The different types of accounting errors that companies make range from the easily fixable to the unforgettable. While mistakes happen, and proper systems are in place to catch mistakes, emerging growth companies will want to be aware of what to look for and how to prevent them in the first place.
Common Accounting Errors and Accounting Mistakes to Avoid
What happens if an accountant makes a mistake? It’s not the end of the world when an accounting mistake happens—what matters more is when a mistake is discovered and what you do next to address it. Here are some accounting mistakes to look out for and avoid.
Underestimating what’s involved with a big accounting change: Whether your finance team is about to change its accounting method (cash vs. accrual accounting), adopt generally accepted accounting principles (GAAP), or take on a new accounting rule, the steps involved are often more challenging than anticipated. You can usually save your team in terms of significant time and headaches by understanding what’s involved and lessons learned from companies like yours that have gone through the process.
Not keeping up with technology as the company grows: Relying on spreadsheets long after it’s appropriate is a common issue for companies that began as a one or two person founder team and rapidly grew—quicker than the entrepreneurs had the time to get their bearings and put more appropriate accounting systems in place.
Similarly, some emerging growth companies become so accustomed to their starter accounting software that they drag their feet on adopting systems that would better match their size and complexity. By leaning on the experiences of other companies that successfully made a switch and trusting on the system recommendations of experts, your company could achieve an upgrade that is seamless to the team as possible. You may find during this process, as you confer with accounting and finance experts, that such an upgrade is necessary to avoid common errors in accounting.
Letting account reconciliations get out of hand: Although not core to the day-to-day business, this necessary responsibility can put a business at risk of fraud and accounting errors if the accounting team does not keep on top of reconciliations. In fact, neglecting this necessary finance responsibility could put an exit strategy timeline at risk. Companies have been known to scramble as they ready the company for a sale or IPO—and the process is much easier when it’s done than when it should be done.
Getting distracted during a restatement: The need to go back and restate financial statements is often associated with occurrences of fraud, but the fact is restatements can also be due to an honest mistake or a misinterpretation of current accounting guidance.
What happens next matters, as time is of the essence to correct accounting mistakes. To investigate such types of accounting errors properly—and calmly—it’s advisable to lean on experts who can determine how extensive the problem is and how to best address it, including how to deal with any external auditor security.
A restatement can be a burden to everyone involved but it doesn’t have to be—when you have trusted advisors who can get you through it.
How to Prevent Accounting Mistakes
How do we find accounting errors? At RoseRyan, one of the ways we may come across accounting mistakes is when we prepare an emerging growth company for its first audit. Young, fast-moving companies are often missing the level of systems and processes they need to avoid what would be considered avoidable accounting mistakes. When the time comes to undergo a first audit, those mistakes could come to the forefront—and so could a day of reckoning.
To stay up-to-date on what is happening in the business now, the company needs techniques for checking the work and an adequate number of people to make sure this happens. An expert outsourced team could cover the day-to-day accounting when the time is right for your growing startup while an interim controller could help to right the ship. When the various layers of the finance function are in place—even if it is on a part-time or interim basis in some roles—those types of accounting errors would have a hard time penetrating your company.
Ready to explore how to raise the bar of your finance function? Reach out to the RoseRyan team today.
