How can you ensure that your production process is reliable and that risks are minimized? There are many ingredients: people, processes and tools... We show you how to set up an effective control system that will enable you to minimize risks and produce the most reliable financial information possible.
The accounting control environment
It is the essential link, the foundation of any internal control system.
A good control environment for the preparation of financial information should be based on the following principles:
- Roles and responsibilities Are roles and responsibilities clearly defined in the accounting organization and in the annual closing? You can set up a closing schedule indicating tasks, deadlines, responsibilities and reporting format (e.g. format of account analyses, comments, etc.).
- Job descriptions Is there an item sheet indicating the work to be carried out when closing the accounts?
- Commitment to competence The accounting team must be recruited on the basis of competence, with the introduction of knowledge tests in particular.
- Objectives and assessment SMART objectives: SMART objectives must be assigned to the team for bookkeeping and closing. These objectives may concern task completion times (shorten closing times by x days) and accounting quality (measurable through the number of accounting document cancellations due to data entry errors).
- Ethics Accounting: accounting staff must demonstrate a high sense of ethics, being the basis for the production of financial information for decision-making. They must be made aware of the policies of manipulating accounting data under pressure to present results that do not reflect a true and fair view.
Identify the risks involved in producing financial statements
The management responsible for preparing the financial statements must identify these risks and put in place a plan to deal with them. We present below the main risks that may be encountered.
- Combining functions The most frequent risk, often due to the size of the company. The accountant does everything: data entry, chequebook storage, bank reconciliation, cheque remittance, etc. If this is not possible, set up an external control system with a firm that intervenes in the process through a weekly or monthly review of accounting operations and bank reconciliations, etc.
- Loss of accounting data. The company must set up a daily backup procedure for data from the accounting software. When working with hosted software, this risk can be reduced by checking with the host that the data is protected and that a regular backup procedure is in place (at least once a day). Data loss can also affect physical documents following flooding, fire, etc. It is good practice to systematically scan accounting documents and ensure electronic filing. Software such as Odoo can be used to link scanned documents to the accounting vouchers entered, facilitating subsequent searches.
- Unavailability of the information system : if you have a local server or if your accounting system is only installed on a workstation. You need to move quickly to cloud hosting and, if necessary, make a local backup.
- Accounting fraud is one of the main causes of fraud. The accountant makes an entry to conceal a customer's payment in order to reduce his outstanding credit and enable him to place an order. To limit this risk, it is advisable to restrict access to certain accounting journals (notably the miscellaneous operations journal), or to carry out a systematic review of transactions entered in this type of journal. Some accounting software packages enable you to manage restrictions of this kind; for example, prohibiting the use of certain accounts in the miscellaneous operations journal.
- Staff unavailability COVID has shown us that you need to be prepared for this risk. In this case, you can call on an accounting firm to temporarily cover the deficit.
- The skills gap staff due to lack of training: staff must be regularly trained in new tax and accounting issues, and in the use of the information system. Skills must also include the use of spreadsheets and analysis tools. A monitoring system (magazine subscriptions) is a must.
These risks can result in :
- Delays in the production of accounts and consequently in decision-making;
- Account reliability
- Loss of stakeholder confidence
What controls should be put in place?
To limit risks and improve the production of financial statements, you can set up periodic or ad hoc controls on the financial statement preparation process.
- Visit accounting procedures manual Accounting manual: this is a legal document (article xxx of the Uniform Act on Accounting and Financial Reporting). The manual describes the accounting organization, the information processing circuit, the journals and software used, the valuation and depreciation rules, etc.).
- Visit lettering and account analysis This is a minimum good practice in any accounts production process. Accounts (especially class 4 accounts) must be regularly analyzed, lettered, explained and documented.
- Accounting software access management: accounting software must guarantee maximum security for the production of accounts. Access must be carefully managed to avoid duplication of functions in the information system and ensure data integrity (deletion of accounting entries).
- Visit accounting supervision Auditing: the work involved in preparing the accounts must be supervised by a competent person, who must check that the information is complete and accurate. In the absence of in-house personnel, you can call in a chartered accountancy firm for a periodic audit. This is an opportunity to reframe practices, train staff in accounting control techniques...
- Setting up a closing folder is a worthwhile investment. The closing file (physical or electronic) includes all the supporting documentation for the financial statements: closing balance, account analysis, important supporting documents, comments on the accounts, etc. When properly prepared, it is communicated to the statutory auditor in particular, significantly reducing intervention times and therefore fees.
Conclusion
The production of accounts should not wait until the end of the year; it is an ongoing process involving all management and staff. It requires clear skills, defined roles and responsibilities, and appropriate, high-performance procedures and work tools. This enables reliable accounts to be produced at all times. In this case, the annual closing becomes a formality.
