Accounting
Matters
Accounting matters to all of us. It is the one business
function that remains a constant no matter
where in the industry one works, no matter what products or services are
provided. Production,
distribution, exhibition and marketing and the rest of the industry all
interrelate with accounting
on a daily basis.
Everyone in the company from top management to entry
level employees are affected in one way,
shape or form by the accounting department. Beginning with how our paychecks
are prepared to
accounts payable, accounts receivable and the preparation of regular financial
statements and
reports, our daily business lives are impacted in the way the accounting
department performs its
tasks. In turn, the accounting department must depend on the rest of the
company to provide it
with relevant forms, data, etc. in order to function effectively.
One would have to be totally oblivious to the news to
not know that accounting matters are in the
public spotlight a lot lately with Enron and Andersen getting the most
attention and Global
Crossing, Williams Companies, Tyco and others getting a reasonable share
of the ink. These
global organizations not only affect those of us in the US, but throughout
most of the industrial
world as well, cutting across all industry lines.
Perhaps it is because I was formerly employed by one
of the major accounting/consulting firms
(the Coopers side of what is now PriceWaterhouseCoopers) and list myself
as a non-practicing
CPA that has caused me to pay attention to the daily accounting discussions
in the news. This
includes Congressional inquiries and the pending SEC investigations in
various companies’
accounting matters. Or it is because we may each be each be affected greatly
by the bankruptcies
and financial woes these large organizations are experiencing.
In the macro sense it is not yet determinable exactly
how the big bankruptcies will affect us.
Andersen’s business is already declining in the US with many of their
clients choosing new
auditors. For those with a fiscal year the same as the calendar year,
it may be too late to change
auditors until next year. Parts of the international practice are joining
other firms. In a sense, it is
too bad since through the years they have done quality work for many prestigious
clients, but one
significant mistake has caused the implosion.
As a result, it is probable that banks and other financing
sources may place tighter restrictions and
covenants over new lines of credit as a means of protecting themselves,
a factor that will trickle
down to many small to medium sized companies.
It is hard not to feel sorry for the rank and file at
Enron and elsewhere who could not touch their
retirement accounts with restricted company stock while senior management
sold off their shares
attempting to reap whatever value was left before the collapse. Too often,
it is the employees of a
company that are most affected by some of the financial mismanagement
and related problems.
When layoffs are announced in many troubled organizations it is often
management that survives
while mid to lower level employees are given pink slips.
For each of us, our stock investments, either directly
owned or through mutual funds or 401-K
and other retirement accounts, have also decreased in value while the
debacle unfolds. Few
among us has not had some of their retirement investments hit hard. And
yet, this is not just a
problem with highly publicized cases involving accounting matters, as
even many of the
companies with whom we all deal on a regular basis have seen severe stock
slides in the past
couple of years. Often it is the impact senior management decisions have
on the bottom line that
has caused losses or significantly decreased profits that in turn trigger
the stock price changes.
Are the auditors at fault in these cases? Perhaps. Have
you ever heard that “we do it that way
because the auditors want it that way?” In the end, while the auditors
do play an important
watchdog role, especially in publicly traded organizations, it is management
that has the ultimate
responsibility for the accurate preparation of the financial statements
and the underlying
processes that control how, when and by whom transactions are recorded
and reported.
In non-publicly traded organizations management has the
same fiduciary responsibilities for
accurate and timely reporting, but without the added need to satisfy a
multitude of public
shareholder/owners. Independent audits are important to this group as
well.
But the real essence of the problem in these high profile
cases is not in the basic record keeping
that for many people is what the accounting department is all about. It
is probably a reasonable
assumption that the basic processes that control and manage accounting
functions related to
payables, receivables, project costs, etc. are functioning adequately.
(Remember the joke about
the person who absconded with the accounts payable?) In Enron and other
large companies in the
news lately with accounting problems these basic systems are probably
OK.
The root of the problem, therefore, is how complex transactions
are handled, including those that
affect “related” companies, partnerships, etc. In this case, the word
related is used in the loosest
sense, not how the SEC or generally accepted accounting principles dictate
what constitutes a
related party transaction and the reporting disclosures that are thus
required.
On the other hand, in many small to medium size companies,
not enough attention is given to the
accounting department. Too often the department is understaffed in terms
of both quantity and
quality of people. In new and growing organizations, often started by
entrepreneurs who
concentrate on what they do best, i.e. their product or service, the accounting
department may
only be considered a necessary evil with an emphasis on billings, collections
and payments,
including payroll and vendors.
As organizations grow, it is vital to grow the accounting
department concurrently to provide the
needed sophistication for gathering and reporting important operating
data, implementing regular
budget and strategic planning initiatives and providing the financial
support that management
throughout the company requires.
It is probable that in many organizations employees
at all levels will be more apt to raise their
voices over accounting matters earlier than they would have previously.
As companies grow, it is
important to understand that accounting matters. It matters to me, it
matters to you and it matters
to your employees.
