Strategies to Make Organizational Finances Transparent

Transparency is important for a company when it comes to accounting and financial reporting. IT is important that a company disclose all information that is necessary for investors and creditors to make informed decisions.

Accounting reports of a company should be clear and reliable. Transparency is important so that investors are not misled about the true financial position of a company.

Here we will discuss what is meant by transparent financial reporting. You will also learn about the benefits of being clear and honest in reporting financial transactions.

Accounting Transparency: What Does it Mean?

Accounting transparency means that the reports should allow investors to understand exactly how the company is performing at any particular period of time.

Financial disclosure regulations require transparent financial reporting. New rules have been introduced over time that have increased the importance of ensuring clear and comprehensive reporting of financial transactions.

Various studies have also shown that transparent financial reporting also benefits companies. It allows companies to gain trust of investors and creditors. Investors are more willing to invest in a company if they have a complete understanding of the financial position of the company.

How to Improve Transparency in Financial Reporting?

Here are some tips for business owners to improve the transparency in financial reporting.

Focus on Long Term Growth

Executives of large corporations are offered rewards based on the profitability of the company. One way corporations can ensure transparent reporting is to remove incentives in focusing on short term profits.

Transparency Definition (investopedia.com)

Transparency of corporate financing can also be improved if rewards are not linked to biased disclosures of financial performance of a company.

The incentives of business executives should be tied to long-term financial performances. It is important that the financial performance should not be linked to the short-term growth of the company.

Executives should focus on improving the competitive position of a company. It is important that the executives are rewarded for value creation for a company.

Businesses should not measure the effectiveness of executives based on profit metrics alone. It is important to focus on the bigger rewards for strategic investments. This will prevent executives from cutting corners when reporting financial performance.

Most of the accounting scandals identified in the first decade of the new millennium was due to the focus on profit. Executives forced accountants and bookkeepers to window dress the accounts to hide the real financial performance of the company.

A lack of transparency results in great losses for investors. Also, executives have also faced significant fines and even prison time for not being transparent about the company’s financial position.

Focus on Customer Satisfaction

Companies can increase the transparency of financial reporting by focusing on company metrics that result in improved customer satisfaction and retention. It is important to focus on metrics that reflect positive customer interactions.

Business executives should create goals that centers on satisfying and delighting the client. It is important to consider metrics that actually matter to the clients.

Creating a client centric dashboard can help managers focus on satisfying the clients. The client related metrics should be on the first page of the dashboard instead of profit based metrics. Focusing on satisfying the clients will make it less likely that managers will report misleading figures.

Automate Financial Reporting

Automating financial reporting can help in improving transparency of reports. Automating report generation will be particularly helpful when the data is gathered from multiple sources.

Reporting software should allow automatic population of data based on bookkeeping entries. This will make it less likely that accountants will present the information in a misleading manner. The accounting solution should source and populate the corporate reports with the key financial metrics.

The automation of report generation will result in an objective and transparent report generation. It will also save a lot of time in generating reports. Moreover, automated financial reports will ensure a consistent format that will help in understanding the financial position of a company.

With manual reporting, the risk of biased and inaccurate reporting is high. The chances of errors will be high if the accounting information is sourced and compiled from multiple sources.

An automated accounting system can customize the reports based on the exact requirements of different stakeholders. The decision makers will be able to know key financial metrics that will help them in assessing the financial position of the company.

Transparent Communication

Transparent communication is important when preparing and reporting financial reports. Odds of mistakes and reporting misleading figures will be low when different people are working on corporate financial reporting.

An independent outsourced bookkeeping firm will increase the chances of objectives and transparent financial reporting. An outsourced bookkeeping firm will take great care that the financial reports represent an accurate financial picture of a company.

A cloud accounting software allows close collaboration between different parties. Virtual bookkeeping services makes it possible for different parties to view the financial related information.

A virtual accounting framework will enable greater transparency in reporting accounting information. The accounting software can populate figures entered by bookkeepers and automatically generate reports for different stakeholders.

Conclusion

Transparency is critical when preparing and presenting financial information. The accounting reports should be clear and transparent in reporting financial performance of a company. It is important that the financial reporting software allows close collaboration between different team heads. This increased collaboration will result in improved transparency when preparing financial statements.

Outsourcing bookkeeping tasks will help businesses improve financial transparency. An independent company will objectively report financial performance without any bias. This will benefit the company itself as it will prevent legal issues and costly lawsuits.

Maxim Liberty is an experienced virtual bookkeeping service provider. We have experienced accountants who have comprehensive knowledge of FASB and IFRS regulations. Our experienced accountants can record transactions based on generally accepted accounting principles and standards. You can contact us by dialing (703) 957-6938 to know more about our services.