The financial reporting process is considered by many to be the most important function of the accounting system. However, even the best accounting systems cannot overcome flawed financial reporting processes. To decide if the financial reporting process is problematic, first answer the following five questions:
If you answer no to one or more questions, it indicates that efforts need to be made to strengthen reporting. Below is a list of common mistakes that companies make in connection with their financial and information reporting projects and suggestions for avoiding them in the future. Although some of these steps may seem necessary, many companies struggle with them and each company needs to check if they are being handled correctly.
Some companies may only produce single-column reports that are less informative than multi-column reports due to a lack of comparative data. Recording the amounts of the previous year, the amounts of the previous month or the budget make it easier for the reader to decide whether the current amounts exceed or live up to expectations.
Solution: Make sure to include comparative data in your financial statements and information reports. Instead of compressing all possible comparison data into one report, which may result in too much information, it is better to consider publishing multiple reports. For example, you can generate two income statements—one compares actual amounts with budgets, and the other compares actual amounts with amounts from previous years.
Although the comparison column (as described above) is a step in the right direction, calculating the difference in the difference forces the reader to calculate the difference psychologically or using a calculator-both methods are time-consuming and error-prone. A more effective method is to give readers a calculated column difference, so that they can focus more on researching data rather than calculations.
Solution: When generating an invoice report containing comparative data, the calculated differences should be considered so that readers can easily digest the data.
Where difference calculations can be informative, percentage differences can be equally or more informative. For example, assume that the budgeted and actual amounts are $62,000 and $74,000, respectively, for salaries expense and $2,800 and $5,600, respectively, for utilities expense. In this simplified example, the calculated differences show that the actual salaries expense exceeded the budgeted amount by $12,000, while the utilities expenses exceeded the budgeted amount by only $2,800. In this situation, a casual reviewer might focus on the larger salaries difference and downplay (or overlook) the excessive utilities expenditures. However, the percentage difference calculations for these same amounts reveal that the salaries expense is over budget (or unfavorable) by 19%, while the utilities expense is over budget (or unfavorable) by 100%. These additional percentage calculations make the utilities overruns far more difficult to overlook. The table “Displaying Percentage Calculations” shows these expense amounts, including the calculated differences and percentage differences. Notice how the (12,000) and -100% difference amounts are easier to detect (or catch), as opposed to reviewing the actual and budget columns only.
Solution: When producing financial reports containing comparison data, include percentage differences with the calculated differences so the reader can more easily catch overruns that may not be as noticeable when analyzed purely on calculated differences.
I sometimes ask the bookkeepers of my small business clients if their financial statements are correct. These bookkeepers almost always answer “yes”. However, if I select a specific amount from the same financial statements (for example, the amount of accounts available is $ 38,200, the inventory is $ 123,450, or the balance is $ 86,560). sum of bank money), and then I ask if these numbers are 100% correct, and sometimes, the same The keeper replies: “No, these sums are a little less”, And then continue to give an explanation similar to the following example: “Our customer Mr. Thomas found some spoiled items, so he returned about $ 6,000 in the merchant; Therefore, available accounts should be closer to $ 32,200 instead of $ 38,200. In addition, the owner has not reversed his owner’s check in the last three months and does not intend to pay him money. Therefore, the balance of the bank’s audit account should be close to $ 116,560. “My point is that some accountants (and generally others in the organization) think it is appropriate if the financial statements are not true, as long as the relevant people are aware of the inconsistency in the report. Unfortunately, many small business custodians are not trained in the principles of proper income and expense recognition and, as a result, do not always produce financially accurate reports. This type of situation leads to financial misreporting, which in turn prevents management from making meaningful financial decisions based on the data contained in the misreporting.
Solution: Company clerks, managers, and executives must be trained in proper accounting techniques, including proper revenue and expense recognition. In addition, training such employees in common audit procedures should help them better understand the objectives of producing factual financial reporting. Until such training is completed, proper third-party audit procedures must be in place to ensure that company reports are reviewed by an accountant with the right experience.
The process of preparing financial reports is almost useless if no one bothers these reports. In addition, it is also useless for staff to read or study these reports unless they investigate significant discrepancies or suspected problems or errors.
Solution: Everyone who receives financial statements or information reports must:
Learn to read and understand these reports.
Take the time to read and study these reports in a timely manner.
Identify discrepancies (in report data, amounts, or balances), if any, that differ materially from expectations.
Try to determine the cause of these discrepancies and resolve them to everyone’s satisfaction.
If the discrepancies cannot be explained, contact those who can properly resolve these discrepancies or data errors.
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