The accounting profession has faced a profound shift in recent years: from significant regulatory changes to an influx of innovative technologies, to reimagined business models, to an increase in client expectations. This has given rise to new growth opportunities for firms, but that’s not to say that accounting issues don’t remain in their daily workflows.
Firms are being asked to do more than ever before, which can present a challenging balancing act, especially given the staffing constraints facing many firms. Ironing out the frequent problems that accountants face can help firms remain competitive, better attract and retain talent, and ultimately drive greater profitability. The question then becomes: how?
To assist today’s firms, this article will provide an overview of some of the top accounting issues firms face and the solutions that can help them tip the scale in their favor.
What are the current issues in accounting?
Some of the issues vary by firm — depending on the size of the firm, the resources a firm currently has in place, etc. — but there are several common hurdles that often run industry wide. These include:
- Regulatory compliance
- Accounting standards
- Strained bandwidth and capabilities
- Shift to remote or hybrid work environments
- Artificial intelligence and up-skilling
- Payroll errors
- Accounting fraud
- Misapplication of GAAP standards
- Financial reporting errors
- Cash flow statement mistakes
- Outdated accounting technology
Regulatory compliance
Keeping up with the revolving door of regulatory and legislative changes is no small feat. That’s why it is no surprise that the AICPA’s most recent “Top Firm Issues Survey” found that “keeping up with changes and complexity of tax laws” is among the top issues for firms large and small.
Furthermore, Thomson Reuters research found that changes to tax rules is a major area of focus for employee training at firms in 2023, as 66 percent of firm leaders said they will offer such training to everyone in their firm.
Firms must have the ability to quickly and efficiently conduct tax research and improve tax reporting efficiencies to stay competitive in today’s complex regulatory environment.
Solution: This means firms should consider a software solution that can do the following:
- Enable efficient research with a built-in, customizable tax law database that is tailored to meet the specific needs of the firm.
- Deliver accounting and compliance news alerts so practitioners are regularly provided critical accounting, audit, and corporate finance developments, along with expert analysis.
- Deliver frequently updated news and articles about employee benefits law and compliance.
- The ability to prioritize and monitor tasks, track any regulatory changes, leverage customizable templates for schedules and tax work papers, and set up rules and permissions for each user within the firm.
Accounting standards
In recent years, the accounting profession has seen its share of changes in accounting standards, including the new revenue recognition standard and more recently, the new lease accounting standard (ASC 842).
The lease accounting standard became effective in 2019 for public companies. For private entities, it is effective for fiscal years starting after Dec. 15, 2021, and for interim periods within fiscal years starting after Dec. 15, 2022.
Today, many private entities are in the midst of implementation and are, ideally, looking to public companies for best practices and lessons learned. It is no secret that adopting the new lease accounting standard was a heavier lift than anticipated for many public companies. And today, many public companies are rethinking their processes and technology to ensure long-term sustainability.
Furthermore, professionals must adhere to new auditing standards SAS 134-140. These standards revised the way the audit report is presented, called for enhanced communications between auditors and managers charged with governance, and prescribed additional audit procedures for related party transactions.
SAS 134 could be considered the most impactful of the seven standards as it changes the form and content for all auditor’s reports under Generally Accepted Auditing Standards (GAAS).
Solution: To stay on top of relevant news, accounting and tax professionals must have easy access to accurate, reliable resources and CPE classes that are available in formats for every learning style and schedule.
Strained bandwidth and capabilities
Attracting and retaining talent has long been a concern for the accounting profession, but there’s no doubt that the pandemic, and what has become known as the “Great Resignation,” further fueled staffing concerns.
According to the most recent “Top Firm Issues Survey” by the AICPA, finding qualified staff was a top concern for firms of all sizes.
Further underscoring this point, 2023 research by human resource consulting firm Robert Half found that hiring challenges remain within finance and accounting. According to the findings, 62 percent of finance and accounting managers said they are hiring for new roles, 34 percent are hiring for vacated roles, and 89 percent said they are facing challenges finding skilled talent.
Solution: Firms looking to free up capacity should begin by taking a closer look at the current processes and workflows to identify and address bottlenecks. Are there small adjustments that can be made to ease the strain?
It is also important not to overlook the power of technology to supplement bandwidth concerns. Weed out as many time-consuming, manual tasks as possible through greater automation and ensure that systems are tightly integrated to streamline workflows.
According to recent Thomson Reuters research, increasing automation is the option most often mentioned among firms looking to fill gaps in talent. The research found that 41 percent of firm leaders said they might invest more in automation technology. More than half (56 percent) of large firms said they may lean on technology to fill certain gaps; while slightly fewer midsize and small firms (40 percent and 34 percent, respectively) said they would consider adding more technology to their firm’s professional toolkit if they can’t find the right people.
There’s also outsourcing. A growing number of firms are taking a closer look at outsourcing (both onshore and offshore) as another way to help ease staffing constraints.
Shift to remote or hybrid work environments
Fueled in part by the impacts of the pandemic, many employees across many industries are rethinking their priorities, which includes how and where they want to work. The accounting profession is no exception. As a result, a growing number of firms are embracing more flexibility, like remote or hybrid work options to better attract and retain talent.
“At the start of the pandemic, we saw a lot of firms who were not set up for remote work and were really scrambling. And these firms, many of them were horrified at the idea of their employees working remotely. But if you fast forward two years, these same firms are now embracing remote work and finding better talent by being open to it,” Nadine Weiskopf, Senior Inbound Product Marketing Manager at Thomson Reuters, explained during a recent webcast on scoring firms on success after tax season.
Firms that do not offer staff the flexibility they desire risk losing talent. According to Robert Half’s recent survey, 41 percent of finance and accounting professionals said they are looking or plan to look for a new job in the first half of 2023. And the majority (63 percent) of those respondents are looking for a hybrid position, followed by a remote position (47 percent). Only 25 percent want a fully in-office position.
Furthermore, firms that embrace remote work environments are able to significantly expand their talent pool since their hiring strategy is not limited by geographic borders. They can hire top talent regardless of where they are located, and if a current employee desires to move outside of the area, they still can work for the firm remotely.
Solution: Firms looking to remain competitive in the war on talent should ensure they have the right tools and resources to facilitate a remote or hybrid work environment.
This involves setting expectations and leveraging solutions that drive automation, enhance efficiencies, and improve collaboration among both staff and clients. This enables staff to work more efficiently and provides them with the ability to achieve the work/life balance they desire.
Artificial intelligence and up-skilling
AI powers so much of the technology used by professionals around the world. It is embedded in the creation, enhancement, and delivery of client information. And, going forward, that momentum will continue to gain steam.
As a growing number of firms shift away from compliance-based work in favor of higher-value, strategic advisory services, the need to proactively serve clients becomes increasingly important. AI can help. What AI is good at:
- Specific well-defined tasks
- Transforming data from one format to another
- Automating repetitive tasks
- Computing at high speed and scale
- Processing large amounts of information quickly
As firms look to better service clients and expand capacity with innovative technology, training associates to ensure they know how to fully leverage the technology is important.
In fact, Thomson Reuters research found that training is a major focus area for firms in 2023. More than half (52 percent) of respondents said they will offer tax technology training to all employees, and 42 percent will offer training on the use of non-tax specific technologies to all employees.
Payroll errors
For accounting professionals, payroll services have long been viewed as a time-consuming, high-risk loss leader. There’s no doubt that without the right technologies in place, payroll errors can be a real concern. Payroll is complex and one of the most regulated functions in an organization. Navigating federal, state, and local jurisdiction requirements can be daunting.
In fact, one study by the Internal Revenue Service (IRS) found that 33 percent of employers make payroll errors each year, resulting in costly amendments and penalties. Common payroll errors include, but are not limited to:
- Misclassifying employees
- Missing deadlines
- Wage garnishment noncompliance
- Incomplete records
- Overlooking fringe benefits
What is important for accounting professionals to keep in mind is that, despite the complexities, payroll can hold a wealth of insightful data that can help firms unlock greater strategic growth opportunities. The key is having the right technologies in place to drive efficiency and mitigate the risk of errors.
Solution: To help ensure that a firm’s team can work more closely, consistently, and accurately with clients, consider a full-service payroll solution that delivers such features as:
- Faster new client setup.
- Firm-level security so the firm can easily manage permissions.
- Batch-style data entry.
- An in-depth library of federal, state, and local forms to facilitate payroll tax processing.
- Expanded reporting and billing capabilities.
- The ability to easily perform complex calculations.
- Multi-user capabilities for greater efficiency.
Accounting fraud
Accounting fraud is always a concern, but accounting professionals should be especially alert as today’s economic uncertainties and worry over a recession could elevate the risk of accounting fraud among some public companies.
When companies commit accounting fraud, they are deliberately manipulating accounting records to make the company’s financial performance appear better than it is in reality. Examples of accounting fraud could be an overstatement of revenues or assets, or an understatement of liabilities or expenses.
This can lead to potentially damaging economic consequences, as well as criminal prosecution.
Matt Glendening and Ken Shaw, accounting professors at the College of Business at University of Missouri, wrote in a recent article that they “are observing an elevated level of aggregate misreporting and the probability of recession in 2023 is higher than it was for 2022.”
Solution: To measure whether a company has manipulated its financial reporting, Glendening and Shaw suggested the M-Score. “The measure we use is known as the M-Score, which is a firm-level measure of the likelihood of misreporting devised by our co-author, Professor Messod D. Beneish at Indiana University, in the late 1990s. It is based on eight predictors of misreporting, including whether earnings are supported by cash flows. The M-Score is widely used in capital markets and predicted the well-known Enron fraud; we construct a quarterly average M-Score across firms and use it to predict economic outcomes,” they wrote.
Solution #2: To assist clients design and implement programs and controls to prevent, deter, and detect fraud, practitioners should consider the Thomson Reuters PPC’s Guide to Internal Control and Fraud Prevention. The Guide provides critical information, thoroughly updated guidance, and current insights affecting internal control and fraud prevention. More specifically, it includes:
- A step-by-step process for evaluating internal control.
- A complete set of forms and practice aids to perform an internal control evaluation.
- Guidance and practice aids for assisting your public company non-audit clients’ management in performing and documenting their assessments of internal control in accordance with Section 404(a) of the Sarbanes-Oxley Act.
- Guidance and practice aids for helping your nonpublic company clients evaluate and improve their system of internal control.
- Detailed guidance on evaluating and testing IT controls.
- User-friendly matrixes designed to help you identify specific controls for detecting and preventing common fraud schemes, and to correlate symptoms of fraud with the potential fraud schemes they may indicate.
Misapplication of GAAP standards
For today’s accounting professionals, and all of those involved in financial reporting, preparing financial statements that are in compliance with generally accepted accounting principles (GAAP) is essential.
GAAP violations, such as errors or omissions, can be costly and can hurt credibility. However, in today’s complex business environment, compliance with GAAP standards can be challenging. Some common GAAP violations include, but are not limited to:
Uncertain tax positions: Common tax uncertainties that need analysis include transfer pricing between foreign related parties, business expenses like means and entertainment, and valuation of deferred tax assets.
Capitalization of overhead costs: Large inventory valuation errors can appear on the balance sheet and related cost of goods sold on the income statement by not applying overhead calculations.
Solution: With the right tools and resources in place, firms can help ensure GAAP compliance. This includes leveraging a robust accounting and tax research tool powered by artificial intelligence (AI) and machine learning. When looking for a solution, some features to consider are:
- A predictive search feature that returns the most targeted results based on full-phrasal, natural language questions.
- Concept markers to increase the research momentum with dialogue-based research for quick, on-point search results.
- Snapshots so users can get quick answers and be quickly oriented with unfamiliar topics. This will propel research forward without having to scan through search results, open documents, and hunt for answers.
- Easy access to the most up-to-date and intuitively organized collections of standards, laws, regulations, caselaw, and agency guidance.
- Plain language explanations, practitioner insights, and practical examples help users cut through the clutter to find what really matters.
Financial reporting errors
Financial statements contain critical information about a company’s financial position, cash flows, and results of operations. The challenge is that, despite how carefully statements may be prepared, financial reporting errors can happen.
When errors do occur in financial reporting, U.S. accounting standards require prior statements to be corrected and the corrections to be disclosed.
There are several causes of mistakes, but some of the more common financial reporting errors and reasons for restatements include:
- Recognition errors: this could occur, for instance, when accounting for leases or reporting compensation expense from backdated stock options.
- Income statement and balance sheet misclassification: a company may need to shift cash flows between investing, financing and operating on the statement of cash flows.
- Complex rules related to investments, acquisitions, tax accounting, and revenue recognition.
Solution: It is ideal to prevent financial reporting errors before they occur. One of the most effective ways to ensure accuracy is to have the right tools and resources in place, including expert corporate accounting and financial reporting software and guidance.
Cash flow statement mistakes
Alongside income statements and balance sheets, cash flow statements are one of the three fundamental financial statements used by businesses. Inaccuracies can result in misinformed decision making, which can be devastating to a business. Therefore, cash flow statements must be accurate.
Amid inflation and lasting economic impacts of the pandemic, companies are especially concerned about the financial health of their business. In fact, one 2023 survey found that inflation remains the No. 1 concern (47.69 percent) for small businesses, as it affects all aspects of business financials — material costs, vendor expenses, labor compensation. The survey also found that the biggest distinguishing factor affecting businesses today is the lack of cash flow and capital.
Ensuring that cash flow statements are accurate is vital to the financial health of a company. Unfortunately, mistakes happen. Common cash flow statement mistakes include, but are not limited to:
- Misclassifying cash flow as either operating or investing
- Missing or improperly including non-cash transactions in the statement of cash flows
- Failure to disclose non-cash transactions
Solution: Accounting professionals can help prevent mistakes in cash flow statements by automating the process with a robust accounting solution.
Outdated accounting technology
To drive efficiencies and streamline workflows, it is important that firms ensure they have updated accounting technology. 36 percent of tax leaders listed new accounting technology solutions as an investment priority in 2023.
Firms that continue to operate on siloed, legacy systems risk losing time and money and increase the chance of making errors with manual entries. To help determine if your firm is in need of a technology upgrade, consider the following red flags of gaps in your software:
- Little to no integration across systems and with many third-party applications.
- Staff spending too much time on tax research and keeping pace with legislative changes.
- Staff dealing with time-consuming tasks like repetitive data entry or data clean up.
- The software does not automatically download and install subsequent releases and updates.
Solution: Firms looking to update their accounting technology should consider a cloud-based software solution that is designed to work seamlessly together as one system, sharing data and processes across the firm’s workflow.
Solve your accounting issues with Thomson Reuters
Accounting professionals face a host of challenges in today’s complex business environment. Keeping up can seem daunting, but the good news is that firms don’t have to go it alone. A comprehensive software solution like CS Professional Suite can address multiple areas of your firm, from payroll to firm management to client portals. Check out our case studies page to learn more.
