unbalanced accounting

Generally there is no one set of information that suits every business although accountants will tell you the importance of reconciling balance sheets to the Profit and loss account- this is called the inventory method of accounting. Businesses that don’t do this on a regular basis tend to have some nasty shocks at the annual audit.

A KPI for any finance function is a reduction in audit adjustments between month 12 management accounts and the statutory formats which begs the question what good is accounting information on an interim basis?

Research has shown there are only three types of information requirements for accounting

1 How are we doing against plan?

2 What elements of the business demand attention?

3 What are the alternatives?

(Source Prof Herbert Stalker 1954)

Fasts forward to 2018 and IT processing usually answers question 1 (assuming you eliminate basic input errors)

A far as 2 and 3 are concerned it is a function of seeing Finance as an internal service provider and having a close relationship between information and consumer – in modern parlance this is called ‘ Business partnering’

This is an interesting phenomenon because it implicitly assumes there is a conflict of interest between the originators of the data and providing the service to the operational personnel whilst at the same time reporting performance to higher management. This is why there now appears to be a doubling up (counting ?) of finance personnel because of the separation of function between operations and control. On the one hand business partners are close collaborators with operational personnel and on the other they are the ‘spy in the camp’

Ultimately it is about designing a finance function that manages these tensions and ( pun alert) finds a balance between the tensions reporting and analysing creates .