Financial transparency is something that businesses actively need to take into consideration during the entire accounting cycle. Since businesses have a responsibility to not just their employees but external stakeholders as well, it’s imperative that they adhere to accounting standards for maximum transparency.
However, manual processes, like manual account reconciliation cannot facilitate the same due to the large volume of transactions companies have to deal with. Therefore, it’s important for organizations to adopt automated reconciliation systems in order to enhance financial transparency.
Before we see how automated reconciliation software can help improve financial transparency, let’s understand why manual reconciliation poses challenges.
Challenges with Manual Reconciliation
- Manual processes: As companies scale, the number of daily transactions goes up as well. Consider enterprise companies or large retail organizations. Thousands of transactions occur on a daily basis at these companies. In such a scenario, manual processes cannot help with the R2R process. For example, manual data entry can lead to errors, which can lead to miscalculations. Similarly, manual reconciliation is prone to errors as well. These errors can pile up and ultimately lead to divulging the wrong information in financial statements.
- Data integration: Data integration is an important part of the entire financial close cycle. Businesses use a lot of software for different financial processes, which means data is stored in different systems. This type of data silos can lead to inconsistencies during the data compilation process.
- Legacy systems: A major issue with a lot of companies is that they are still using legacy systems, like Excel sheets, for data storage and data compilation. These systems are not capable of flagging anomalies or suggesting predictive actions in case a discrepancy is identified.
- Ineffective internal controls: In order to produce accurate financial reports, companies need to implement internal controls. It’s also necessary for businesses to implement internal controls so they can adhere to accounting standards such as GAAP and IFRS. However, weak internal controls can negatively affect the R2R process rather than ensure the accuracy of financial information.
Enhancing Financial Transparency with Automated Account Reconciliation
Now that we have understood the challenges with manual reconciliation, let’s see how automated account reconciliation can help increase financial transparency:
- Leverage automated accounting software: The most crucial thing for businesses to do right now is to use automated account reconciliation software so that they can automate accounting tasks. Processes such as data entry and data integration, which made reconciliation a very mundane and time-consuming task, can easily be automated with such software. Automated reconciliation reduces the chances of human error by taking repetitive tasks off the employee’s hands and therefore increasing financial transparency.
- Enhance data integration: Improving data integration across teams is another measure that businesses need to take in order to improve financial transparency in R2R. A lot of accounting software provides cloud-based data integration capabilities that allow users to break out of data silos. Enhanced data integration also helps businesses reduce the chances of error that can occur through manual data input, thereby increasing data accuracy.
- Establish effective internal controls: It is imperative for businesses to implement effective internal controls so that one person is not in charge of the entire R2R process. Automated reconciliation software offers multilevel review and approval workflows, allowing users to segregate duties amongst the team. This way, each accounting task goes through multiple levels of review by different people before finally getting approved, thereby minimizing the chances of errors.
- Train employees: Another step businesses need to take is to ensure that all their employees receive proper ongoing training regarding the use of tools and software. This ensures that employees are using advanced software with ease and are up to date with any technological changes and advancements. Companies can ensure to train employees and explain the importance of precision and accuracy when it comes to accounting processes.
Conclusion: Automation for Enhanced Financial Transparency in R2R
To sum it up, the key to improving financial transparency in accounting is automating processes, setting up multiple levels of reviews and approvals, and enhancing data integration. All of this can be achieved by leveraging advanced automated accounting systems.
Businesses need to understand the importance of using technologically advanced solutions like automated reconciliation and move towards digital finance automation in order to achieve financial transparency in R2R.
