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What to Expect From Accounting

by Jim Gentry

Webster’s Dictionary defines accounting as “a system that provides quantitative information about finances.” Accounting departments often are responsible for a wide range of tasks, ranging from high-level management decisions to purchasing stamps at the post office. It is easy for departments to lose focus of their basic mission. The following is a top seven list for a well tuned accounting department.

1. Timely Financial Information—To make informed decisions about the company’s direction, management needs timely financial information. Some accounting departments are able to prepare financial statements within one day of month-end, while others take months to prepare. A well-tuned accounting department should consistently produce accurate monthly financial statements within 10 business days. An additional week or two may be needed at year end.

2. Analysis And Commentary—The accounting department should always review financial reports for accuracy before submission to management. Users of financial information can lose confidence very quickly if errors are continuously presented. Because management will be making decisions based on this information, analysis and commentary are always welcome. Well-tuned accounting departments allocate time to perform the necessary financial statement analysis.

3. Relevant Financial Information—Accounting departments should not overload management with numbers and paper. Instead, they should summarize information wherever possible. Management is busy and the less time spent sorting through the numbers the better. Accountants should ask the users of financial reports what information they would like to have, as well as what they don’t need. Everyone involved should keep an open mind. Information on the number of units sold may be more useful than just the dollar amount of units sold. Ratios and results compared to industry averages can also be insightful.

4. Budgets—Budgets are an excellent tool to help achieve desired results. Most accounting software packages allow for the input of budgets and can generate report comparisons. Some accounting departments use the prior year numbers on comparative financial statements as a budget. This can be useful, but they may wind up with prior year results instead of desired results. Budgeting can especially be useful in maintaining control over operating expenses.

5. Cross Training—Well-tuned accounting departments cross-train their associates. The primary reason to do so is to prevent a crisis if someone is sick or leaves. Cross-trained departments also operate more efficiently because associates see more of the big picture and are not just performing a task because it has always been done. Far too many accounting departments do not fare well in this area.

6. Fraud Prevention—All companies need internal controls in place to safeguard their assets and prevent fraud. The most susceptible area for fraud is cash on hand or in company bank accounts. Other areas at risk are inventories and fixed assets, depending on their marketability and value. A good internal control system will either prevent fraud from occurring in the first place or uncover it within a short period of time. The control possibilities are too numerous to enumerate here, but a fairly easy way for an owner to obtain some comfort over company bank accounts is to receive the unopened bank statements at home and spend a little time reviewing the canceled checks and other activity for reasonableness.

7. Documentation Of Procedures—There is generally a good reason why the accounting department performs each of its procedures. Companies can wind up with incorrect financial statements if all of the accounting procedures are not completed. A well-tuned accounting department documents its procedures in a manual. Documentation of procedures can also be helpful when training new employees, as well as providing a good reference point when evaluating system changes. The manual should be updated on a regular basis.

Companies interested in tuning up their accounting departments should set realistic goals. Change can be difficult and threatening. The cost vs. benefit of any changes should also be considered. The use of consultants can be helpful during this process. Everyone involved should keep in mind the purpose as well as the mission of the accounting department during this process. May your well-tuned accounting engines run smoothly!

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The Carnival Blog on Corporate Vigilance has chosen this article as one of its “best of the week” (April 14th) picks. You can see it and many other wonderful, inspiring and informational articles at Corporate Vigilance.

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