Accounting issues have by no means been a straightforward challenge to resolve, however in the present day presents some distinctive challenges. The IRS is ramping up its compliance and audit efforts whereas cross-border commerce and transactions improve complexity for corporations of all sizes. Though the Monetary Accounting Requirements Board (FASB) claims to be attempting to maintain GAAP accounting necessities nimble and fewer burdensome, these on the tail finish of their choices typically really feel in a different way.
However in the present day’s period in accounting presents new options to outdated and ongoing issues in accounting. Synthetic intelligence, finance automation software program, and streamlined information analytics mix with easier cost processing strategies and different next-gen tech to make your accounting staff’s lives simpler.
Nonetheless, although some points in accounting are new based mostly on shifting occasions, others are fixed and have plagued executives for many years. Work along with your staff to know a few of in the present day’s high accounting issues – and the best way to greatest handle them.
What Are Accounting Issues?
Accounting issues vary in severity, complexity, and frequency. However, whereas the small print fluctuate, the core definition of accounting issues doesn’t. Accounting issues are any identifiable, preventable accounting issue that contributes on to a tangible damaging end result inside what you are promoting, together with:
- Inaccurate monetary statements and regulatory filings.
- Bodily and digital safety dangers, together with fraud.
- Outdated accounting requirements utilization.
- Detrimental audit outcomes.
The key phrase in our definition is preventable. Different elements, unexpected and unpredictable, can impression what you are promoting negatively. The trick with managing accounting issues is that every of them is avoidable – when you’ve got the information, foresight, and instruments to fight them,
What Causes Accounting Issues?
The foundation trigger of each accounting downside is implied above – if you happen to don’t have the information, foresight, or instruments to battle accounting issues, you’re not outfitted to take care of them earlier than they come up.
Past conceptual causes, although, materials causes embody (amongst many others):
- Missing inside controls contributing to unnoticed human error and fraud.
- Monetary groups not conducting common coaching or protecting abreast of adjusting laws and reporting requirements.
- “Single factors of failure,” the place your monetary and accounting cycle depends on a sole particular person whether or not on account of staffing considerations, competency, or coaching.
- Moral causes that contribute to fraud, and even “smooth fraud” whereby staff creatively interpret data to color an artificially rosy image.
The High Ten Accounting Issues
No group is ideal, and chances are high excessive that your agency wants enchancment inside not less than considered one of these domains. That isn’t unhealthy, although – what’s unhealthy is figuring out a problem and never appearing upon it. Bear in mind, step one in addressing your accounting issues is creating the information to identification and act upon them, so understanding the place your agency falls quick kickstarts the method of optimizing your enterprise.
The Securities and Trade Fee (SEC) is ramping up its enforcement efforts and prosecuted 9% extra enforcement violations in 2022 than final 12 months. Bear in mind, the SEC gained’t settle for ignorance as an excuse for mismanaging accounting issues, and neither do you have to.
1. Human Error and Inaccurate Information Entry
Human error is the commonest accounting downside, costing firms hundreds of thousands of {dollars} yearly. Manually managing 1000’s of strains of transactional accounting isn’t straightforward, and time strain coupled with exhaustion can create sloppiness that creates a catastrophic snowball impact over time. These issues vary from easy, similar to double vendor funds, to far harder to untangle, like inadvertently lacking payroll.
Answer: Accounting automation instruments with baked-in validation checks and error notifications go a great distance in direction of eradicating human error parts from the equation however aren’t a closing resolution. You’ll nonetheless must implement strong workers coaching, each throughout onboarding and on an ongoing refresher foundation. Third-party or automated audits, critiques, and reconciliation additionally assist as a set of recent eyes would possibly catch errors these with pores and skin within the recreation (or easy stat exhaustion) can’t.
2. Money Movement Administration and Assertion Accuracy
Your revenue assertion would possibly paint a rosy image, however if you happen to can’t handle your money stream, you’re in hassle – particularly as larger charges improve borrowing prices and make credit score administration a trickier proposition.
Even when your bodily money administration methods are stable, protecting your money stream assertion compliant is one other matter. Guidelines change typically, and the SEC notes that “preparers and auditors could not at all times apply the identical rigor and a spotlight to the assertion of money flows as they do to different monetary statements.”
Answer: The answer to this accountancy challenge is double-pronged: First, guarantee your accounting staff is as diligent along with your money stream assertion as different filings. Matching money stream throughout all three classes is hard, particularly if abroad transactions and foreign money trade have an effect on your backside line, however many accounting instruments may also help function a significant assistant within the course of. Second, develop a system like a third-party auditor to examine your money stream assertion from an exterior, unbiased perspective.
3. Strategic Monetary Evaluation
Certainly one of in the present day’s high commodities is information, however many corporations don’t leverage the depths of information they generate in relation to monetary evaluation. Even corporations digging into granular elements of selling and productization typically overlook the profit that rigorous and goal strategic monetary evaluation presents.
Answer: Your monetary platform possible presents instruments to mine present information. Some additionally provide analytics dashboards, whereas others require migrating to a third-party service, however extracting information from worth is a two-fold course of. Pulling the info tends to be the straightforward half, whereas consolidating it right into a digestible and accessible dashboard to ship perception could be elusive.
Bear in mind, not everybody has the time or inclination to review reams of accounting documentation. To greatest derive efficient and actionable perception out of your information, it must be delivered in a format that helps stakeholders determine tendencies to form decision-making with a fast look.
4. Fraud, Waste, and Abuse
Whereas we’d prefer to assume staff, and even managers, wouldn’t defraud an organization, the actual fact stands that human nature creates incentives that may ship even essentially the most trustworthy employees down a nasty path. Even in instances the place fraud by no means occurs, sloppy monetary administration can create vital wastage and pointless expense.
Answer: You must have a sturdy sequence of checks on expense administration, with specific consideration paid to approval workflows and order matching. Moreover, it’s best to schedule recurring critiques of your workflow processes, even if you happen to handle a sturdy automated expensing and procurement system.
Sustaining an inside veil between departments and even particular person staff whereas making certain a sole staffer doesn’t have unique entry additionally helps stop cost fraud.
5. Account Reconciliation
If you happen to don’t reconcile accounts correctly, you’re in for a world of ache. Unreconciled accounts can paint a rosy image on paper however depart you holding the bag when your real-world balances don’t match. On the similar time, slipping barely can compound quickly as a missed reconciliation on a single account in a single interval can snowball right into a six-figure error a 12 months later.
Answer: This accounting downside is simple – reconcile your accounts typically and precisely. Make certain your accounting staff’s entry runs the gamut of credit score, banking, and different accounts to verify nothing slips beneath the radar. Centralizing your account administration on a single database tends to be a great observe, particularly if your organization juggles many accounts directly.
6. Safety and Inner Controls
Too typically, corporations face considered one of two accountancy challenges associated to inside controls. They both rely an excessive amount of on just some staff with out exterior validation checks or outsource every little thing to software program and undertake a “hands-off” method. Each vital accounting challenges can carry a well-run firm to its knees.
Answer: If you happen to can’t hold a considerable separation between staff, i.e., operating a small operation, you’ll must put aside time to validate approvals as they route personally. It’s burdensome and time-consuming, however the results of not doing so are far worse. If you should use automated accounting software program to implement controls, make sure you’re nonetheless conducting common critiques of the workflows to make sure they continue to be correct and helpful.
7. Misaligned Income Recognition
Correctly recognizing income is hard, particularly for subscription-based corporations like SaaS corporations. Worse but, there’s an incentive to improperly time income recognition, as “borrowing” income in the present day from tomorrow’s earnings can artificially inflate present studies and assist enhance an organization’s picture. However that short-lived enhance tends to break down rapidly as soon as the invoice comes due.
Different misaligned income recognition contains channel stuffing, the place corporations push merchandise to distributors with out the required demand sign to pump gross sales stats. Some corporations may even falsify income, significantly in cash-based companies, however the trick doesn’t normally go unnoticed for lengthy.
Answer: Guarantee your accounting platform has correct income recognition controls, and develop your working process to deal with circumstances wherein there’s a level of uncertainty or room for interpretation. You’ll additionally want to make sure your accounting workers is up-to-date on altering accounting necessities and requirements to keep up compliance as regulatory steering evolves.
8. Non-Money Bills
Any time monetary engineers, irrespective of how skilled, start working with non-cash bills, room for error multiplies. In some instances, the foundations supporting non-cash bills are unclear; in others, they’re open sufficient to interpretation that one accountant would possibly generate a really totally different sequence of figures for a similar circumstance.
Bear in mind, non-cash bills embody:
- Depreciation and amortization
- Depletion
- Asset impairment
- Inventory-based compensation
Asset impairment is without doubt one of the commonest non-cash expense accounting issues. Figuring out worth through mark-to-market accounting calls for nuanced market understanding, correct outlook, and honesty. For instance, valuing belongings like actual property requires a detailed have a look at native market elements, present situation, and the way lengthy the corporate has held the true property asset. Relying on a person accountant’s perspective, an actual property asset may very well be “price” a lot kind of than one other’s evaluation of the identical property. Inaccurate non-cash expensing can, subsequently, create an artificially inflated stability sheet and trigger concern that your organization is deceptive traders.
Answer: The easiest way to mitigate accounting points related to non-cash bills is to have a complete normal working process for widespread gadgets. Even easy non-cash bills, like depreciation, ought to be meticulously prescribed to your monetary staff (i.e., whether or not an merchandise depreciates alongside a straight line, through items of manufacturing, and many others.). If you happen to’re a smaller agency, your CFO or monetary controller ought to prioritize codifying an SOP that addresses all non-cash bills to save lots of time and forestall authorized entanglement later.
9. Payroll Errors or Inefficiencies
Smaller corporations can’t normally afford to outsource their payroll, retirement advantages, and tax administration necessities. That is comprehensible since third-party corporations are expensive and infrequently pointless for corporations with only a handful of staff. However, whenever you depend on much less skilled inside belongings to handle payroll, you open the door to vital issues in accounting. Sure profit and tax constructions are complicated to navigate solo, however even fundamental wage funds are liable to miscalculation and error.
Answer: Bear in mind – your staff are your biggest asset, and payroll errors are an effective way to create dissatisfied workers. If you happen to can’t afford to wholly outsource your payroll administration, discover a software program resolution that successfully serves your organization’s cost and compensation construction. You may additionally wish to spend the money up entrance for consulting to get a stable system in place and pay for recurring audits alongside the way in which to make sure you stay on monitor.
10. Know-how Challenges
Not all of us are digital natives and sure sectors of the workforce battle to adapt as accounting tech evolves. On the similar time, your organization is perhaps completely depending on outdated guide instruments to stability the books and handle provider cost accounts. Whereas these programs and instruments might need labored effectively prior to now, shifting tendencies level to an imminent must ditch outdated monetary software program in favor of one thing cloud-based and simply built-in inside your present workflow.
Answer: Coaching, irrespective of your platform of alternative, is step one to making sure everybody understands the instruments they’re given. Past that, relying in your firm’s circumstances, you’ll be able to clear up this accounting downside by exploring instruments that supply:
- Cost administration throughout a spectrum of strategies (ACH, examine, card, and many others.)
- BI and information analytics (see the third accounting downside)
- Recurring invoice administration
- AP automation and automatic buyer billing options
Conclusion
We’ve referenced it quite a bit in relation to fixing your accounting points, however automated monetary and accounting instruments go a great distance towards fixing issues in accounting. At their baseline, efficient automated accounting instruments unencumber untold quantities of time in comparison with manually managing your funds, releasing your staff as much as give attention to enterprise development and operational optimization.
On the similar time, these instruments assist stop catastrophic outcomes – within the occasion of fraud or regulatory noncompliance – whereas protecting distributors and prospects joyful by providing well timed and accessible cost choices. Additionally they bundle a set of safety providers to handle documentation long-term and hold your (and your prospects’) data protected.