How To Maintain Accounting Accuracy: 5 Best Practices
Reconcile Accounts: If you reconcile regularly, you're proactively solving your accuracy problems.
Implement Strong Controls: Creating clear processes and controls reduces the possibility of under-qualified people messing up your books.
Use Software: Accounting software doesn't get tired or make human errors; take advantage of it.
Keep Close Documentation: Leave a paper trail so other people (and future you) know why certain decisions were made, as well as how they're to be made in the future.
Regular Training: Get other people into positions where they can do the job in your stead; spreading out the work means there's less relying on you to be sharp to be complete.
Accuracy is incredibly important in accounting. Sound like a contender for the most obvious statement of the year? Yes, but what isn’t so obvious are some of the benefits of maintaining a high level of accounting accuracy in your business.
These benefits go far beyond the obvious (i.e. because the law says you have to), offering companies the potential to leverage a clearer financial picture to make better strategic decisions, allocate resources to the right places, and cut costs where they’ll have the biggest impact.
Let’s take a closer look.
What Does Accounting Accuracy Mean?
Accounting accuracy means ensuring that all a company’s financial transactions are recorded correctly. It means that the accurate financial statements produced reflect the true financial position of a business.
It involves keeping up-to-date, error-free financial records, but also making sure that there’s consistency in the accounting rules being followed. Accounting accuracy not only allows a company to comply with its legal obligations, but also provides a basis for good corporate decision-making.
How Can This Exercise Benefit You?
The fact that you’re reading this article means that you’re at least a little interested in how to maintain or improve your accounting accuracy. And while one of the main benefits is keeping on the right side of the law (always a big motivator), there are plenty of other benefits too.
Here are a few more reasons why it’s worth putting in a little time to improve your company’s accounting accuracy:
- Improves long term forecasting and financial planning - You can only make the right long term decisions for a business if you know the financial position it’s in now. The more accurate the numbers today, the more likely the right strategic moves will be made to improve the future.
- Reduces risk - While making choices to maximize business growth is one aspect of future planning, arguably a bigger factor is risk. Having accurate accounting allows businesses to identify areas for improvement, and raise the alarm for financial issues that have the potential to become big problems.
- Audit and compliance efficiency - There’s no bigger waste of resources than trying to find and fix mistakes or errors after they’ve happened. Poor accounting practices can mean a huge amount of work come audit or tax time, which could be avoided with better practices from the outset.
- Improved stakeholder relationships - Relationships are built on trust. If stakeholders can trust your financials, they’re more likely to trust the other decisions that are being made within the business. On the flip side, nothing destroys trust more quickly than numbers that don’t add up.
5 Best Practices For Maintaining Accounting Accuracy
So as you can see, there are a lot of reasons to maintain accounting accuracy within your organization. Now let’s get into exactly how you should do it, with 5 key best practices you should follow.
1. Regularly Reconcile Accounts
The reconciliation process makes sure that the transactions in your bank accounts match your accounting records. It allows you to see which invoices remain outstanding, where your outgoings are being paid and how much cash you have in reserve. In short, it provides a detailed overview of your cash flow. It can also help you identify problems or overdue accounts before they become a major issue.
Leaving this process until the end of the quarter can create a backlog in your records, which makes it hard to stay on top of your current financial position.
It’s generally recommended to perform a bank reconciliation at least once a month.
While monthly is fine for small businesses accounting, some larger companies with a high volume of transactions might want to do it more frequently than this (with some businesses even performing daily reconciliations).
I know, that sounds like pulling teeth, but this process is becoming faster and more efficient with the use of technology like automation and machine learning.
2. Implement Strong Internal Controls
The goal of internal controls in finance is to establish systematic measures that ensure the accuracy of financial information, prevent fraud and errors and promote compliance with regulatory and organizational standards, ultimately safeguarding the financial well-being and integrity of the organization.
There are some key steps that should be taken to implement internal controls the right way.
- Assess the existing financial controls in place and identify any strengths and/or weaknesses.
- Complete risk assessments to identify any areas of concern or vulnerability that need to be included in the internal control process.
- As mentioned above, there should be a regular reconciliation process in place to identify anomalies and discrepancies quickly.
- Create a documented internal controls process, and ensure that it’s followed.
- Ensure that there is sufficient training within the organization to understand the how and why of internal controls.
- Utilize software to automate and systemize processes as much as possible, as this cuts down on the need for internal controls.
- Invite external auditors to review the processes and documentation on a regular basis and provide expert, independent advice and feedback.
3. Utilize Accounting Software
Every accounting department should be using technology. But while simple to use accounting software options like Quickbooks have been available for a long time, in recent years the functionality of these platforms has increased substantially.
Leveraging technology to automate routine tasks can save huge amounts of time and significantly reduce manual human error. The best accounting software these days often includes features like:
- Automated bank reconciliation
- Accounts payable and receivable
- Payment processing
- Expense tracking
- Budget management
- & more
These tools also provide real-time insights into your company’s financial health, helping you make informed financial decisions quickly.
From a risk standpoint, these platforms offer secure data storage and backup solutions, ensuring that your financial records are safe and easily retrievable.
The Best Accounting Software
Don’t feel like clicking through to another article? Don’t worry — here’s our list of the best accounting software in 2024. And yes, it updates automatically.
4. Keep Detailed Documentation
Of course, keeping detailed documentation should go without saying, but it’s worth mentioning on its own here because of the way it links to the other best practices I’ve mentioned.
Because while keeping records like invoices, receipts, and contracts is important, it’s practically useless if it’s piled high in random boxes in the corner of a conference room. To really improve accounting accuracy, your documentation needs to be organized and accessible.
This is another prime example of where the right software can help. There are a wide variety of platforms and software options available to help track expenses, manage invoices, arrange contracts, and systemize just about every other aspect of business operations.
These platforms can connect directly to your accounting software or ERP system, allowing for a clear trail through your financial record-keeping. This also simplifies the internal controls process.
5. Conduct Regular Training
Increasing institutional knowledge is one of the best ways to maximize the other best practices on our list. Having great people behind all the systems and processes ensures that they’ll continue to get better over time.
An innovative and well-informed team can provide invaluable insights that differentiate a company from its competitors. This, in turn, can lead to better retention of top candidates and ultimately drive business growth.
There should obviously be a detailed training program in place anytime there is a change of processes, but there should also be regular reviews throughout the year.
Any time an error is identified, this should be moved on to the training plan so that everyone can learn from the mistakes that will naturally be made over time.
Most Common Accounting Accuracy Accidents
Even with systems and processes in place, mistakes can happen. Here are two of the most common accounting accuracy accidents, and what you can do to avoid them.
Data Entry Errors
Simple data entry errors are one of the most common culprits for financial data accuracy accidents. There have been some high profile examples over the years, such as an extra zero accidentally being added to Kodak's severance costs, leading to an overstatement of $11 million. Or the error in a JPMorgan Excel spreadsheet formula which played a large part in the $6 billion ‘London Whale’ trading loss.
It’s easy to see the risk of errors when using manual processes. A typo or momentary lapse of concentration can easily lead to problems that flow through from one part of the financial records into many others.
There are a number of ways to avoid this.
- There should be double-checking procedures where another team member reviews the entries for accuracy.
- Accounting software with built-in error detection capabilities can help minimize data entry mistakes, particularly with AI and machine learning features becoming more readily available. These systems can flag anomalies, such as duplicate entries or numbers that don’t match expected patterns, allowing you to correct them and keep accurate financial statements.
Regularly training your staff on accurate data entry practices and updating them on new software features can further reduce the likelihood of errors.
Misclassification of Transactions
Putting transactions in the wrong categories can mess up your financial reports, giving you a skewed view of your business’s finances. This often happens when expenses, revenues, assets, or liabilities end up in the wrong accounts, which can throw off your financial ratios and lead to bad decisions.
To avoid this, make sure your accounting team knows how to record transactions correctly. Provide clear guidelines and keep your chart of accounts up-to-date so it matches your current operations. Using accounting software can help too, as many programs have built-in categories that simplify the process and reduce errors.
For multinational organizations, you should also ensure that everyone is on the same page with the accounting standards being followed. GAAP and IFRS accounting standards use different methodologies, which can lead to different results. Consistency is important here to make sure all the financials are being organized the same way.
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If you want to avoid big fines or jail time, it’s well worth maintaining accounting accuracy. If that’s not enough of an incentive, it’s also one of the most important aspects of risk management and business resilience, as well as providing the right foundation for future growth and profitability.
By following best practices like regular reconciliations, implementing strong internal controls, using accounting software, keeping detailed documentation, and providing ongoing training, you can ensure your financial records are reliable and precise.
Remember, accurate accounting is not just about regulatory compliance — it's about having a clear and honest picture of your business's financial health, which empowers better decision-making and growth opportunities.
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