How to improve the accounts preparation processby
Regardless of whether you use Word, Excel or smart accounts preparation software, you still need an efficient accounts process.
When it comes to the preparation of statutory financial statements, the process is always more important than the tools.
This may sound strange coming from someone who has spent the last 20 years developing accounts preparation software, but it is simply an undeniable fact. It doesn’t matter how good the tools are, if the process is flawed, the task will be inefficient.
Five stages and eleven key steps
An efficient accounts preparation process is not a complicated thing. It only has five stages and eleven key steps (albeit some steps are iterative).
The stages, key steps and other relevant information, documented in Preparation of Financial Statements, come into play in the preparation process stage and are as follows:
- Assessing the tools
- Example or model financial statements
- Have a plan
- Financial statements and the audit
- The preparation process
The five stages of the account preparation process
Stage 1: Assessing the tools
The first stage is not about ensuring that you have the latest and greatest software, it is about ensuring the tools you have are fit for purpose.
For some companies, Word and Excel will be fine while other companies will benefit from using smart accounts preparation software. When assessing tools, they can be categorised accordingly:
- Category A - smart software: tools that uses artificial intelligence to do away with templates. It combines process, artificial intelligence and content to ensure efficient and compliant preparation.
- Category B - template software: which, as the name suggests, is focused on using templates. While it may be one step up from dumb templates, it still suffers from all of the common template issues.
- Category C - dumb templates. These are by far the most common tools and also the least efficient. Usually created in Word or Excel, they invariably require manual updating and management. Users are often required to ‘force’ content into templates that don’t quite meet the specific requirements.
Stage 2: Example or model financial statements
Example or model financial statements may have a role in the financial statement preparation process, but they are not the be-all and end-all. Such examples are just guides to what could be, rather than what should be.
Stage 3: Have a plan
As obvious as this may seem, all too often the planning element is overlooked or ignored. But as the preparation of financial statements always involves a lot of moving parts, a plan is essential. Details of a plan can be found in the ‘Preparation of Financial Statements’ booklet.
Stage 4: Financial statements and the audit
We have witnessed numerous situations where the audit fieldwork was completed before the financial statements were prepared. This is wrong. The first draft of the financial statements should always be the starting point of the audit.
Stage 5: The preparation process
This is the last of the stages and it is where the real work gets done and is composed of the eleven key steps. While the primary objective of the preparation process is the creation of compliant financial statements, the secondary objective is to avoid unnecessary rework and keep the number of drafts to a minimum.
Key steps in the accounts preparation process
Step 1. Review prior period final financial statements:
- Are there any external or internal changes that will affect the current period financial statements?
- Is there any clutter that can be removed?
Step 2. Address the preliminary questions:
- Are there changes affecting the current period, if so, what are they, and how will they be addressed?
Step 3. Gather and collate source documents:
- Gather all the information that will be needed. If any required information is not yet available, understand and agree on who will provide it and when.
Step 4. Roll forward and update:
- Roll forward values from prior period.
- Update disclosures and headers and footers as required.
Step 5. Calculate the first drafts of the:
- Current period primary statements.
- Specific disclosures required for the current period.
Step 6. Enter current period data.
Step 7. Validate data:
- Sense check and cross-check data.
- Validate back to source documents.
Step 8. Release drafts as necessary:
- First draft completed prior to the audit commencing.
- Subsequent drafts incorporating feedback, corrections or amendments.
Step 9. Complete financial statements for signing.
Step 10. Financial statements signed off.
Step 11. Lodge/Publish signed financial statements.
It should be noted that steps six through eight are iterative and may be repeated as new or revised information becomes available.
The importance of source documentation
The source documents are the foundations upon which the financial statements are prepared, and it is essential that all are in place and all can be relied on. Before collecting and collating the disclosure source documents, create a disclosure folder to assist with document management and control.
Directors’ report, primary statements and notes to the financial statements
The information required in the director’s report, primary statements and notes to the financial statements will, in the main, be governed by the type of entity concerned and the basis of preparation under which the financial statements are prepared. Despite this, there are other questions, checks and balances that should be considered to ensure the information is accurate and relevant.
If you would like more detail on any aspect of this process or the considerations that might relate to the source documentation, directors’ report, primary statements or notes to the financial statements you can download a complimentary copy of the Accurri – Preparation of Financial Statements booklet.
Accurri creates software that makes statutory financial accounts easier. We work with our users, auditors, professional bodies and regulators to make sure that we deliver what is needed, when it is needed.
You might also be interested in
Michael Berrington is the founder and Managing Director of Accurri and for many years has been regarded as a leading authority on the automation of statutory financial statements.
Since his very early PwC days Michael has been drawn to statutory financial reporting, so much...