HOW TO PREVENT COSTLY FINANCIAL REPORTING MISTAKESAlign processes, systems and people to ensure compliance and peace of mind

Oversights happen. When errors slip into your financial reporting, failure to correct them presents huge risks. With the right processes, systems and people, companies can produce accurate, timely and reliable financial reports.

Flawed financial reporting is an all too common quandary for accounting and finance teams at companies of all sizes. From an incorrect figure on a cash flow statement, to an overlooked deadline, to technical glitches and misunderstood regulations, opportunities for error abound.

Despite the risk of potential negative market reaction, government inquiries, investigations and enforcement actions including civil and criminal penalties, many companies continue to struggle to release consistent, accurate financial statements.

“Inadequate processes, faulty systems and human error. Shoring up these deficits – and aligning them to function holistically – can prevent missteps and their painful repercussions.”

What are the root causes of reporting errors?

Of course, financial reports capture a company’s overall financial performance, disclosing information to investors, bankers, other stakeholders. While the markets are tracking the company’s value and performance, regulators are watching for compliance with Generally Accepted Accounting Principles (GAAP).

Now more than ever, accounting and finance departments are under great pressure to keep up with a dynamic regulatory landscape while minimizing costs.

That pressure can cause issues when preparing and presenting financial statements, from revenue and expense recognition problems, to faulty valuation, missing or insufficient disclosures, and other failings.

What causes accidental financial reporting errors?

Legislative and regulatory confusionAs regulations evolve, companies need to understand new rules, requirements and deadlines to ensure U.S. GAAP compliance. For example, when the Financial Accounting Standards Board (FASB) announces a new rule, personnel may require training to ensure they understand the new standard and its effective date.

In 2016, the FASB’s rule ASC 606 standardized how public and private companies recognize revenue from customer contracts. Complying required many companies to change certain operational processes, related internal controls and even business systems. Without a proactive strategy, and already under tight deadlines, some finance teams struggled to come up to speed.

Inaccurate financial reporting is a slippery slope.What starts as a small blunder can cause steep consequences. One accounting error, when made over a number of business units over multiple reporting periods, can have exponential outcomes. Mistakes take a toll on everything from a company’s reputation to its ability to raise capital, and could even cause a drop in share price as shareholders lose confidence in the organization’s ability to produce accurate reports. Errors can sour lenders on financing critical projects or cause discord with a potential merger or acquisition.

Worse yet, materially misstated figures may trigger a lengthy, costly SEC investigation into accounting practices.

The U.S. Securities and Exchange Commission (SEC) reported 79 issuer reporting and disclosure actions in 2018, nearly 10 percent of its total

enforcement actions.

4. Expand and develop flexible teams.

5. Tap subject matter experts and resources.

6. Lead with confidence.

1. Build a better model.

2. Stay on top of compliance.

3. Invest in professional development and training.

Human error and outdated technologyTo err is human; however, in an era of new and improved technology and modern models of accounting, many mistakes can be systematically avoided. With the widespread implementation of rapid, adaptable, efficient and customizable technology solutions, it is no longer necessary to manually extract data from multiple sources using antiquated technology. Other modalities can be deployed to reduce risk.

Companies can avoid errors by evaluating, upgrading and fine-tuning process and systems and putting the right people in place.

An up-to-date, innovative system for financial reporting can improve efficiencies and reduce time preparing reports. A consultant can streamline your financial reporting process, lessen the burden on the finance and accounting teams and bolster confidence in reporting.

Look for and identify inappropriate accounting practices. Improve internal control and general accounting improvements and automate system capabilities related to regulatory compliance. Work with a subject matter expert to educate staff on new standards and rules.

Provide ongoing training to personnel on technological and systems upgrades and new regulations. Pro-actively enhance professional development programming. A seasoned expert can provide custom training tailored to your specific needs.

Make sure you have enough hands on deck to handle reporting. An overworked team is at greater risk of failing to record transactions, missing deadlines or introducing manual reporting errors. Find interim or permanent resources with the right expertise and the right skill-set to hit the ground running.

Find trusted advisors to help you align processes, systems and people. Connect with auditors to help identify issues. Talk with peers to brainstorm solutions. Bring on experienced problem-solvers who can guide your overall strategy, train your personnel, find staffing solutions and improve efficiencies.

Attention to financial reporting comes from the top. Be sure to communicate regularly with senior staff and throughout the organization about the importance of vigilance in reporting.

THE SOLUTION: Align process, systems and people

Don’t wait for the next mandate or challenge to align your processes, systems and people. Set a plan in motion now so you can reduce the risk of costly mistakes.

Sridhar Kuppa is a Director in the Transaction Regulatory and Advisory Services Practice at SolomonEdwards. Sridhar helps clients identify problems and find strategic solutions in accounting, financial planning, analysis, and reporting.

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About solomonedwardsSolomonEdwards is a national professional services firm focused on strategy execution. By providing exceptional people for complex situations, we deliver subject matter expertise, apply proven project delivery models, and design custom solutions for your business. We focus on the areas of Accounting & Finance, Business Transformation, Governance & Regulatory Compliance, and Transaction & Regulatory Advisory Services.

The Transaction & Regulatory Advisory Services practice at SolomonEdwards works closely with corporate buyers and sellers, private equity firms, and portfolio company clients when executing mergers and acquisitions. We partner to meet their unique business objectives along the full cycle of a deal. Our experienced and knowledgeable consultants provide support with pre-deal evaluation, transaction reporting, post mergers and acquisitions (M&A) integration, and regulatory compliance to ensure that clients are prepared to meet and overcome any challenges that emerge through the transaction. Our services include:

SEC filing preparation & review

Financial statement compilation

Technical research & consultation

US GAAP & IFRS conversions

Audit readiness / IPO readiness

Purchase accounting & reporting

Operational / profit improvement

Bankruptcy and fresh-start accounting

Technology assessment & implementation

Accounting operations & special projects

Policy & procedure development

Process documentation & integration

Due diligence & quality of earnings

Post-transaction integration & compliance

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