Modern accounting, even among SMEs, is about trends and risk management

By Jeff Lewis, Director Sage Pastel

For many small and medium-sized organisations their accountant is their risk manager. They can’t afford to carry specialist risk managers in-house and yet they are probably more vulnerable to risk than large corporates precisely because their financial resources are more limited. There’s no cushion against the impact of risky financial or operational decisions.

Also, as 9/11 and Enron and other accountability crises in the business world have proved, the days of auditors going in to an organisation and doing a vanilla A-to-Z audit, bringing out a set of accounts over a period of weeks or months and then moving on are over. The stakes are just too high for a leisurely review of a business’s activities from a retrospective point of view.

So, it’s vital that accountants and auditors get a bird’s eye view of an organisation very quickly, that they spot financial trends before they develop into problems, and that they understand the financial risks triggered by operational decisions in time to take preventative rather than remedial action.

To be able to do that, however, they are dependent on their clients using the right kind of accounting or business software. Software that automatically produces reports and trend analysis data in such a way that it is possible to make sense of the data in a matter of seconds rather than months. It’s also necessary to have accounting software that conforms to international accounting standards, so that transparency, accountability, and the necessary compliance and governance are guaranteed.

In other words, it’s not just a matter of accountants and auditors themselves coming out of the dark ages of accounting - in which it took weeks of manually aggregating reams of numbers presented by the organisation in a conventionally bland and unstructured way to realise that the financial health of the organisation had been compromised. Accountants’ clients must also move to business software that is able to analyse and report on data in such a way that trends can be spotted immediately – enabling both management and accountants to pro-actively focus on and address abnormalities as soon as they present themselves.

In other words, businesses have a specific responsibility in the new age of accounting to provide their accountants not only with the necessary information but also the software tools with which to get to the heart of the matter without delay.

That’s not as expensive or onerous as it sounds, because most modern accounting software, especially in the SME sector, is designed to extend beyond the bookkeeper’s office into the rest of the organisation, collect all relevant information rather than limiting itself to traditional ledger-based information, and then report on that information in ways that go beyond accounting.

I say ‘most modern accounting software’ because there are still packages that sell purely on the basis of offering a ‘cheap’ option and therefore don’t have the functionality to be more than sophisticated adding machines.

How can you be sure of getting the right software, then? Work with solution providers who understand that what the SME sector needs is “affordable” rather than “cheap” and have a comprehensive, relevant R&D capability fuelled by the motivation of needing to keep providing a critical mass of customers with the best and most relevant means not just of controlling their finances but of managing and mitigating their financial risk.