Looking back over the centuries, the importance of financial accounting cannot be overlooked. As civilisations and empires (as well as multinational businesses) increase in complexity, their checks and balances have needed to keep up – both to provide accountability and to ensure the system is working as it should. But when practiced poorly or unchecked, accounting has also contributed to cycles of destruction – just look back to the recent global financial crisis.
Jacob Soll, author of The Reckoning, argues: “Over and over again, good accounting practices have produced the levels of trust necessary to fund stable governments and vital capitalist societies, and poor accounting and its attendant lack of accountability have led to financial chaos, economic crimes, civil unrest, and worse.”
Accounting provides these checks and balances in the form of a balance sheet. But are they becoming too complex for accountants to manage? Let’s take a look at what we can learn from history, and how stop your business from following the fate of those who have fallen before you…
Month-end close complexity
The Medici family were one of the biggest investment banks in the world in 1450, but they started off as accountants. As their business empire grew, so too did the complexity of their finances. However, as Soll points out, instead of increasing their focus, the Medici family grew complacent. They began to view the revelation of double-entry bookkeeping as unfashionable, and inevitably their banking empire collapsed under its own weight
In fact, balancing the books has been an important process since the beginning of civilisation – yet it’s always had its challenges. In the Egyptian period the challenges arose from maintaining a food supply for the people. In the Middle-Ages the challenge became to effectively manage debts to avoid bankruptcy. And even now, in the modern age, we are faced with the challenge of growth.
New accounting regulations, such as the Sarbanes-Oxley Act 2002 in the USA or those being introduced by the Financial Accounting Standards Board (FASB), are to ensure businesses maintain good financial practices. But balancing the books and completing the month end process is still a burden for many businesses. Some simply lack the man-hours, or have a far too complex process – or even worse, many others have simply become complacent.
Adapting to the change
Fortunately, the 21st century has brought us a great choice of accounting tools to stop you going the way of the Medicis. What once would have taken a team of five accountants several days to complete, such as transaction matching, can now be done in seconds with the right tool.
By taking advantage of these tools, businesses can not only ensure that they meet financial regulations, but that they are consistently and continuously finding new sources of organic growth. Reconciling and reporting on open balances, for example, could be more efficient when using software to help to reveal discrepancies in your accounts and make the corrections. This ensures your profit and loss statements are correct, which is particularly valuable as only 28% of finance staff completely trust their reported figures.
Up-to-the-minute information can help to steer better business decisions and find new areas for organic, sustainable growth – as shown by the current revelation of Business Intelligence tools. Yet, the majority of businesses seem to rely on old practices and tools for transaction matching and the period close, which delay information and are prone to error – certainly at the grand scale at which modern businesses operate.
However, if there is one thing that history has taught us it’s that while some businesses grow complacent and die off, new businesses will innovate and grow stronger. This is the story of capitalism and a testament to its success. You just need the right tools for the job.
Get a free demo of BALANCER, balance sheet reconciliation software from Adra Match now. The software is purpose built to meet the accounting challenges of today, providing you with a quick, efficient and reliable way to complete your month-end financial close process.
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