Best Practices for Accounting Reports (#148)
/In this podcast episode, we cover several techniques for streamlining the reporting of information. Key points made are noted below.
Accounting is basically about two things. The first item is recording transactions, which involves the use of automation, controls, and procedures, and it’s basically what accountants do most of the time. The other activity is translating all of that information into accounting reports. Part of that reporting function involves financial statements, which we won’t address right now. There’re also a bunch of other accounting reports, and I’m going to talk about those other reports.
Types of Accounting Reports
Examples are a daily flash report that goes out to management, or the accounts receivable aging report, for the sales department. Or responsibility reports, where you list just the specific line items that a person is responsible for. Or fixed asset reports that you send to managers, where you list the assets that they’re supposed to be keeping track of.
These other reports can take up a surprising amount of staff time, since the information for them has to be collected, and checked for errors, and aggregated into a report, and distributed. What may be equally surprising is how rarely this information is used. The recipients may not believe that the information is correct, or it arrives too late to be of any use, or perhaps there’s just not much use for the information anymore. That means we have a bad cost-benefit ratio on accounting reports. So… how do we fix this?
Report Termination
We have a best practice to consider. The first step is to push back when you’re first asked to create a new report, by asking some questions. First, is when you can terminate the report. This is an interesting question to ask, because the assumption when most reports are requested is that you’ll keep producing them forever. You don’t need most reports for very long, so continually running them for years is just a waste of time. Instead, set the expectation up front that this is not going to be the case. A reasonable suggestion is to run a report for three months, and then shut it down and see if anyone complains.
Data Item Termination
The second question to ask is whether new data items can be thrown out of the report. You do not want to be collecting new data, because it takes a lot of extra time, including creating new forms and procedures and controls for the data collection. Instead, suggest using other data that you already collect.
If management absolutely insists on including new data in the report, then revert back to the first question and see if the report can be shut down fairly soon. Otherwise, this represents an incremental increase in staff time over the long haul, and that means department expenditures go up.
Reporting Frequency
The third question is about how frequently to issue a new report, and the number of recipients. Clearly, you want low frequency and few recipients, since this requires less staff time. In addition, try to set up the report for issuance during a slow part of the month, when you have extra staff available to work on it. The worst time to be issuing new reports is right in the middle of the month-end close, when there isn’t enough time for what you’re already trying to do.
So the main point so far is to take a hard, up-front look at any new report request to define it down to the absolute bare essentials. This does not mean that you’re being ornery and just refusing to issue new reports. What it does mean is that you realize staff time is limited, so the time spent creating reports needs to be as effective as possible.
Problems with Automated Reports
Some managers may try to get around these questions by saying that you can automate the entire thing. Just set up a report with a report writer, and have the accounting software automatically create the reports. Sounds good, but that doesn’t present a valid picture of what’s really going on.
What actually happens is that these automated reports keep piling up in the IN boxes of recipients – and they still have to spend time wading through them for the information they need – which may be just a single number in a large report. So, despite the automation, there’s still a problem with too many reports being issued.
Report Scheduling
Which leads me to the next best practice for reporting. Schedule in your calendar a semi-annual review of reports that are already being issued, and talk to the recipients about the reports. Do they actually make decisions based on the reports, or do they just glance at them and then throw them out?
The usual scenario is that a report is quite useful for a short time, and management actually uses the information to make changes. But once those changes are made, the reports are not overly useful anymore.
The Accountant as Curator
A reasonable outcome is that the accounting department ends up being a curator of information, rather than just an issuer of reports. In other words, the accounting staff only issues information if there’s an unexpected blip in the data that a manager needs to know about. And better yet, the accounting staff provides extra information about what caused that blip, so the recipient has enough information to take action.
Summary of Reporting Issues
So I’ve made two recommendations – to dissect a request for a new report to make it as effective as possible, and then to revisit the issue later on, to see how much of the information is still needed. These two items tend to result in a different way of dealing with reports. You start with a well-considered standard report, which will be effective for a short time. Then you review the report, pick out the information that’s really necessary, and only report these few remaining items when they fall outside of a predetermined boundary.
By taking this approach, accounting reports don’t last very long. Instead, they evolve into just a few items of information that management needs to locate problems.
Over the long term, this means you end up in a reporting cycle, where new reports are created to deal with some new condition, and they’re used until the new condition has been examined and refined, and then you chuck out what you don’t need, which leaves a small pool of items for ongoing monitoring.
This approach takes a bit more management attention to what information is really needed, but it also eliminates a much larger amount of routine information that actually interferes with the job of running a business.