Accounting issues have by no means been a simple difficulty to resolve, however at this time presents some distinctive challenges. The IRS is ramping up its compliance and audit efforts whereas cross-border commerce and transactions improve complexity for companies 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 usually really feel otherwise.
However at this time’s period in accounting provides new options to outdated and ongoing issues in accounting.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 crew’s lives simpler.
Nonetheless, although some points in accounting are new based mostly on shifting instances, others are fixed and have plagued executives for many years. Work together with your crew to know a few of at this time’s prime accounting issues – and the best way to finest deal with 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 destructive final result inside your online business, together with:
- Inaccurate monetary statements and regulatory filings.
- Bodily and digital safety dangers, together with fraud.
- Outdated accounting requirements utilization.
- Damaging audit outcomes.
The key phrase in our definition is preventable. Different components, unexpected and unpredictable, can influence your online business 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 – should you don’t have the information, foresight, or instruments to struggle accounting issues, you’re not outfitted to cope with them earlier than they come up.
Past conceptual causes, although, materials causes embody (amongst many others):
- Missing inner 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 on account of staffing issues, competency, or coaching.
- Moral causes that contribute to fraud, and even “smooth fraud” whereby workers 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 no less than one in every of these domains. That isn’t unhealthy, although – what’s unhealthy is figuring out a problem and never performing upon it. Keep in mind, step one in addressing your accounting issues is growing 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 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 do you have to.
1. Human Error and Inaccurate Knowledge Entry
Human error is the commonest accounting downside, costing firms tens of millions of {dollars} yearly. Manually managing hundreds of traces of transactional accounting isn’t straightforward, and time stress coupled with exhaustion can create sloppiness that creates a catastrophic snowball impact over time. These issues vary from easy, akin to double vendor funds, to far tougher 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 components from the equation however aren’t a closing answer. You’ll nonetheless must implement strong employees coaching, each throughout onboarding and on an ongoing refresher foundation. Third-party or automated audits, evaluations, 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’t.
2. Money Movement Administration and Assertion Accuracy
Your revenue assertion may paint a rosy image, however should you can’t handle your money move, you’re in hassle – particularly as greater charges improve borrowing prices and make credit score administration a trickier proposition.
Even when your bodily money administration methods are stable, retaining your money move assertion compliant is one other matter. Guidelines change usually, and the SEC notes that “preparers and auditors might not all the time 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 difficulty is double-pronged: First, guarantee your accounting crew is as diligent together with your money move assertion as different filings. Matching money move throughout all three classes is hard, particularly if abroad transactions and foreign money alternate have an effect on your backside line, however many accounting instruments will help function an important assistant within the course of. Second, develop a system like a third-party auditor to examine your money move assertion from an exterior, unbiased perspective.
3. Strategic Monetary Evaluation
One in every of at this time’s prime commodities is information, however many firms don’t leverage the depths of information they generate on the subject of monetary evaluation. Even companies digging into granular features of selling and productization usually overlook the profit that rigorous and goal strategic monetary evaluation provides.
Answer: Your monetary platform doubtless provides instruments to mine current 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 will be elusive.
Keep in mind, not everybody has the time or inclination to review reams of accounting documentation. To finest 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 workers, 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 foul path. Even in circumstances the place fraud by no means occurs, sloppy monetary administration can create vital wastage and pointless expense.
Answer: It is best to have a sturdy sequence of checks on expense administration, with specific consideration paid to approval workflows and order matching. Moreover, it is best to schedule recurring evaluations of your workflow processes, even should you handle a sturdy automated expensing and procurement system.
Sustaining an inner veil between departments and even particular person workers whereas guaranteeing a sole staffer doesn’t have unique entry additionally helps forestall cost fraud.
5. Account Reconciliation
For those who 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 yr later.
Answer: This accounting downside is straightforward – reconcile your accounts usually and precisely. Be certain that your accounting crew’s entry runs the gamut of credit score, banking, and different accounts to ensure nothing slips beneath the radar. Centralizing your account administration on a single database tends to be apply, particularly if your organization juggles many accounts directly.
6. Safety and Inner Controls
Too usually, firms face one in every of two accountancy challenges associated to inner controls. They both rely an excessive amount of on just some workers with out exterior validation checks or outsource the whole lot to software program and undertake a “hands-off” method. Each vital accounting challenges can carry a well-run firm to its knees.
Answer: For those who can’t hold a considerable separation between workers, i.e., working 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 evaluations 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 companies like SaaS firms. Worse but, there’s an incentive to improperly time income recognition, as “borrowing” income at this time from tomorrow’s earnings can artificially inflate present reviews and assist increase an organization’s picture. However that short-lived increase tends to break down shortly as soon as the invoice comes due.
Different misaligned income recognition contains 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.
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 employees is up-to-date on altering accounting necessities and requirements to keep up compliance as regulatory steerage evolves.
8. Non-Money Bills
Any time monetary engineers, regardless 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 completely different sequence 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 without doubt 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 property like actual property requires a detailed have a look at native market components, 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 “value” a lot roughly 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.
Answer: The easiest way to mitigate accounting points related to non-cash bills is to have a complete normal working process for widespread objects. Even simple non-cash bills, like depreciation, needs to be meticulously prescribed to your monetary crew (i.e., whether or not an merchandise depreciates alongside a straight line, by way of models of manufacturing, and so forth.). For those who’re a smaller agency, your CFO or monetary controller ought to prioritize codifying an SOP that addresses all non-cash bills to avoid wasting time and forestall 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 companies are pricey and sometimes pointless for firms with only a handful of workers. However, if you depend on much less skilled inner property 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.
Answer: Keep in mind – your workers are your best asset, and payroll errors are an effective way to create dissatisfied employees. For those who 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 might also need to spend the money up entrance for consulting to get a stable system in place and pay for recurring audits alongside the best way to make sure you stay on observe.
10. Expertise Challenges
Not all of us are digital natives and sure sectors of the workforce wrestle to adapt as accounting tech evolves. On the similar time, your organization may be completely depending on outdated handbook instruments to stability the books and handle provider cost accounts. Whereas these programs and instruments may need labored nicely up 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.
Answer: Coaching, regardless 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 possibly can remedy this accounting downside by exploring instruments that supply:
- Cost administration throughout a spectrum of strategies (ACH, examine, card, and so forth.)
- BI and information analytics (see the third accounting downside)
- Recurring invoice administration
- AP automation and automatic buyer billing options
Conclusion
We’ve referenced it rather a lot 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 release untold quantities of time in comparison with manually managing your funds, releasing your crew as much as give attention to enterprise development and operational optimization.
On the similar time, these instruments assist forestall catastrophic outcomes – within the occasion of fraud or regulatory noncompliance – whereas retaining distributors and prospects joyful by providing well timed and accessible cost choices. In addition they bundle a set of safety companies to handle documentation long-term and hold your (and your prospects’) data protected.