Navigating accounting challenges has never been straightforward, and the current landscape presents unique hurdles. Amid concerns about inflation, rising interest rates, and the potential for a looming recession, finance leaders concluded 2023 with cautious optimism for business growth. This mixed outlook brings ongoing challenges and opportunities, emphasizing the need to be better prepared as we take on 2024.
One of the persistent challenges in accounting is the increasing complexity of compliance and audit efforts by the IRS, coupled with the complications arising from cross-border trade and transactions for firms of all sizes. While the Financial Accounting Standards Board (FASB) aims to maintain nimble and less burdensome GAAP accounting requirements, those affected by their decisions often hold divergent views.
Despite these challenges, the current era in accounting introduces innovative solutions to longstanding issues. Artificial intelligence, finance automation software, streamlined data analytics, and simplified payment processing methods, among other next-gen technologies, contribute to easing the lives of accounting teams. However, as some accounting issues are novel due to evolving times, others remain constant, persisting for decades. Collaborating with your team to comprehend today’s top accounting problems is essential, along with devising effective strategies to address them.
1. Cash Flow
During periods of economic hardship or when signs of impending challenges arise, companies often swiftly enhance liquidity by implementing cost containment measures and deferring planned investments. After a phase of substantial investments in technology and equipment in early 2023, some businesses are now retreating and redirecting their efforts toward improving cash flow in 2024, driven by a softening in consumer spending.
Crucial to ensuring a stable cash flow is the enhancement of efficiency in accounts receivable and accounts payable processes. It’s imperative to monitor metrics such as expenses, past-due invoices, and operating cash flow. Regularly generating and tracking cash reports can provide insights for future planning by identifying changes or fluctuations that inform strategic decisions. Additionally, fostering a company-wide focus on cash flow is essential. Many leadership conversations have shifted their emphasis from earnings before interest and taxes (EBIT) to cash. This shift translates into a shared responsibility for cash management across all levels of the business.
Additional cash flow resources:
- NetSuite SuiteBanking: Improve Cash Flow with AP and AR Automation
- New Features Coming to NetSuite: Drive Sales and Improve Cash Flow
- Improving Cash Flow with Acumatica ERP
- Using Microsoft Power Apps for a Cash on Delivery (COD) Solution
2. Revenue Recognition
Issues related to revenue recognition encompass incorrectly applying GAAP standards, devising fraudulent revenue schemes, such as improper accounting for consignments and third-party inventory shipments exceeding feasible usage levels, and relying on unreasonable estimates.
To address these challenges, companies should consider adoption an accounting software or ERP solution designed to facilitate accurate revenue recognition. It’s vital to ensure accounting and finance teams receive comprehensive training on FASB accounting standards to align with GAAP revenue recognition principles. While spreadsheets are still commonly used, they’re prone to errors and inefficiencies. If feasible, explore alternative software solutions to enhance accuracy and efficiency in revenue recognition processes.
3. Human Error and Inaccurate Data Entry
Speaking of spreadsheets being prone to errors, let’s dive a little deeper into this one. The most prevalent accounting issue is human error, resulting in annual financial losses accounting to millions for corporations. The manual management of extensive transactional accounting, involving thousands of lines, proves challenging, and the combination of time constraints and fatigue can lead to oversights that trigger a detrimental snowball effect over time. These errors range from straightforward instances like double vendor payments to more intricate challenges, such as unintentionally missing payroll.
While accounting automation tools featuring built-in validation checks and error notifications contribute significantly to mitigating human errors, they do not represent a definitive solution. Robust staff training remains essential, both during onboarding and through ongoing refresher courses. Additionally, third-party or automated audits, reviews, and reconciliation serve as valuable checks, as an unbiased perspective may catch errors that individuals deeply involved (or facing sheer exhaustion) might overlook.
4. Reporting Deadline Pressure
End of month, quarter, and yearly reporting deadlines often post challenges for accountants as they grapple with the increased complexities of compliance activities and workflow management. The task of gathering the data needed for proper reporting can be overwhelming, especially for smaller firms lacking the resources to hire a dedicated in-house team or third-party professional to assist with these matters.
This is when a great accounting software can really change the game. The goal of accounting software like NetSuite is to streamline the entire reporting process. This software automates various tasks undertaken by accounting professionals, including data entry, calculations, and form preparation, assisting teams with meeting deadlines and minimizing the risk of errors.
Many businesses contemplate hosting accounting software on the cloud to amplify its advantages. Cloud-based hosting of accounting software provides accessibility, supports multi-user collaboration, enhances security measures, enables data backups, and more. In essence, it allows teams to access their clients’ accounting data from any location, proving particularly convenient when working from various sites.
Learn more in Need Better Reporting? 12 Reporting Challenges and How to Solve Them.
5. Financial Reporting for Regulatory Changes & New Accounting Standards
Effectively managing financial disclosures remains a significant concern for companies of various sizes, particularly when coupled with workforce shortages. Despite the conclusion of the public health emergency, finance leaders are apprehensive about meeting reporting obligations related to government stimulus programs arising from COVID-19. Ensuring proper documentation, recording, and reporting for audits continues to be a priority.
The landscape is further complicated by several new standards, amendments, and modifications in both U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) for the 2023 period (to be concluded in 2024). These changes encompass areas such as leases, insurance contracts, tax assets, and fundamental disclosures concerning materiality and estimates. Additionally, there are alterations that heighten reporting and disclosure requirements for environmental, social, and governance (ESG), as well as cybersecurity. Accounting teams face the challenge of staying vigilant amid this evolving regulatory environment.
6. Lease Accounting
As referenced above, revisions in GAAP lease accounting standards mandate that lessee companies capitalize their operating leases featuring tenant right of use (ROU) and a term exceeding 12 months. However, shorter operating leases, including those for office space, can still be recorded as monthly expenses. The amortization of these leases occurs over time.
The Financial Accounting Standards Board (FASB) codifies accounting standards and accountants must stay abreast of the changes to the lease accounting standard.
To adhere to the latest GAAP standards on lease accounting, business accounting teams require thorough training. The utilization of specialized lease accounting software proves highly beneficial for efficient compliance.
7. Strategic Financial Analysis
In the contemporary business landscape, data stands out as a valuable commodity. However, many companies fail to fully harness the full potential of the data they generate, particularly in the realm of financial analysis. Even businesses delving into detailed aspects of marketing and productization often overlook the advantages that rigorous and objective strategic financial analysis can provide.
An organization’s financial platform should provide tools for mining existing data. While some platforms come equipped with analytics dashboards, others may necessitate transitioning to a third-party service. In any case, extracting data’s value is a two-fold process: pulling the data is typically the simpler aspect, but consolidating it into a comprehensive and accessible dashboard for insightful delivery can prove invaluable.
It’s important to recognize that not everyone has the time or inclination to delve into extensive accounting documentation. For optimal results in obtaining effective and actionable insights from data, it should be presented in a format that enables stakeholders to identify trends with a. quick glance.
Let MIBAR Bring Your Accounting Team into 2024
Figuring out the complexities of financial management demands a comprehensive approach that extends beyond the mere extraction of data. While data emerges as a pivotal resource, its true potential lies in the strategic financial analysis that often remains untapped.
Whether your focus is on complying with evolving accounting standards, addressing workforce shortages, or harnessing the power of your financial data, the key lies in leveraging advanced tools and staying informed.
MIBAR, with our expertise in financial solutions, stands ready to guide you through these challenges and optimize your financial processes. To learn more about how MIBAR can tailor solutions to your specific needs, contact us today and unlock the full potential of your financial strategies.
Additional Accounting Resources
Accounting Software Requirements Checklist
Financial Risks for Companies: Types and 15 Ways to Minimize Risk
