Accuracy, transparency, and comprehensiveness are the hallmarks of effective accounting. But for businesses without rock-solid internal controls and strict adherence to generally accepted accounting rules, financial reporting errors can create time-consuming and expensive headaches that drain profits and thwart growth.
Inaccuracies on a company’s financial statements represent a serious threat to the health and productivity of a business. Fortunately, with an intelligent and proactive approach, you can address and eliminate the most common errors in financial reporting that rob businesses of cash flow, goodwill, and opportunities for innovation and expansion.
The High Cost of Financial Reporting Errors
Like all business processes, financial accounting is subject to the occasional error. These can range in severity from minor calculation errors, transpositions, and other data entry problems to severe violations like fraud, material misstatement, and violation of corporate finance law.
But whether you run a small business or are part of a finance team for a global conglomerate, it’s impossible to achieve accurate and intelligent data analysis, forecasting, or decision making with balance sheets and other financial statements that are rife with errors. It’s a snowball effect that can bring even a thriving company to its knees.
For example, inaccuracies in accounts payable (AP) reporting for committed spend or accruals for month or year-end can wreak absolute havoc with cash flow. Without a complete picture of capital committed to existing projects or a clear idea of what’s going out and coming in, it’s all too possible to find yourself without the capital necessary to cover a production emergency, potentially profitable expansion opportunity, or R&D for an innovative new product.
In addition, inaccuracies of all kinds can trigger internal and external accounts payable audits and, subsequently, the need for restatement of earnings. A 2018 study by Audit Analytics found that during just the first six months of 2018, 65 major companies—including Seneca Foods and Camping World Holdings—discovered accounting errors serious enough to require a complete restatement and refiling of their respective financial filings with regulators. So in addition to the losses generated by correcting the errors in the financial statements, these companies also lost time and productivity to time-consuming corrections.
The need for such corrections can create another cost for companies that’s much more difficult to track and quantify: loss of reputation and public trust. Whether driven by scandal, process inefficiencies, or good old-fashioned human error, a very public demonstration of ineffective and error-riddled accounting practices can leave a company reeling from loss of revenue and reputation. Beyond losing customers and clout, public companies that continually struggle with inaccurate financial reporting may lose investors, as well as investment opportunities and loans from corporate finance companies wary of throwing good money after bad.
“It’s a brave new digital world, and with the global datasphere set to hit 175 zettabytes (ZB)—that’s 175 trillion gigabytes (GB)—by 2025, companies who can’t or won’t embrace the benefits and necessity of automation, artificial intelligence, and real-time deep data analytics simply won’t be able to keep up with industry and governmental compliance and financial reporting requirements—or their competition.”
Technology Supports a Preventative Approach to Financial Reporting Errors
Resistance to digital disruption costs companies in multiple ways, and one of the most prominent is perpetuation of outdated and inefficient processes in the procurement and AP function. It’s a brave new digital world, and with the global datasphere set to hit 175 zettabytes (ZB)—that’s 175 trillion gigabytes (GB)—by 2025, companies who can’t or won’t embrace the benefits and necessity of automation, artificial intelligence, and real-time deep data analytics simply won’t be able to keep up with industry and governmental compliance and financial reporting requirements—or their competition.
The benefits of an automated AP solution—elimination of human error; full data transparency for reporting and auditing; fraud and maverick spend prevention—are especially important for companies looking to stay compliant with the United States Securities and Exchange Commission (SEC)’s increasingly data-driven strategy and criteria for oversight.
Improved decision making from on-demand, fully mobile access and easy access to both powerful data analytics and enhanced data visualisation gives companies a smoother path to internal and external financial reporting, forecasting, and planning. With a complete and transparent view of available capital and your upcoming expenses and revenue, it’s much easier to plan for new products, strategic marketing initiatives, and partnerships with key suppliers, too.
Automation also provides a measure of insulation against auditing woes. A complete audit trail generated by a fully automated, cloud-based procurement process can readily withstand a deep dive from even the most stringent auditor while keeping downtime and the need for costly refilings to a minimum.
Choosing to streamline and optimise your procedures with automation and machine learning automatically positions your company ahead of the game instead of struggling to catch up.
Target the Specific Errors Plaguing Your Financial Reporting Process
While every company faces its own unique challenges, many companies experience one or more of these common errors as they look to improve their financial reporting process.
- Data gaps and inconsistencies. Do your financial reports contain comprehensive comparative data for prior years, quarters, and months? Are your data sets complete, and the relationship between key values explained in detail? Is data visualisation clear, concise, and versatile? If not, then it’s time to revisit your data management system.
- Financial statements with no real-world connection. Manual record keeping, procurement, and accounts payable processes can make it easy to let things “slide,” particularly in small businesses where staff hasn’t been adequately trained in the more rigorous aspects of bookkeeping. In the absence of auditing awareness and training, accounting staff can readily cook up all manner of jury-rigged shortcuts to keep the books balanced even while their relationship to actual cash flow grows ever more skewed.
Automation nips this shortcut mindset in the bud. With all transaction data automatically collected, connected, and fully visible, there’s no room for massaging numbers, fraud, rogue spend, or data entry errors. A complete audit trail gives your CFO peace of mind, thanks to clear, current graphs and charts for C-suite reviewers and on-demand, complete and concise financial reports for industry and government auditors.
- Insufficient cash flow forecasting. Cash flow is the lifeblood of any company’s operational health (and overall existence). A firm and complete understanding of historical, current, and projected cash flow is essential to manage capital investment, fund expansions, updates, or other large-scale spending, or negotiate favourable terms on working capital financing when forecasts reveal potential shortfalls.
Without monthly cash flow reports, periodic and yearly income statements, and projected cash flow forecasting, your company puts itself at needless risk of writing checks its capital can’t cash.
- Procedural inefficiencies. Another area where automation shines. In addition to removing the most obvious errors, omissions, and inconsistencies in your workflows, having full visibility of key performance indicators makes it easy to refine workflows further. You can also create contingencies, assign roles, and set up reminders to ensure all data is accurately collected, transparent and complete, and readily accessed for analytics and reporting.
In addition to automation, it’s essential to review and enforce best practices for the financial statement review process. All stakeholders should:
- Have a complete understanding of the reports they receive
- Be trained in proper review procedures for timeliness and completion
- Trained to identify and report any discovered errors
- Work with other stakeholders at their level to resolve these errors
- Escalate any anomalies that cannot be adequately addressed or explained
Automation supports this training, and the use of roles and workflows that automatically track review completion, document discrepancies, and support collaborative problem-solving.
It’s worth noting that automation also makes it much easier to conduct oversight and refinement of processes over time, as constant and real-time data collection reveals opportunities for further improvements.
Don’t Let Errors Rob Your Company of Credibility and Cash
When your company’s profitability and good name on the line, it makes sense to take every measure possible to ensure accurate and complete financial reporting. Take the time to identify the problems that create errors in your financial reporting workflows, and implement tools and techniques to mitigate or eliminate them. You’ll have the insights and cash flow you need for growth and innovation, the data you need for compliance and accountability, and, perhaps most importantly, a reputation for integrity and reliability.
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