Meticulous accounting of revenues and expenses as well as proper management of finances are crucial activities for any business organization. Statutory and legal compliance is also vital for the survival and growth of organizations. As hiring, training and maintaining a good in-house Financial Accounting (F & A) department is expensive and time consuming, a large number of companies opt for the outsourced Financial Accounting model these days. F & A used to be a rather simpler activity earlier. However, with the advent of globalization, rapidly evolving market dynamics as well as numerous tax laws and HR regulations, it is no more. Fast-paced globalization and technology advancements have added newer dimensions – such as using different platforms like SAP, NetSuite, Microsoft Dynamics-AX and QuickBooks – too. In this context, dealing with multiple FAO vendors, who specialize on one or a few tasks, can become an enormous activity and defeat the very purpose of outsourcing itself. Therefore, organizations prefer an FAO partner who can handle end-to-end F & A activities as a one stop/360 degree solution.
Comprehensive Accounting Solutions
The Financial Accounting department performs a wide range of accounting and allied activities which helps in keeping an organization’s finances in good shape and compliant with the statutory laws of the country. They also ensure that employees’ wages are paid on time. They prepare the organization’s quarterly (Q1, Q2, Q3 and Q4) and annual financial statements. They keep track of employees’ attendance, working hours and overtime (OT) done. They keep the organization out of financial and legal trouble. Financial Accounting is a very skilled profession which demands 100% accuracy.
Organizations look for FAOs which can support them in a wide variety of F & A tasks including:
- Accounts Payable (AP) and Accounts Receivable (AR)
Accounts Payable (AP) is the amount the company owes to its suppliers, banks, its employees, etcetera. The total of all the accounts payable is the company’s current liability. Accounts Receivable (AR) is the amount the company has to get from its customers or retailers. The company may also receive income from other sources like sale of land, rents, etcetera. The total of all the accounts receivable is the company’s current assets. An accountant always ensures that Assets Receivable are greater than Assets Payable. This comparison between Assets Receivable and Assets Payable is called Liquidity Ratio. This comparison is most commonly made with the current ratio, the quick ratio may also be used. The details of AP and AR are given in the company’s Balance Sheets, which must be produced when preparing the company’s quarterly and annual reports.
- Pricing Administration
Almost all the organizations in the world either sell a product or service or both. The Price Administration specialist in an organization estimates and fixes the price for various products or services the company offers. The price fixing is done based on the cost of raw materials, supplier selling cost, competitor pricing etcetera and supply and demand gap in the market. The price of a product or service should be competitive. If it’s too high, then people might not buy it. If it’s too low, then the organization might not profit much from selling it. It has to be at the optimal level.
- Record to Report
Throughout its lifecycle, a company gets and spends money. Every penny spent and received must be accounted for accurately. Record to Report means the day to day financial data are recorded (using an accounting software), verified and processed to give intelligent financial information. The company then analyses the financial report and optimizes its business processes to derive more profits or cut expenditures.
A Bookkeeper records day to day financial transactions of a company and stores it in the correct daybook like petty cash book, suppliers ledger, customer ledger, general ledger, etcetera. There are also many methods to bookkeeping like single entry bookkeeping, double entry bookkeeping, etcetera. A bookkeeper is responsible for producing the company’s Cash Flow Statements every quarter and annum.
- Supply Chain Accounting
The costs incurred by an organization at every stage of the supply chain must be accounted for and analysed. The business processes should be streamlined in such a way that supply chain costs are minimized.
- Payroll Processing
As stated earlier, if employees’ wages are not paid on time, the organization could get into serious legal trouble. Therefore, every aspect of an employee like his or her login timings, overtime worked, bonuses, incentives and other wages to be received must be calculated precisely and given on time. It is perhaps the most important accounting job of all.
- Joint Venture Accounting
Two or more parties may come together for the purpose of a achieving a specific goal/economic objective, by forming a joint venture (JV). Joint venture entities may assume different forms and structures, such as jointly controlled operations, jointly controlled assets and jointly controlled entities. The accounting department need to support the JVs accordingly. They may do this by either maintaining separate set of books or by not maintaining separate set of books.
- Merger Accounting
Organizations have become very large, complex and dynamic these days. Just keeping track of their activities has become a challenging task. However, accounting software has become very fast and robust these days. When an organization merges or becomes separate from another organization, merger accountants are able to analyse and formulate which employees stay in the merged organization or separated organization and to which employees, full and final settlement should be given.
- Travel Expense Management
With more and more professionals travelling for business more and more frequently, the travel expense management activity has assumed a great deal of significance within the F & A department of large organizations. The F & A team is required to clearly understand the travel expense policy laid out by the senior management and execute the same meticulously so that the travelling employees are adequately supported while ensuring policy adherence.
- Tax payments
Accurate tax and duties payments are done by a Tax Manager. He makes sure that the company pays the local taxes and duties on time and is compliant with the statutory laws of the local government. He plays a part in the preparation of the Cash Flow and Net Income statement. He can be considered the most important type of accountant because failure to comply with the statutory laws of the local government could lead to heavy fines being imposed on the company or could lead to imprisonment of the company’s founder.
- Underwriter: Sometimes, due to insufficient income, the company may be forced to mortgage its properties and apply for a mortgage loan. In such a scenario, the Underwriter clearly analyzes the terms and conditions (T&Cs) of the mortgage loan and gives a green signal to the company only when there are no flaws in the T&Cs. He provides financial and legal security to a company during certain times.
- Treasury Tax specialist: He is responsible to pay the direct and indirect taxes on the company’s properties (land, buildings, etcetera) and other sources of income, which together constitute the company’s treasury. When the company buys or sells any property or gets income in any other way, the treasury tax specialist has to pay the necessary taxes to keep the company compliant with the statutory laws of the country. He also has other responsibilities like Bank Relationship Management, Liquidity Management, Managing Currency & Commodity Exposures and Working Capital Management.
- Reporting and Financial Statements
One of the key tasks that need to be performed by the F & A department is to prepare financial reports that can be used for budgeting, forecasting and other decision making processes. Various stake holders such as investors, banks and other professionals that play a role in the growth of the business look forward to receiving timely financial statements from the organization.
- Financial Analysis Reporting
Financial analysis reporting talks about the financial health of the organization. It is prepared by F & A professionals after conducting a thorough research and analysis of the company’s financial data. The Financial Analysis report is taken seriously by investors – present and potential – and therefore it is a very critical document. The Financial Analysis report includes components such as company overview, investment thesis, key risks, other considerations and the bottom line.
- Financial Controls
Financial control is another important activity that the F & A department carries out. This involves controlling and adjusting processes to ensure that business plans are being followed and that they are amended in the event of anomalies, irregularities or unforeseen developments.
As discussed above, the list of tasks that are carried out by the F & A department is very long. An organization will find it beneficial to engage a comprehensive FAO solutions provider in this context, rather than working with individual specialist teams. The benefits of engaging a 360 degree F & A service provider include cost advantage, ease of hiring and engaging, usage of multi-accounting platforms, confidentiality and safety of data, trust and confidence, ease of interaction, quicker TAT etc. It is for these reasons that more and more organizations which opt for Financial Accounting Outsourcing model are preferring to go with a partner who can provide 360 degree accounting solutions.