Claudia Pirko discusses how to support accounting and finance compliance with the right systems and processes.
As accountants, we know compliance means making sure a company’s accounting and finance functions are operating in accordance with laws and regulations. But how can we be sure we’re staying on top of those ever-changing compliance requirements?
Is the goal of “achieving compliance” like assembling furniture? It’s easy. These 16 screws go here and these two eerily similar looking screws go here. And this panel magically fits on top. The only problem is it is not that easy.
Luckily – unlike those “clear as mud” instructions – achieving compliance in your accounting and finance organisation can be straightforward with the right tools and processes. Like furniture assembly, it’s best to take a step-by-step approach to compliance by identifying and sorting all of the pieces first, matching them up to the manual, and then starting with step one.
Don’t skimp on substantiation
Various government regulations all require balance sheet substantiation, or the process of periodically confirming that ERP balances reconcile with transactional records and are corroborated by supporting documentation.
Traditionally, accounts are reconciled using spreadsheets and this is very manual and error prone. It’s like trying to build that bookcase without a guide. There’s an intrinsic lack of visibility throughout the process – a transparency that management needs to course correct when necessary to gain confidence in the completeness and accuracy of the reported balance sheet.
In some cases, transaction volumes are so high that many companies don’t reconcile all accounts prior to reporting – adding to the risk of misstatement. Without a platform to automate and transform this process, balance sheet integrity is often nothing more than an abandoned stack of shelves.
The challenge of a high volume of projects
Have you ever purchased an entire room full of furniture at once? Which pieces would you delegate to your partner and be able to trust that they’ll correctly follow each step? Similarly, the substantiation process for certain balance sheet accounts requires reconciliation at the transactional level; however, accounts that fall into this category are often high-volume, which adds to the complexity, risk, and time investment.
In many organisations, historically-applied logic is not documented well, and accounting teams are over-reliant on “tribal knowledge” which creates additional risk. These human-dependent approaches are not scalable, repeatable, or transferrable. Processes lack visibility and control, and often do not result in a high probability that exceptions are reported correctly and resolved in a timely manner. Look at handing off this tedious, high-volume process to someone, or something, you can trust.
Be Flux-ible with your analysis
If your firm is required to do flux analysis (identifying and analysing changes) the lure of this simple concept can be quickly spoiled by poor execution. In fact, flux analysis can be so daunting that businesses often wait until the end of the month, if at all, to compile and analyse variances. This involves rifling through Excel files, disparate databases and emails, manually inputting balances into a spreadsheet, and resurfacing the ole VAR function to calculate changes.
What’s the point of even doing this analysis if the numbers are outdated and management has moved on to more pertinent issues for next quarter? Imagine comparing your finished bookcase – something you poured passion, blood, sweat, and tears into – with the picture, and realising yours doesn’t look remotely similar. That’s why it’s important to analyse progress throughout the process so you can catch mistakes before it’s too late.
Collate your journal entries
You probably won’t ever write a novel about your furniture building adventures, but journal entries do require robust and timely documentation.
The average enterprise accounting department posts thousands of journal entries each period and each must be prepared, supported and approved, resulting in significant manual effort. Many journal entries also impact the balance sheet, and therefore must be substantiated with the same type of supporting documentation.
The journal entry process often involves checklists or email and hard copy sign-offs to ensure completeness, internal controls are supported and to maintain an appropriate audit trail. Look for solutions which ensure journal entries are properly supported in one centralised location.
Reduce the risk of manual processes with technology to capture workflows and supporting documentation, but also automate certain entries. Journal entries can also be tied to their related balance sheet reconciliations, which saves additional time.
With everything in one place you will eliminate the chore of running around the office (or multiple furniture stores) looking for what you need.
With the proper tools, controls are embedded in day-to-day activities with documented workflows and full audit trails. And achieving compliance actually does become as simple as it sounds.
Claudia Pirko is Australia and New Zealand regional vice president at financial automation software provider, BlackLine.