IT and Legal Accounting, Revolutionising or Taxing?

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Accounting is the language of business, and every accountant knows this. And that language has gone through many changes throughout the ages. From being studied on an abacus to being revolutionised on software, changing the game completely. But with progress comes drawbacks. Whilst embracing technology can make life easier in the accounting world, with a particular focus on Legal Accounting, is everything simple, or are there some problems behind the facade? What is Accounting and Legal IT?

Law firms have unique accounting requirements. Firms need to handle clients’ money entirely separate from their office account; they also need to record disbursements against clients, record time and costs for work done and produce correct invoices and bills, all whilst ensuring they are abiding by the rules and regulations stipulated by government bodies. 

However, a Legal Accountant also needs to understand the basic language of accounting, the general accounting principles, and practices and be trained in financial areas unique to the legal profession. The projects themselves might be exclusive to working in legal accounts, for example, trust accounting, where the money is held safe for someone until certain conditions.

With all of this in mind, Legal Accountants may be thankful for what seems to be a threat actually offering a significant opportunity; embracing technology can be groundbreaking. 

What are the pros of technology?

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Towards the end of the twentieth century, the accounting profession began to get a makeover. Computers and accounting software were groundbreaking. With programs such as Microsoft Excel, an accountant now has an electronic spreadsheet. Technology eliminated the need for Adding Machines, Calculators, Ledgers, and pencils. With the computer’s use, an accountant can now perform statistical accounting or forecasting analysts with greater efficiency. Information is available at the click of a mouse. 

So, it is no secret that the future of legal technology like this; could transform legal accounting practice. In fact, the adoption of software solutions has already begun to help both individuals and taxpayers file their income and taxes. 

Law firms already have to wade through complex requirements to maintain trust and accounting compliance and keep up with proper record keeping. However, with the advance in technology, there is software that can do this for them. There is software available that can safeguard to prevent overdrafts, which can tie entries to specific matters. To look at individual client ledgers, even pooled trust accounts and can also prevent the mingling of a firm and client funds. And it gets better; with technology, you can have your bank account feeds tied into your accounting program. This makes reconciliation easy and fast and eliminates the need for manual calculations. 

Keeping tabs on matter costs and assigning them to the proper categories is also apart of good bookkeeping and could help a legal accountant determine what changes might need to be made. With IT, it can automatically assign particular charges and entries to either soft or hard costs. Knowing these ahead of time creates consistency in how these are recording, and simplifies the process while removing the need for someone to look at each entry and assign it. 

And last but not least, Legal Accounting software can also make revenue distribution easier. Taking in law firm revenue would be easier if it was just applied to a client account. Instead, it needs to be applied meticulously and in the following order: 

1. Taxes, 
2. Cost recovery including reimbursement client costs
3. Late fees and finance charges
4. Fee income
5. Discounts

Doing this manually can be tedious and open up to inaccurate allocations. However, technology and software can take any revenue and apply them to appropriate amounts automatically.

So far, IT and technology can be painted picture-perfect in helping Legal Accountancy, so many of the accounting process components can be simplified with technology as the right tool, giving accuracy, extra time, and information required for informed decision making and compliance. However, not everything is sunshine and rainbows. What about the darker side of technology, and does the convenience of it override the bad?

What are the Cons of Technology?

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Cyber-attacks against law firms are increasingly targeted due to the vast amounts of money, information, and client data they retain. This is a troubling realisation, considering that a firm is inherently built upon a client’s strict confidence and trust. Even taking this into account, many firms do not even know when they have been compromised or when a cyber-attack takes place. By the time they realise, significant damage may have already been done. 

There are over 4,000 cyber attacks every day that is 170 attacks every hour. The concentration of cyber attacks against law firms was highest among larger organisations, with 90% of the top 25 law firms experience a threat. 

The question is, what happens if or when this happens? What can you do to safeguard your company from cyber-attacks? According to Tech Seek, one of the steps is to make sure all staff are educated on becoming more aware of phishing emails. Many phishing emails are poorly designed with bad grammar, but others look legitimate enough for someone to click if they may not be paying close attention. It is all about knowing the difference and being educated on the difference. 

Furthermore, if there was ever a cyberattack, peace of mind can be restored with a date back up solution, both cloud-based and onto an external hard drive. Ensuring every device that holds protected data has adequate protection is important because it only takes one vulnerable device with access to shared files to do damage.

This may seem overzealous; however, if something like a malicious outside attack occurs, there will need to be serious measures to make sure it never happens again. 

So, coming full circle, is technology a hindrance to legal accounting, or can it help? An important mindset to remember is that it is not what technology can do to you; it’s what it can do for you. At the end of the day, legal accounting’s future relies on progression and embracing technology to allow more informed decision making and more compliance. Whilst accounting will never be easy, embracing technology can help if treated properly and efficiently educated.