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How to reduce finance reporting errors

Accurate financial statements are essential to communicate performance and the financial position of your organization. Make sure you understand how to avoid mistakes, including common trial balance errors, to keep your financial reports complete and accurate.

Financial reporting is much more than just a set of accurate financial statements. Errors in your data can propagate to affect performance forecasts, investment in new capabilities, and strategic planning. That’s why it’s so important to understand the causes of balance sheet errors and the reasons some organizations may have trouble creating accurate financial reporting.

The upshot is that many of the long-standing practices in accounting are a product of past eras, when manual entries were necessary and accounting software had limited functionality. Now, it’s time to rethink your approach to finance reporting, to reduce errors in financial statements and turn your accounting into a source of strength.

The trouble with trial balance    

One source of accounting trouble originates in trial balance errors. The trial balance is an internal report that originates from the era of double-entry bookkeeping using manual accounting systems. The trial balance lists balances in each of the organization's general ledger accounts, with debit and credit balances listed in separate columns. The total of these columns should be identical, and if the totals differ, it signals a problem.

The trial balance is not a financial statement. Instead, it’s the proverbial canary in a coal mine – a test to determine whether anything has gone wrong between the journal and the trial balance.

Modern accounting software can all but eliminate trial balance errors. But the trial balance still has an important role, especially for creating adjusted accurate financial statements. Auditors and accountants will often use the trial balance and the general ledger to show that there are no balance sheet errors after making proposed adjustments, which are often needed to bring a balance into compliance with accounting frameworks such as GAAP or IFRS.

Because trial balance errors can affect so many organizations using traditional accounting processes, it is important to understand the types of errors in trial balance. Then, consider the ways modern financial management and accounting software can more fundamentally transform the finance and accounting team from backward-looking to forward-driving.

Types of errors in trial balance    

If a trial balance does not “balance” – if debit and credit balances of each of your general ledger accounts are not equal – it signals an error somewhere between the journal and the trial balance.

Trial balance errors are relatively common. And not all errors are easy to spot in the trial balance, even if they will cause errors in financial statements later in the process. Common mistakes include:

  • Entries made twice. If an entry is made twice, the trial balance will still be in balance, which makes this error hard to detect.
  • Missing entries. If an entry wasn’t made on a trial balance to begin with, you won’t know to look for it.
  • Entries to the wrong account. It can be challenging to detect an account with an erroneous balance unless the error is so large as to be obvious.
  • Reversed entries. An entry for a debit may be mistakenly recorded as a credit, or vice versa.
  • Transposed numbers. Manual data entry may result in the digits of a number being switched.
  • Unbalanced entries. This is common in manual systems but impossible with modern financial software that rejects unbalanced entries.

Modern financial management and accounting software can easily eliminate most trial balance errors, leading to faster production of accurate financial statements. Let’s take a look at how a new approach can lead to fewer errors in financial statements, while also turning financial teams into a source of insights for better decision-making.

A single financial model

Financial management software should streamline and automate your financial processes, from accounting and procurement to reporting and analysis, to deliver greater compliance and stronger corporate governance.

One transformative approach is to switch to a single-ledger (unified) accounting system. This eliminates sub-systems and sub-ledgers – and with the change, eliminates the waiting and reconciling process as well. Unlike the more traditional batch or multi-module designs, which can introduce errors in financial statements, a single-ledger system brings the general ledger and all sub-ledgers into one system and one multi-dimensional financial model. This single system design leads to eliminating time lags, sub-ledgers, data fragmentation, and the need for reconciling different modules.

Without the need for integration between sub-systems, the business data in your ledgers is consistent, always in balance and always up-to-date.

Three ways to deliver accurate financial statements      

Consider how a new approach using modern digital accounting solutions can deliver more accurate financial reporting. The benefits go beyond eliminating balance sheet errors; your new capabilities can transform the role of financial management and accounting to become trusted advisors.

Leverage AI and business intelligence     

The right software can free up your teams’ time with AI and self-service business intelligence capabilities. Make your people’s daily work simpler, and their efforts more effective, to reduce and eliminate errors in financial statements. Automating back-office tasks improves workflows while reducing the opportunity for mistakes with manual data entry.

When your systems are connected, automation and self-service tools can enable reporting and analysis and fluid, collaborative processes across all functions and levels. Participants at all levels are empowered to analyze data and correct mistakes to deliver accurate financial reporting.

Match your accounting to your business needs     

Your business runs in real-time – your accounting should too. Dynamic, people-centric organizations need two key capabilities from their accounting and financial reporting software.

First, a system that offers real-time data to all financial stakeholders. A single ledger system means you can make changes just once and see them populated everywhere, for real-time financial information that’s always in balance.

Second, software that works where and how you work. That means choosing integrated financial planning software  that is “multi-everything” – multi- country, company, currency, language, product line, and more. This capability enables you to meet specific local accounting requirements and maintain global consistency, visibility and control.

Analyze, report and share data faster   

You can reduce errors with greater visibility. Financial and accounting software should enable you to analyze, report and share your data quickly and easily. Real-time drill down from high-level balances down to original source documents help you catch inconsistencies that lead to errors in financial statements.

Take advantage of the revolution of in-memory analysis with software that allows you to search all financial data far faster, including spreadsheets, departmental databases and even external information sources.

Learn more   

To learn more about how Unit4 can help you eliminate trial balance errors and transform your finance reporting capabilities, visit our financial planning and forecasting product page.

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