How to Increase Transparency & Visibility in Accounting Processes

March 13, 2024 Theresa Rex

finance leader checking accounting transparency

The topic of accounting transparency is one that doesn't get a lot of play in the broader conversation of finance and accountancy unless it's a very hot topic – just take a look at the recent news of a few companies ending the year on a sour note with steep fines from the SEC for disclosure failures.

But transparency in accounting practices is important for organizations of all sizes and across every single industry. Not because finance leaders are potential bad actors or because accounting manipulation represents some sort of corrupt inevitability, but because process visibility and accurate reporting go hand-in-hand with effective strategy and ultimately, profit health.

It’s all too easy to fall into the trap of overwhelmed teams cutting corners here and there only to discover that there were mistakes made throughout the process.

The Importance of Accounting Transparency in Financial Activities Reporting

Manager going over financial results

It would be next to impossible to find a CFO, Controller or newly minted CPA that would disagree with the statement "Accounting transparency is important." But why? Sure, it's important to avoid steep fines and the reputational damage that comes from murky, misleading or downright creative accounting work, but as we've established, not every instance of translucent-to-opaque accounting output is the result of malicious noncompliance.

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Sometimes, the sheer complexity of a business's organizational structure begets similarly complex accounting processes and financial reports. A company could be completely on the up-and-up but in the process of scaling and chronically short-staffed, making it more difficult to comply with ever-evolving accounting standards than a well-staffed counterpart.

Perhaps they're a post-growth conglomerate, instead, with multiple business units or child companies, where straightforward reporting becomes more like piecing a puzzle together. And what about startups that need to use pro-forma earnings as they prepare for an IPO?

For some companies, simplicity is just, well, simpler than it would be for the examples listed above. In the end, though, it hardly matters what hurdles stand in the way of a company's ability to prepare an easy-to-understand reports that convey the information that's crucial to investors and market analysts. The end result is that such companies are valued lower than their transparent counterparts. Muddying the financial waters means a lower market value, whether it's because investors are wary of or don't trust the numbers they've been given -- or because they simply don't understand them.

It's also true that in some situations, if investors can't make informed decisions based on a company's reported financials, the view from the inside isn't much clearer. You need transparency to ensure accuracy, and you need accuracy to ensure effective strategy. CFOs, Controllers and anyone else tasked with stewarding a business's assets can't do that well – and they certainly can't make impactful, growth-minded moves besides – if they don't have a clear picture of where the risks are. A forecast that's been created without a full picture of what's already happening will be an irrelevant one at best. At worst, it can cause active harm to an otherwise sound long-term financial strategy.

Never Incentivize Hiding Poor Company Performance

female accounting manager leading accounting team

The first and arguably most effective step in encouraging accounting transparency is to create a company culture that demands accuracy and truth – no matter how it will be perceived. Performance bonuses that are tied to public-facing earnings reports should be the first on the chopping block. The problem with incentives like these are that they are doubly counterproductive. Not only are public quarterly earnings reports backward-looking and applicable only to a company's financial picture in the short term.

Watch: Data Driven Decision-Making: A Blueprint And Case Study [WEBINAR]

Instead, choose metrics that measure long-term success and create internal KPIs around them – and then incentivize success in meeting those. This relieves the pressure on executive leaders and finance department team members to downplay or obscure losses and overpromise future profits and gains.

Facilitate Accounting Transparency by Updating Old Policies Around Disclosure

executive team updating accounting policies

This shakes out for the best in the end. Giving investors a clear picture of the current financial state of things makes a company more valuable on the market – not only are analysts and regulators wary of anything that looks too good to be true, but an organization that isn't working to obscure anything will come across as one that can be trusted, which is more likely to attract long-term investment.

If your balance sheet has a lot of one-time expenditures in a quarter that represent losses you don't expect to take on again – restructuring costs, for instance – you can always submit supplementary disclosures that include pro forma numbers or exclude off-balance sheet financing – so long as the GAAP-compliant disclosure that takes everything into account is positioned as the primary reference point. There is no need to risk investor confidence by submitting reports that only tell part of the story. More information is always better, so long as it is concise, accurate and easy to understand.

Put the Right People in Charge of the Creation and Distribution of Financial Reports

senior accountant increasing transparency & visibility In accounting processes holding clipboard

One way to correct course on incentivization and discourage accounting manipulation is to keep everything in its proper place with separation in day-to-day accounting. It does not do anyone any good to have the same people charged with creating a corporate vision – and the strategy and subsequent narrative that accompanies it – tasked with crunching the numbers.

It's not a knock on the numerically-minded professional to say that bookkeeping is value-neutral. It needs to be value neutral for everything else to work. Numbers tell a story, true, but its critical that they tell their own story instead of being rearranged to tell someone else's. That's why accounting and decision-making should be two separate bodies within an organization. Strategy should follow accounting, not the other way around.

That's not to say, of course, that the way to accounting transparency is through silo-building. Easy-to-access-documentation and an aversion to bIack-boxing information and its availability across departments is critical. Instead, it's an argument for allowing people to what they're best at – without undue influence in either direction.

Depending on the company, there may be hurdles to this kind of separation that need to be cleared. In fact, those obstacles can look an awful lot like the ones that we already identified as hurdles to accounting transparency: complexity, talent shortages and growing pains.

Each can result in the same folks that should be focusing on judgement-based financial strategy having to take on the daily accounting work that supplies the information they need to do it. It's well known that supplementing in-house talent with virtual, offshore resources can alleviate much of the grief around staffing challenges, but it's not always the first tool finance leaders reach for when they're attempting to increase visibility in the accounting department. Maybe it's time for that to change.

More: Improving Your Accounting Processes Through Outsourcing

Partnering with an outsourcing partner with a proven track-record of hiring and retaining skilled accountants that can follow GAAP comes with an added benefit built in: separation that encourages transparency and simplifies the route to achieving it.

This model has the added benefit of having the separation of interests built directly into it. Delegating value-neutral bookkeeping work to an offshore extension of your team ensures that you're getting "just the facts", and facts are powerful things. The market loves them, and they make better decision-making possible and long-term strategizing more effective.

Personiv has a pool of ready talent in an accountancy talent market that is certified according to regional and international standardization criteria and trained to follow stateside compliancy measures through GAAP.

Get in touch today to learn more about the quality talent we hire and retain to create virtual offshore accounting teams as small as one for organizations of every size across the globe or take a look at our special report on the Philippines to meet some of the talented accountants we're proud to include as a part of our team in Manila.

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