Financial reports are some of the most integral documents for businesses all over the world. These reports enable a business – and anyone else – to see the following:
- How much money the company has spent
- How much money the company has made
- The profit or loss equation
- All of the assets a business owns
- Any liabilities – what the business owes
- A cash flow statement
It is a complete overview of a business’s financial health, and this enables companies to understand how well things are going. Many businesses will need financial reports to create tax returns, evaluate the current state of things, or to send to potential investors. All of this means that a financial report must be accurate. Inaccuracies can paint the wrong picture and lead to a cacophony of problems that the business has to deal with. From tax fines due to incorrect payments all the way to failing to secure investment, inaccurate financial reports must be avoided.
Most businesses don’t produce inaccurate reports on purpose; what tends to happen is that there are several hidden issues that cause these inaccuracies without the company realising.
Mismatched Inventory Figures
A business that has inventory will always need to keep track of it. For that reason, a lot of companies will invest in software like Cin7 that allows them to manage their stock levels and see the current state of affairs. The only problem with software like this is that you still need to copy over the inventory figures into your accounts.
This is where the first hidden issue occurs.
Improper integration between inventory management and accounting software can lead to stock figures that do not match the reality of the situation. As Fiskal Finance notes, integrating Cin7 with Xero or QuickBooks ensures that your financial platforms always receive the most accurate and up-to-date information about inventory levels. Without this, you could look at your accounts and assume that you’ve sold $400,000 worth of inventory within a set period. In reality, a percentage of that inventory might’ve been returned by customers – or not even delivered, leading to refunds.
The bottom line is that this leads to your business inputting the wrong financial information regarding sales figures, which can warp your financial report. There has to be good integration across your inventory management and financial systems to be sure everything aligns, and there aren’t any mismatched figures.
Wrong Transaction Periods
Depending on what type of financial report you’re producing, transactions could be recorded within the wrong period, meaning they impact your findings. Take, for example, a monthly financial report that showcases your situation across July. You may accidentally record transactions that happened in June or August because they were close to the cut-off point, but this now changes July’s financial report.
It could make it look like you’ve spent more money in this month than you actually did, or that you’ve made more sales than reality suggests. What’s doubly problematic about this is that these types of transactions can end up duplicated. You may also see them in the reports for June and August, which creates even more complications.
The same goes for reports over a longer period. Maybe you’re putting together a new business proposal to attract investors, and you’re showcasing how much profit your company has made in the last fiscal year. Including transactions (both expenses and sales) that fall outside of this period will adjust the results and could make your report seem better or worse than it actually is.
Mistakes like this happen for several reasons, but the most common are as follows:
- Invoices are sent on one date, but the money isn’t received until after the cut-off point, though it’s still recorded as money in during the checked period.
- Manual errors made by mistake.
Preventing problems like this leads into the next hidden issues to discuss.
No Reconciliation
In the financial world, reconciliation means you are checking and comparing financial records to ensure they match up. There’s technically no such thing as financial report reconciliation – but what you should do is reconcile the individual records within a report.
As mentioned above, human error can cause things to be input incorrectly, but there can also be software glitches that change the way things are categorised or stored. For instance, if you use a particular accounting software that uses AI to auto-categorise your expenses, it can easily take transactions from your bank account and mistakenly put them down as an expense. Equally, it could label real expenses as “non-business money out”, which leads to an inaccurate financial report.
If you look at your list of expenses and then look at your bank statements, you can see where these discrepancies arise. Reconciliation is a step that helps you iron out any creases and identify some things that might be wrong. The issue most businesses face is that they automatically trust their reports and the systems that auto-generate them.
Currency Conversions
An issue that may not affect all businesses, but it’s certainly a concern for those that deal with foreign transactions. The most common problem is that you record a foreign transaction using a certain exchange rate, but the transaction itself went through using another one.
This could happen if the accounting software you use uses its own exchange rate while your bank uses another. Again, it’s an issue you can correct with reconciliation, but you can also prevent it by ensuring that the same exchange rate is used all the time. Another idea is to have a dedicated foreign currency account that handles these transactions instead of paying or getting paid through a standard bank account.
A foreign currency account keeps everything separate and makes it easier to deal with exchange rates and keep track of them.
Every business will need to create a financial report at some point – and most will generate multiple throughout any working year. They’re essential for managing the financial side of your company, filing tax returns, or getting set up for new investment. Inaccurate reports could lead to anything from fines to a lack of investment, so it’s important to check for the hidden issues that causes common inaccuracies.
