With hundreds, maybe even thousands of balance sheet accounts, obscure IT processes, and data sources galore, "achieving compliance" is a lot like assembling furniture. When it comes to furniture assembly, it's best to take a step-by-step approach. Identify and sort all of the pieces first, match them up to the manual, and then tackle step one.
The same applies to getting your compliance program in order: evaluate and document processes and the control environment holistically, and then begin with the lowest hanging fruit.
Simply put, compliance means making sure a company's accounting and finance functions are operating in accordance with laws and regulations.
But what are those standards? Which ones apply? And how can you prove that you followed them?
In Singapore, the accounting standards are based on International Financial Reporting Standards (IFRS) and are known as Singapore Financial Reporting Standards (SFRS). They comprise approximately 39 standards covering specific topics such as revenue recognition, property, plant and equipment, as well as financial instruments. Complexity in accounting standards and practices is one of the top challenges for accounting professionals and businesses.
STEP 1: Don't "BS" substantiation
GAAP, IFRS and SOX Section 404, among other regulations, all require balance sheet substantiation—the process of periodically confirming that ERP balances reconcile with transactional records and are corroborated by supporting documentation.
Traditionally, accounts are reconciled using spreadsheets. Accountants manually enter balances from the ERP, copy and paste data from other sources, manipulate formulas, and email outputs and supporting documentation to supervisors for approval.
Performing reconciliations manually is not only time consuming, but also risky. There's an intrinsic lack of visibility throughout the process—transparency that management needs to course correct when necessary to gain confidence in the completeness and accuracy of the reported balance sheet.
In some instances, transaction volumes are so high that many companies don't reconcile all accounts prior to reporting —adding to the risk of misstatement. Without a platform to automate and transform this process, balance sheet integrity is often nothing more than an abandoned stack of self-assembly shelves.
STEP 1.5: High volume of projects
Have you ever purchased an entire room full of furniture at once? Which pieces would you delegate to your partner-and be able to trust that they'll correctly follow each step?
Similarly, the substantiation process for certain balance sheet accounts requires reconciliation at the transactional level; however, accounts that fall into this category are often high-volume, which adds to the complexity, risk, and time investment.
In many organizations, historically-applied logic is not well- documented, and accounting teams are over-reliant on "tribal knowledge"—which creates additional risk. These human-dependent approaches are not scalable, repeatable, or transferrable. Processes lack visibility and control, and often do not result in a high probability that exceptions are reported correctly and resolved in a timely manner.
You need the entire process to perform in a controlled environment, so when the auditors come knocking and want to understand how you concluded, you have accessible and comprehensive documentation that includes: matching logic, complete and accurate transaction history, and proof of and justification for reconciling items.
STEP 2: Be Flux-ible
When it comes to auditing, the SAS (Statement on Auditing Standards) is one of a vital reference point relating to the practice of auditing. In Singapore, it is similar with the Singapore Standards on Auditing (SSAs) which is expected to be applied in the audit of financial statements. According to SAS 100, firms are required to do flux analysis on a quarterly basis. However, flux analysis can be so daunting that businesses often wait until the end of the month, if at all, to compile and analyze variances. This involves rifling through Excel files, disparate databases,
and emails, manually inputting balances into a spreadsheet, and resurfacing the VAR function to calculate changes.
But where's the control in such an uncontrollable process? How can we be sure we captured all transactions—and what if there was a late journal entry? What's the point of even doing this analysis if the numbers are outdated and management has moved on to more pertinent issues for next quarter?
Variance analysis requires strong controls to ensure that fluctuations, within and outside of expected thresholds, are identified and addressed in a timely manner.
It is a process of automating the data collection and comparison calculations, so organizations can focus on understanding unexpected items. Balances that fall out of configurable limits are flagged and automatically routed to appropriate individuals for investigation.
By eliminating manual data collection and calculation, companies can increase accuracy and effectively mitigate seen and unseen risk.
STEP 3: Dear journal, I have everything under control
The average enterprise-level accounting department posts thousands of journal entries each period. Each entry must be prepared, supported, and approved, resulting in significant manual effort.
Many journal entries also impact the balance sheet, and therefore must be substantiated with the same type of supporting documentation. The journal entry process often involves checklists or email and hard copy signoffs to ensure completeness, support internal controls, and maintain an appropriate audit trail.
The accounting solution should be able to capture work flows and supporting documentation, as well as automate certain entries. Thus, organizations can rest assured knowing their journal entries are properly supported in one centralized location, reducing the risk associated with manual processes, and adding efficiency and confidence to the audit process.
Make your accounting software decision
Last year, Singapore firms were reported to have difficulties in implementing the new Financial Reporting Standard 115. More than half (60%) of the surveyed firms said they had problems choosing the best approach, full retrospective or modified retrospective, for their business. This is just one example of the many challenges faced by companies' accounting and finance functions. Thus, selecting
the right accounting software, which can be a difficult task, is essential for companies of all sizes and in any industry.
Priorities your needs, analyze them, and make sure the software you choose meets most, if not all, of the features that are important to you and gives you the solutions you need to rest easy—knowing your accounting and finance processes are under control and are compliant with accounting standards.
Terry Smagh has been senior vice president of Asia Pacific and Japan at BlackLine, Inc. since March 2018. He is responsible for spearheading the company's ongoing regional growth strategy including working with partners to accelerate customer acquisition.
Most recently, Smagh was executive leader for IBM Asia-Pacific's cloud and analytics business where he was responsible for supporting partner development and overall enterprise sales momentum in hybrid cloud software, cloud services and analytics solutions.
