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What are the Risks of Inaccurate Financial Reporting?

Posted by Stephen King
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What are the Risks of Inaccurate Financial Reporting?

Your financial reports include your Profit & Loss Statement (also called your Income Statement), Balance Sheet and Statement of Cash Flow. Those reports are pulled directly from your general ledger in your accounting system. Reviewing these reports monthly helps you to make better strategic decisions for your company.

Before we dive into how much financial accounting costs, let’s look at the price of not having timely, accurate and up-to-date financial reports. If your business is not producing these reports on a monthly basis you can run into problems with regulatory authorities, banking institutions and investors.

 

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Why Does Your Business Receive Inaccurate Financial Reports?

Taking a step back and assessing the accounting department can provide insight into why you are receiving inaccurate reports. Looking at the person between the keyboard and chair tells you all you need to know. More often than not, this is where the problem is stemming from.

A first step in getting reports you can trust is making sure the person entering the data is fully trained and capable of supplying these reports for your business. This starts with hiring experienced bookkeepers and accountants to ensure the books are accurate.

A CEO might be trying to balance the core competencies of the business and the books at the same time. Now they have a new title to add to their resume – Chief Bookkeeping Officer. Often however, CEOs might not have the expertise or knowhow to produce these reports. If you are a CEO wearing both of these hats, it could be useful to hire someone to do the work, so you can get back to focusing your time on running the business.

A business might have a trusted employee who has been doing the books since the inception of the business. Even though they have grown with the company, they might not have the skills to provide reporting the CEO needs to grow the company.

Tax Fees, Penalties & Audits Resulting from Inaccurate Financial Reporting

One of the primary roles of a CPA is to review the general ledger of a company and complete the compliance required by the IRS. It is important that the accounting data received by the CPA is accurate and a true reflection of the state of the business. If the general ledger has incorrect data, and the CPA uses it to file returns, serious issues can arise in the form of penalties.  Some examples where this occurs is in the area of payroll and sales tax compliance. Incorrect data could result in the company being audited by the IRS and/or state and local taxing authorities.

Having accurate financial data and knowing that all the balance sheets have been reconciled allows the CEO to have peace of mind – assured that if these kinds of issues arise, the financial reporting is correct, up-to-date and audit ready.

Third Party Advisors Rely on Your Company’s Financial Reports

Many businesses rely on the backing of banks, private investors, institutional investors and the federal government in the form of SBA loans. You must provide accurate data that complies with their requirements in order to maintain their support.

Is Your Business Well-Being Worth the Cost of Financial Reporting?

Your answer to this question should be a resounding YES! Accurate financial reporting allows management to make better strategic decisions and is a reflection of the true state of your business. A first step in receiving accurate reports is having the support of a strong accounting team which includes experienced bookkeepers and accountants.

Another way to ensure accurate reporting is to consider outsourcing to experts in the field. Financial reporting is included in our accounting services at GrowthForce which start at $2,500 monthly and includes a dedicated team of a bookkeeper, staff accountant and accounting manager. While not inexpensive for a small business, the potential risk of making poor business decisions and associated financial implications could be much more costly. Peace of mind trumps the chance that you could make a wrong decision for your business.

GrowthForce is well equipped to serve as your outsourced accounting department and provide accurate reports you can trust. Let us help you run your business with total confidence backed by accurate, up-to-date financial reporting you can depend on.

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