Accounting issues have by no means been a simple difficulty to unravel, 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 making an attempt 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 affords new options to previous and ongoing issues in accounting. Synthetic intelligence, finance automation software program, and streamlined knowledge analytics mix with less complicated 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 together with your staff to know a few of in the present day’s prime accounting issues – and methods 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 unfavourable final result inside your corporation, together with:
- Inaccurate monetary statements and regulatory filings.
- Bodily and digital safety dangers, together with fraud.
- Outdated accounting requirements utilization.
- Unfavourable audit outcomes.
The key phrase in our definition is preventable. Different elements, unexpected and unpredictable, can impression your corporation negatively. The trick with managing accounting issues is that every of them is avoidable – if in case you have the data, foresight, and instruments to fight them,
What Causes Accounting Issues?
The basis trigger of each accounting drawback is implied above – for those who don’t have the data, foresight, or instruments to struggle accounting issues, you’re not geared up 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 retaining abreast of fixing rules and reporting requirements.
- “Single factors of failure,” the place your monetary and accounting cycle depends on a sole particular person whether or not attributable to staffing issues, competency, or coaching.
- Moral causes that contribute to fraud, and even “tender fraud” whereby staff creatively interpret data to color an artificially rosy image.
The Prime Ten Accounting Issues
No group is ideal, and likelihood is excessive that your agency wants enchancment inside a minimum of certainly one of these domains. That isn’t dangerous, although – what’s dangerous is figuring out a problem and never appearing upon it. Keep in mind, step one in addressing your accounting issues is growing the data to id and act upon them, so understanding the place your agency falls quick kickstarts the method of optimizing your enterprise.
The Securities and Change Fee (SEC) is ramping up its enforcement efforts and prosecuted 9% extra enforcement violations in 2022 than final yr. Keep in mind, the SEC received’t settle for ignorance as an excuse for mismanaging accounting issues, and neither must you.
1. Human Error and Inaccurate Information Entry
Human error is the commonest accounting drawback, costing companies hundreds of thousands of {dollars} yearly. Manually managing hundreds of strains of transactional accounting isn’t simple, and time stress coupled with exhaustion can create sloppiness that creates a catastrophic snowball impact over time. These issues vary from easy, corresponding to double vendor funds, to far tougher to untangle, like inadvertently lacking payroll.
Resolution: Accounting automation instruments with baked-in validation checks and error notifications go a good distance in direction of eradicating human error parts from the equation however aren’t a closing answer. You’ll nonetheless must implement sturdy 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 contemporary eyes may catch errors these with pores and skin within the sport (or easy stat exhaustion) can not.
2. Money Circulation Administration and Assertion Accuracy
Your revenue assertion may paint a rosy image, however for those who can’t handle your money movement, you’re in bother – particularly as greater charges improve borrowing prices and make credit score administration a trickier proposition.
Even when your bodily money administration methods are strong, retaining your money movement assertion compliant is one other matter. Guidelines change typically, and the SEC notes that “preparers and auditors could not all the time apply the identical rigor and a focus to the assertion of money flows as they do to different monetary statements.”
Resolution: The answer to this accountancy difficulty is double-pronged: First, guarantee your accounting staff is as diligent together with your money movement assertion as different filings. Matching money movement throughout all three classes is hard, particularly if abroad transactions and foreign money change have an effect on your backside line, however many accounting instruments will help function a significant assistant within the course of. Second, develop a system like a third-party auditor to test your money movement assertion from an exterior, unbiased perspective.
3. Strategic Monetary Evaluation
Certainly one of in the present day’s prime commodities is knowledge, however many firms don’t leverage the depths of information they generate relating to monetary evaluation. Even corporations digging into granular facets of promoting and productization typically overlook the profit that rigorous and goal strategic monetary evaluation affords.
Resolution: Your monetary platform doubtless affords instruments to mine current knowledge. Some additionally supply analytics dashboards, whereas others require migrating to a third-party service, however extracting knowledge from worth is a two-fold course of. Pulling the info tends to be the simple half, whereas consolidating it right into a digestible and accessible dashboard to ship perception might be elusive.
Keep 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 knowledge, it must be delivered in a format that helps stakeholders establish tendencies to form decision-making with a fast look.
4. Fraud, Waste, and Abuse
Whereas we’d wish to suppose staff, and even managers, wouldn’t defraud an organization, the very fact stands that human nature creates incentives that may ship even essentially the most trustworthy employees down a nasty path. Even in circumstances the place fraud by no means occurs, sloppy monetary administration can create vital wastage and pointless expense.
Resolution: It is best to have a strong collection 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 for those who handle a strong automated expensing and procurement system.
Sustaining an inside veil between departments and even particular person staff whereas guaranteeing 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 go away 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 yr later.
Resolution: This accounting drawback is straightforward – reconcile your accounts typically and precisely. Be sure that your accounting staff’s entry runs the gamut of credit score, banking, and different accounts to verify nothing slips below the radar. Centralizing your account administration on a single database tends to be a superb apply, particularly if your organization juggles many accounts without delay.
6. Safety and Inner Controls
Too typically, firms face certainly 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 all the things to software program and undertake a “hands-off” strategy. Each vital accounting challenges can deliver a well-run firm to its knees.
Resolution: If you happen to can’t preserve 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 utilize 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 firms. 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 reviews 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 consists of channel stuffing, the place firms push merchandise to distributors with out the mandatory demand sign to pump gross sales stats. Some firms may even falsify income, significantly in cash-based companies, however the trick doesn’t often go unnoticed for lengthy.
Resolution: Guarantee your accounting platform has correct income recognition controls, and develop your working process to deal with circumstances during which 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 take care of compliance as regulatory steerage 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 circumstances, the foundations supporting non-cash bills are unclear; in others, they’re open sufficient to interpretation that one accountant may generate a really totally different collection of figures for a similar circumstance.
Keep in mind, non-cash bills embody:
- Depreciation and amortization
- Depletion
- Asset impairment
- Inventory-based compensation
Asset impairment is likely one of the commonest non-cash expense accounting issues. Figuring out worth by way of 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, due to this fact, create an artificially inflated stability sheet and trigger concern that your organization is deceptive buyers.
Resolution: One of the simplest ways to mitigate accounting points related to non-cash bills is to have a complete customary working process for widespread gadgets. Even simple non-cash bills, like depreciation, needs to be meticulously prescribed to your monetary staff (i.e., whether or not an merchandise depreciates alongside a straight line, by way of models of manufacturing, and so on.). 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 stop authorized entanglement later.
9. Payroll Errors or Inefficiencies
Smaller firms can’t often afford to outsource their payroll, retirement advantages, and tax administration necessities. That is comprehensible since third-party corporations are expensive and sometimes pointless for firms with only a handful of staff. However, once you depend on much less skilled inside belongings to handle payroll, you open the door to vital issues in accounting. Sure profit and tax buildings are advanced to navigate solo, however even fundamental wage funds are susceptible to miscalculation and error.
Resolution: Keep in mind – your staff are your biggest asset, and payroll errors are a good way to create dissatisfied workers. If you happen to can’t afford to wholly outsource your payroll administration, discover a software program answer 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 strong system in place and pay for recurring audits alongside the way in which to make sure you stay on observe.
10. Expertise 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 could be completely depending on outdated handbook instruments to stability the books and handle provider cost accounts. Whereas these programs and instruments may need labored properly 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 current workflow.
Resolution: Coaching, irrespective of your platform of selection, is step one to making sure everybody understands the instruments they’re given. Past that, relying in your firm’s circumstances, you possibly can clear up this accounting drawback by exploring instruments that provide:
- Fee administration throughout a spectrum of strategies (ACH, test, card, and so on.)
- BI and knowledge analytics (see the third accounting drawback)
- Recurring invoice administration
- AP automation and automatic buyer billing options
Conclusion
We’ve referenced it loads in relation to fixing your accounting points, however automated monetary and accounting instruments go a good distance towards fixing issues in accounting. At their baseline, efficient automated accounting instruments unlock untold quantities of time in comparison with manually managing your funds, releasing your staff as much as give attention to enterprise progress and operational optimization.
On the similar time, these instruments assist stop catastrophic outcomes – within the occasion of fraud or regulatory noncompliance – whereas retaining distributors and prospects pleased by providing well timed and accessible cost choices. Additionally they bundle a collection of safety companies to handle documentation long-term and preserve your (and your prospects’) data protected.
