Company financial reports are used by the CEO and the Board in making important decisions for the organization. It falls on the shoulder of the CFO and his/her team to make sure that the financial reports indeed reflect the financial performance of the company, and that they are delivered accurately and on-time.
Doing so however, is a task easier said than done. There are a lot of transactions that come and go throughout the cycle, and it is easy to get lost in all of these when drafting the financial report. Thus, we have drafted this simple guide in drafting an error-free company financial report.
1. Use double entry accounting
Double entry accounting is a process that has been used for the past 500 years, and for one good reason - it simply works. In this process, each and every one of the company’s transactions will be recorded into at least two accounts in the accounting system.
Most accounting software record both side of a transaction in all accounting entries, helping the finance department to keep the business financial statements accurate. For example, both Quickbooks and Xero is designed to automatically do double entry accounting.
2. Trace necessary information to a reliable source
Entries that are used in drafting your financial reports should always be traceable to valid and authentic documents such as receipts, bills, invoices, checkbooks, and other proofs of documentation. This practice does not only help in making sure that the entries are correct, but also aids the finance team in detecting fraudulent transactions.
3. Check if the Balance Sheet can be tied to the Bank Statement.
The bank statement can be seen as an independent generated data that can be used in making sure that items in the balance sheet indeed transpired.
As with the previous item in this list, this serves as another way for the CFO and other members of the finance team to check that the data being used in the company financial reports are free from error and fraud.
4. Automate Data Entry Processes
Manual data entry may just be the among the most time-consuming and error prone part of any financial process. It leads to data being inconsistent, incomplete, and inaccurate. On the other hand, having the data entry processes automated will help the company to save time, money, and also increases the security of the data.
5. Placing Tight Internal Controls and Process Reviews
Internal controls are put in place to strengthen and ensure a company’s financial and accounting information. They also help the management track the progress on the targets that they have set, and that policies are properly communicated throughout the organization.
These controls prevent scenarios that a company does not want to happen. Some examples of which are ghost payroll employees, data entry errors, and fraudulent transactions. Ideally, there are other set of controls in place should the first line of controls have been bypassed. A finance controller is also expected to review the effectiveness of these controls and that processes are being followed at all times.
Having accurate financial reports is important not only because of the information that they give the CEO and the Board in making decisions, they also reflect the integrity of an organization and quality of the processes that they employ. Both regulatory agencies and the general public use these reports to take a look at the organization, and assess both its credibility and prospect of growth. All of these rely on the CFO and the team of accountants and finance professionals supporting him/her.
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