Optimization of accounting processes in a company
Author: Olga Mazina, Deputy Director of Accounting Department
We specialize in outsourcing of accounting services in Russia, and over the years, we have gained a broad experience in optimizing accounting processes, and this allows us to help companies improve the operations of their accounting and financial departments.
Accounting is a management tool
A company’s core processes are those associated with its general business, e.g. production, trade, marketing, etc. Accounting is a supporting process and management process insofar as the recording of all business operations performed by the company allows the company management to monitor all operational business processes. Reliable and timely accounting thus helps managers to make decisions and save costs.
Accounting work consists of three main parts:
- Accounting according to Russian accounting standards;
- Tax accounting;
- Management accounting (IFRS, etc.).
Each part includes several types of processes: salary calculation, payments, stock accounting, accounting of fixed assets and investments, sales, costs, calculation of taxes, tax declaring, formation of financial results, reporting, etc. Each of these processes requires daily routine work, such as preparation of primary documents, data input in accounting program, data analysis and processing to generate reports, etc.
Although, thanks to modern software, accounting work is mainly automated nowadays, managers remain unsatisfied with the performance of accounting and financial services in their companies.
The most common complaints about accounting inefficiency are:
- Management reports are not prepared in a timely manner;
- Companies fail to fulfill their contractual obligations;
- Salaries are not calculated and paid in a timely manner;
- Companies pay taxes with delays;
- Information flow within the company are not transparent;
- Interaction among company departments is not satisfactory;
- Accountants’ workload is too heavy;
- Accounting department costs are too high.
Inefficient accounting processes result in additional costs for companies in the form of fines and penalties for broken deadlines, overtime payments to accounting staff, and other costs arising from calculation errors.
In the worst case scenario, the ineffective organization of accounting processes can give rise to management risks for companies which, in such case, make their decisions based on untimely and/or unreliable information, as well as on erroneous financial statements.
Analysis of accounting work
A company’s accounting may be improved by first analyzing the company’s accounting processes. During such analysis, we focus on studying the activities performed by our clients’ companies and review their core business processes, organizational structure, flow of information and documents. This enables us to identify the company’s accounting needs. Then we analyze the accounting processes existing in the company and identify the problem areas in need of improvement.
During our analytical work, we interview key employees, review the internal documents regulating the accounting department work, analyze the accounting database, assess the level of automation of accounting work, interview accounting staff and use other methods applicable to the particular case.
Non-exhaustive list of indicators of efficient accounting work:
- Timely and proper performance of accounting tasks;
- Proper level of complexity of processes;
- Low (optimal) cost for accounting department functioning;
- Optimal workload for accounting staff;
- Minimal time used for accounting processes;
- Ability to carry out urgent tasks;
- Required number of employees with appropriate qualification;
- Good organizational interaction;
- Absence of errors leading to inefficient management or losses;
- Optimal document flow routes;
On the other hand, the signs of inefficient accounting work are: delays, activity interruption, unused resources, duplication of work, errors, loss of information, etc.
An easy and useful method used to analyze any business processes is the so-called “Method of 5 questions” under which 5 groups of questions are asked for each type of work performed in a company:
These questions help structuring analytical work, and further information is gathered by talking to the people involved in the processes.
Optimization and improvement
Once the analysis is completed, we set goals for optimization and plan actions for improvement. Optimization goals are dependent on the problem areas identified for a particular company. Based on our practice, such goals usually consist of the elimination of time gaps, the minimization of oral information and the establishment of control points.
The implementation of planned improvements entails deleting useless and ineffective types of work, as well as simplifying and standardizing processes, in particular:
- Manual routine work should be eliminated together with identified causes of errors. Excessive control hindering a smooth workflow should also be limited;
- Complex processes and complicated formats for documents and reports need to be simplified;
- Automation level should be increased and work methods standardized.
Law No. 402-FZ On Accounting dated 06.12.11 requires companies to ensure that procedures for internal control over their business activities are set up, and requires companies subject to statutory audit to additionally organize internal control over accounting and financial reporting.
When we conduct audits, we pay particular attention to the internal control procedures in place. Typical examples of inefficient internal control are: failure to comply with authorization procedures, improper storage of assets, violation of inventory procedures, insufficient separation of powers and excessive internal control.
If you decide to establish or improve internal control processes in your company, we recommend the following steps:
Step 1: All business processes should be analyzed and risks identified.
Step 2: Proper internal control procedures should be selected and described in internal documents.
Step 3: Employees should be informed about the risks related to their area of responsibility and about internal control procedures.
Step 4: The internal control system in place should be tested at least once a year and improved if necessary.
Well-established internal control procedures contribute to the smooth operations of a company.