Although accounting is crucial in almost all organizations, it can also be very complex and demanding. Many accountants are expected to possess an expert understanding of different areas in the financial sector.
However, the various challenges a business might face can be very rewarding if it knows what these potential problems are. This way, they can already formulate solutions before the issues happen or become worse.
This article will help you understand the common challenges businesses face when it comes to accounting.
What Is Accounting?
Accounting is the language of business. It provides the financial information that businesses use to make decisions.
Accounting uses numbers to summarize business transactions, wherein something of value is exchanged for something else of value, whether money, goods, or services. For example, when you go to a store and exchange your cash for goods, this would be considered a transaction because you’re getting equal value in return.
This process also reduces the complex and often confusing world of business transactions to a few basic principles and rules, which can be applied to any situation where something of value is exchanged for something else.
Common Accounting Challenges
There’s a good reason businesses need professional accountants and avoid doing this process by themselves. It comes with a lot of challenges:
1. Accounting Can Be Confusing
First, accounting reports are full of jargon or technical terms that not everyone will easily understand most of the time.
Another challenge in accounting is the diversity of formats used to make information available. There is no standardization in how companies produce their reports (for example, regarding what they put in each section). It takes time for accountants to get used to these different formats when they work with new companies.
Another major issue in accounting is rules can change over time. For example, new and revised accounting standards are published regularly. Accountants need to keep up with these changes. Otherwise, the information can become obsolete. Worse, the business fails to become compliant with its financial reporting.
2. People Can Manipulate Accounting Data
Accounting is based on data that are not always accurate or reliable. The information produced by companies can be obsolete (especially in the case of small businesses), and there is no system to check whether it is correct. Companies can also manipulate their information because they want to make themselves look more valuable/profitable.
Sometimes the amount of information for proper accounting is scant, especially when related to small businesses. These companies often do not produce deep reports containing all the data regarding their activity (such as inventory value, debts, and profitability). This is because these companies depend on bank loans or other sources, which usually provide very little information about the state of the company.
Loss of information is also a challenge for business, particularly if it doesn’t have proper technology support.
3. There Are Not Enough Skilled Accountants
The lack of human resources with experience in accounting is another challenge. Younger accountants have limited experience when applying for a job, which can be an obstacle to difficult tasks or high-responsibility work. Moreover, accountants might not be aware of new procedures and changes in the market.
Accounting is a discipline that uses both theoretical and practical skills. It can be challenging for accountants to apply theories they learn and the knowledge gained from previous experience in practice.
As new accountants increase their work experience, they are more equipped to deal with the complexity of accounting processes, especially in niche industries. However, businesses can also fill in the gap by considering finance and accounting outsourcing.
4. Accounting Takes a Lot of Time and Resources
Accounting can be time-consuming. Accountants must communicate with many stakeholders to ensure information accuracy and reliability. They also have to consider accounting regulations, which are constantly changing.
This makes the process of producing financial statements quite difficult for accountants that work in small businesses where they have limited resources, time, and money available to them.
Meanwhile, several smaller businesses lack the time, money, and knowledge to implement accounting software. This can lead to limited information about their activities, which will have negative impacts on these companies.
Accounting is a discipline with multiple challenges, some of which are not easy to overcome. Many businesses are stuck with manual accounting work as they lack the knowledge or even the money to invest in automated software.
However, companies can also explore many ways to overcome these challenges. They can work with an outsourcing team with the existing resources and people to do the job. Education about new changes must also be continuous to help accountants be efficient and produce relevant reports.
Otherwise, if these challenges are not overcome, companies might not be equipped to deal with future changes in accounting, which could have a big impact on their work environment.