Software (2019), the following are the reported drawbacks of the Xero Program:

DISADVANTAGES OF XERO ACCOUNTING SOFTWARE

• No inventory tracking

• Presence of restrictions

• Learning Curve

• Not suitable for complex processes

• Unreliable support

• Robust invoice system

• Limited mobile apps

• Limited expense claims

• No paid notification

• No partial payment from the client

No inventory tracking: The smaller version of Xero doesn't’t allow inventory tracking or
purchase orders.
Restrictions: The starter pack has restrictions on the number of transactions which can
be done per month and users can’t use multiple currencies.
Learning curve: Many Xero users say it is not very intuitive and there is some learning
curve. The new dashboard organization is not as great as the old one. Users need to
have an experienced Xero accountant to help them with all the transactions.
Not suitable for complex processes: Xero is great for small businesses. It doesn't
work well with bigger or complex business processes. It is limited to some business.
Lack of stock control feature limits the use of software in foreign exchange transactions
and stock control businesses.
Unreliable support: The customer care support system is very slow and most of the
time unreliable. No telephone support at all and their communication is via email which
at times takes a day before users get a response.
Robust invoice system: The software needs a more robust invoicing system with more
payment provider add-on in order to accept payments via ACH instead of relying on
credit cards only. There is only one payment option for the clients to use.
Limited mobile apps: Mobile functionality apps are not as great as compared to the
desktop version. There are a lot of bugs and errors reported for the iPhone apps.
Limited expense claims: It does not offer multi-currency support and payroll in its price
plans. Project management is also limited to the most expensive plan and users are
complaining of the increased price.
No paid notification: The software does not notify users once the invoice is paid by a
client. To confirm payment, users have to log in to the account and check for payments
on the invoices.
No partial payment from the client: If a client wants to have half the amount, they
can't use the “pay now” feature which allows them to pay the full amount. To pay a
partial amount, they have to send money and then manually apply the partial payment
to the invoice.

Xero Models

Xero has three different models that it provides for its cloud accounting services. The
difference in price between the Starter, Standard, and Premium models is due to
limitations on sending invoices, entering bills, reconciling bank transactions, and
processing payroll. The Starter model only allows the user to send five invoices, enter
five bills, and reconcile twenty bank transactions. The other models are completely
uncapped. The Starter model also does not include payroll, while the Standard allows
up to five employees and the Premium can range from 10-100. Aside from that, almost
all features are streamlined across each model (“Xero Product Plan Comparison,”
2017).