The Effective Controller in the 21^st Century

Accounting Strategies for Business Management

Thailand Business Cases

Yanyong Thammatucharee

Contents

Introduction

In this day and age, an effective internal control system is a very critical key to survival of any company. Companies must ensure that their success is safeguarded by the establishment of reliable control systems to be followed by all employees. The management may define success using different achievement indicators – profitability, market share, cost position, return on investment, etc. But any of these success measurements can be vulnerable to risk. The success of a company depends on hiring capable people who efficiently fulfill different job functions such as production, sales and marketing, purchasing, accounting and so on. Thus, it is important to take great care in selecting the best people for the company—people who will work closely together in exerting effort and dedication to achieve the desired results.

The Asian financial crisis in 1997, which started first in Thailand, raised a question about the transparency of information to businesspeople and stakeholders. Accounting roles have been widely discussed and many have called for changes. As a result, the accounting standards were reviewed, improved, and officially announced. Now reliable and accurate accounting information is expected by a variety of parties such as bank creditors, private companies and government agencies. Consequently, accountants in many organizations have had to adapt to better meet the requirements from all stakeholders.

At the turn of the 21^st century, we have seen the shocking collapse of several global companies. The causes are mainly related to accounting fraud resulting from intentionally manipulative acts such as wrong bookings, misstatements or misleading disclosures. Such cases seem to indicate an inevitable need for radical change in the roles of accountants, especially in safeguarding the company’s future through corporate governance endeavors. Accountants are being challenged to regain the trust of the public and the business community. It’s time for accountants to walk out of the back offices and proactively work with their colleagues on the front line.

Today, all business transactions – purchasing, selling, collection, payment, and so on – are required by law to be recorded in a company’s accounting books. So, responsible accountants need to verify, review and process these transactions by applying their knowledge. They must decide on the right accounting entries to be used in order to reflect the company’s true financial picture. In order to cope with the current dynamic levels of competition, the scope of work of the accounting department needs to be extended. Accountants must play an additional role in driving the business toward success. Month-end account closings, balance sheets and profit and loss statements will become merely basic requirements for the accounting department.

In general, the organizational structure of a company shows the relationships of several functions and their reporting lines. Each unit in the organization may be called a section, department or division. Whatever it’s called, it surely consists of responsible people comprising the supervisors and subordinates under each function. An accounting department also consists of accountants who are responsible for specific duties under the supervision of the functional head. That leader may have any of the various titles listed below:

• Chief Accountant

• Accounting Supervisor

• Accounting Manager

• Chief Accounting Officer

• Financial Controller

• Controller

Which title is selected depends on factors such as the size of the organization, the scope of work and responsibilities, or the nature of the business. For efficiency purposes, the accounting unit’s headcount should be kept to a minimum. Notwithstanding this, the design of an accounting organization must be based on appropriately balanced workloads and effective internal controls designed with proper checks and balances. If a single person is handling all critical business transactions without proper cross-checks by someone else, this can pose very serious control risks.

The head of an accounting organization – hereafter referred to as the “Controller” throughout this book – has to take on the roles of both a financial leader and a business driver of the organization. As one of the key management team members, it is crucial that the controller be able to effectively play these roles. Some questions that could be raised among business leaders and accounting professionals about a controller’s functions include:

• What is the scope of work of a controller?

• How can a controller help the company be successful?

• How can a controller’s performance be improved?

• How does one become a successful controller?

Answers to the above questions can be found in this book. This book was written in order to provide readers with a better understanding about various accounting matters under the scope and responsibilities of a controller, offer ideas regarding total accounting department performance improvement through the direction of the controller, and introduce new concepts to help a controller be successful in his/her career.

The content in this book is primarily based on my accounting experiences gained from over 20 years of professional services to a number of business entities, including manufacturing, trading and service companies. I have been in a variety of accounting roles and positions, such as an auditor, a consultant, an accountant, an accounting manager, general manager of finance and a plant controller. If you would like to know what an effective controller can really do — and should do — to serve business in the 21^st century, read this book.

I also offer in this book an accounting concept under the ControllerFOCUS^TM acronym. It has been developed as a guideline for controllers’ accounting strategy formulations. I hope it will offer you a new way of performing accounting-for-business work in the most effective manner.

Yanyong Thammatucharee

www.controllerfocus.com

Email: yanyong.thammatucharee@gmail.com

Overview

It is no longer enough for controllers to merely concentrate on recording business transactions and produce financial reports correctly and in a timely fashion. The controller’s interest should shift from the historical data focus to increased business performance enhancement. Even though ensuring the accuracy and completeness of accounting transactions is essential for management decision- making, the controller has to gain a better understanding about the reasons behind the success or failure of the company’s overall results. The controller needs to be the driver of the company’s business by ensuring the utmost efficiency of its operations.

To maximize the benefits from information flowing within the accounting department, controllers are in a key position to identify existing problems and opportunities impacting the company’s performance by bringing them to the attention of management. Most activities performed by employees are ultimately translated into the financial results through accounting policy and procedure. If controllers can utilize this strength to understand the business situation and analyze it correctly, they can give valuable comments and suggestions to the management team.

In order to perform controllership activities successfully, controllers also need cooperation and support from other employees who are responsible for various functional responsibilities. The requests made by a controller can be fulfilled to mutual benefit and through discipline exercised by all parties concerned. Such a working environment is crucial in order for the company to execute its activity plans effectively and efficiently. On the other hand, a lack of working discipline can cause huge damage to the company. At very least, controllers have to ascertain that the company has maintained its financial discipline through activities performed by the accounting staff — such as checking and verification of documents, policy and procedure enforcement, internal control system assessment, and so on.

Typically, all accounting and financial transactions are under the oversight of controllers. In an atmosphere of tough competition and a fast-moving business world, controllers have to react and respond to the changing environment effectively so that the company’s limited resources can be utilized efficiently to ensure that the goals will be achieved.

In order to perform their duties effectively, controllers have to optimize the power of available strategies to ensure the highest level of performance achievement. There are 5 key strategies for controllers in this new era that should be considered. They are described below. These strategies are integrated into the key word of ControllerFOCUS, to be discussed in detail in Chapter 7.

Looking Forward to Future Prospects

Basically, financial statements produced by an accounting department can tell only the historical status and performance of a company. By the very nature of accounting, accountants have spent most of their time processing past business transactions and closing the accounts at month’s end. But today’s business world moves very fast and new business models are being created all the time. Thus controllers need to allocate more time and resources on discovering future prospects and risks associated with their businesses.

The business planning process has been performed by most companies on an annual basis. This activity allows managers to think about the future of their operations and businesses. In addition, it involves making plans on how to improve performance and achieve targets. Data supplied by each business unit or cost center have to be consolidated to form a comprehensive business plan. Once employees can see the future of the company, they can react correctly to ensure goal attainment.

The company’s assets have to be properly safeguarded, and controllers are responsible for protecting these valuable assets. They must take necessary actions to reduce potential loss in response to the levels of risk exposure assessment.

The actions taken today can impact the future success or failure of a company. Controllers have to review the current business situation, and try to improve the company’s competitiveness through improved awareness of future risks and opportunities. As a result, future-oriented actions have to be taken before any other competitors take them. More discussion can be found in Chapter 2.

Understanding the Business Operation

The core of accounting work is dealing with financial numbers. Business transactions are to be converted into monetary terms under the main account groups consisting of asset, liability, equity, revenue and expense. Accountants have put a lot of effort into making sure the financial information is presented correctly and in adherence to accounting principles. As a result, financial rules and regulations are issued by the company to set standard practices for all employees. However, out-of-date accounting procedures can pose obstacles to doing business competitively because it can create non-value-added work for the business operations.

Controllers need to understand the operational processes so that proper data analyses and improvements can be made for operational efficiency. The company’s transactions such as sales, purchasing, production, payroll, collection, payments, etc., have to be accurately reflected in the accounting books in a timely manner. Some of the roles an accountant may play in these business transactions may include the following:

• Issuing sales invoices to the sales and marketing department for finished product delivery.

• Setting up a new product’s competitive price based on the correct cost information.

• Checking invoices from suppliers for payment preparation.

• Approving purchase requisition forms for supplies and service required by each department.

• Explaining related tax issues to concerned employees for better understanding and decision making when dealing with suppliers or customers.

• Counting the physical inventory to ensure correct inventory records.

• Tracking significant cost and variances for explanation and follow-up on the action plans.

• Reporting the company’s financial results, which include profit and loss, scrap, damage, etc.

Communication is one of the most important elements in business management. Controllers have to be able to explain the accounting information in a way that non-accountants can understand. Management reports generated by the accounting department must be meaningful to the operation people, and should help them identify what needs to be done.

The controller’s scope of work must be in harmony with expectations from colleagues in other functional units. This must be based on a mutual understanding regarding the problems encountered and job functions of representatives from each business unit. Detailed discussion is included in Chapter 3.

Ensuring the Control Effectiveness

At any time, the stakeholders of a company want to know that the company is being managed under good corporate governance. Effective controls are needed to help ensure that the company’s assets are properly protected, and to give confidence that frauds and wrong practices are prevented or eliminated.

Companies must establish clearly written rules and regulations for governing employees. Everyone should understand the company’s norms and acceptable practices. However, from time to time many companies have struggled with weak internal control systems that caused damages due to intentional or non-intentional behaviors of employees. For example, an engineering vice president visited Thailand plant for business review. During his stay in Thailand, he had incurred unusually high entertainment expenses, and asked the plant manager, his direct report, to sign for approval on the expense report for reimbursement. Or a managing director decided to replace his unexpired leased car provided by the company to a more expensive van citing that it could be used by other local managers. It is another important duty of controllers to make sure that proper controls have been set up and are being enforced effectively.

To achieve confidence in the company’s internal control system, auditing processes are necessary to confirm that all key control points are in place. The business cycles can be categorized so that appropriate testing methods can be designed for the auditors. Internal control questionnaires (ICQ) can be used to serve this purpose. The questions are used as guidelines to help internal auditors. Any discrepancy found should be assessed for severity level before corrective actions and reports are made accordingly.

Controllers need to monitor the overall system and react quickly to any weakness found. They should take proper actions to fix problems and install better controls. In certain cases, controllers may find it difficult to take necessary actions. For example, a controller might need to deal with sensitive issues related to his/her direct boss – for example, reimbursement of personal expenses included in the supermarket bills, and taking the longer overseas trip to get more mileage bonus. The company, with support from the top management, should set up a system that allows the right things to be done without any interference or undue influence from persons with higher authority.

Internal controls can have a negative impact on the company’s existence if not established and implemented successfully. The proper checks and balances between employees in different job functions are crucial to the company’s future. All employees have to understand the importance of internal controls and diligently follow established good practices that are part of the company’s culture. This issue is discussed in more detail in Chapter 4.

Utilizing Corporate Resources

Successful companies are efficient and productive in running their businesses. They utilize scarce resources wisely and know where to focus their energy. Corporate resources are allocated based on approved plans and proper justification by the management. Given an officially approved budget for their departments, responsible managers make only necessary requests for resources in order to execute their plans successfully.

Controllers have the responsibility to make sure that the company’s time, people and assets have been utilized for maximum benefits. They have to review the justification for any spending request before approving it. Relevant management reports are prepared to reflect the efficiency levels of resource utilization. This is shown in the following report examples and key performance indicators:

• Headcount Status by Category and by Month

• Return on Assets

• Inventory Turnover

• Production Cost per Unit of Production

• Product Cycle Time

• Scrap and Loss Cost Percentage to Sales Amount

Companies need to establish a strong culture that emphasizes utilizing resources for maximum total operational efficiency. Employees must figure out how to share the limited resources and reduce costs. The management must support activities that promote this culture. More details are discussed in Chapter 5.

System Continuous Improvement

The competitiveness of a company depends on the efficiency level of its internal systems, which include operations and management. There are several elements in a business management system. An accounting department needs a good system for data processing and reporting, document and work flow, organization structure and job description, etc. A newly established company needs a reliable system from the very beginning. Smart managers understand the necessity and importance of a robust system that enhances the efficiency of operation. In most cases, this requires significant investment in terms of money and people. Sufficient training should be provided to employees to ensure that they operate within the system correctly.

Most companies use computer software programs to help with accounting work. This software can facilitate enterprise resource planning that integrates almost all functions such as purchasing, ordering, inventory control, material requirement planning, production reports, sales, treasury, fixed assets, payroll, and general ledger. Automated systems can improve efficiency and reduce costs by shortening operating time, reducing headcount numbers, and preventing errors. However, some accounting systems may be difficult to maintain. The features and functions may not be user-friendly enough, causing time-consuming confusion, especially at the implementation phase.

For accounting records and closing purposes, accounting entries consist of account code, cost center code, accounts payable code, accounts receivable code and amount. These are inputted into the accounting system. Accountants prefer simple systems that can be operated easily. So the design of the menu and access to the system should take into account these specific requirements and the nature of the accounting operation.

In respect to system improvement, a controller’s role is not limited to accounting information. It needs to include the entire company’s information system, which integrates relevant sub-systems used to link data to the accounting database. The system interface between the main system and sub-systems has to be reliable. This is discussed in more detail in Chapter 6.

The 5 strategies listed above are all aimed at upgrading the controller’s performance by better coping with the challenges of today’s business environment. The ultimate goal is not only the accounting department’s success but that of the whole company. By adopting the ControllerFOCUS concept discussed in Chapter 7, controllers can optimize performance in key areas. Before an accountant can take on the highest position of his or her career, he or she may have to go through several positions and different roles. They are described in Chapter 1.

Chapter 8 describes the typical work done by a controller during a 7-month period. The insights, comments, and notes in the form of “a controller’s business diary” are meant to reflect a real-life situation. The content is based on a controller’s actual experience at a manufacturing company with a very unusual situation: all the accountants had left the company after the merger of two subsidiary companies. The controller took the job because of its challenge and the full support from top management.

Today, accountants face new challenges regarding how to effectively perform for companies doing business in a highly competitive environment. It calls for swift actions and adaptation to survive. It’s time to come up with a new working approach that will allow accountants to respond to business environment changes swiftly. As the head of the accounting team, the controller has to be equipped with management tools to upgrade performances. This book will explain some of those tools.

Chapter 1 – The Accounting Career Path

I still remember the day I graduated from Thammasat University in 1985 with a bachelor’s degree in Accountancy. At that time I needed to make a decision to either join a commercial bank as an officer in the foreign trade department, or join an audit firm as a junior auditor. The decision made that day led to an accounting career of over 23 years. I have gained valuable experiences with highs and lows along the way.

Accounting work is not, as commonly assumed, merely about number crunching. It deals with explaining the activities. Accountants have to study many subjects, including auditing, taxation, costing, management accounting, etc. But how can we use all this accounting knowledge to contribute to a business success?

First, it’s essential for accountants to fully understand the basic accounting principles and assumptions. The following are some of the basic accounting principles commonly referred to:

• Historical Cost Concept – Accounting transactions are to be recorded using the cost incurred or the actual amount paid by cash. This concept causes the accounting information to be stated at original prices accounting to the financial amount at the time the transaction occurs. As a result, the cost of a machine purchased 5 years ago will be shown in the balance sheet at the same cost even after deducting by the accumulated depreciation. However, this concept is being challenged by the replacement value concept. In the case of land purchased, the company may appraise its cost against the current market price and make necessary adjustments to reflect this according to accepted accounting practice.

• Matching Concept – Expenses incurred in relation to income generation have to be recorded in the same accounting period in order to be offset in arriving at the profit or loss calculation. This concept is applied to avoid high fluctuation of the operating results, which may cause the accounting record to show extremely high profit in one month, and high loss in the following month. According to this concept, the accountant has to make sure that all expenses are properly and completely recorded in the correct period so that the operating results of the company will not be misleading.

• Accrual Basis – Expenses incurred are to be recorded in the correct accounting period even though the cash is not paid out to the suppliers. Unlike the cash basis, accrual basis recognizes all expenses based on the transfer of ownership or the services rendered. In certain situations, a reasonable estimate of expense has to be made — such as the reserve for market claim expense, inventory shrinkage, doubtful account receivable, etc. On the other hand, once the sales are made via goods delivery or service providing, the company has to record the income within the same period. If the cash was not received due to the credit term given to customers, the amount has to be recorded in the accounts receivable account accordingly.

• Conservatism Principle – Under the conservatism principle, accountants tend to realize and account for negative effects on the company’s operating results rather than record the income with uncertainty. To be conservative, expenses have to be recorded fully; in some cases, reasonable estimates of expense amounts are needed to provide for possible loss or damages such as returned goods, obsolete inventory reserve, etc. Periodic expenses that occur have to be recorded even if the invoice or billing has not been made to the company. Expenses incurred on a monthly basis should be recorded every month, such as electricity, office rental, interest expense, etc.

• Consistency Principle – Financial statements must be prepared according to the generally accepted accounting principles (GAAP), so the operating results can be compared between different periods or different companies. However, companies can choose an accounting principle from the available methods such as the depreciation calculation, straight-line method or unit of production. So it is necessary for users of the financial information to be aware of this. They should also understand the impact of each type of accounting principle when applied to the financial statements. In order to avoid distortion of the financial statements being compared, companies need to consider consistency in using appropriate accounting principles.

Generally, most accounting graduates believe that they could gain more experience in a short time if they start working as external auditors. Due to the nature of the work, they get a chance to see and understand accounting processes for a variety of businesses. I chose the auditing job as the first step of my career.

A business entity can be established in the form of a private company, a partnership, a public company, a joint venture, and so on. Normally each entity has the same basic objective of making profit from the expected return on investment. In order to achieve these targets, the management has to depend on information produced by accountants. Business transactions generated by each unit within an organization have to be compiled and presented in an understandable format that reflects the levels of efficiency and effectiveness of the operations. In the normal course of business, accountants have to deal with business transactions that can be categorized into the following main activities:

• Purchasing – To fulfill the requirements of employees in utilizing the company’s financial resources to do their jobs. Based on the approved business plan and budget, functional managers incur expenses and invest in capital item acquisitions to execute their tasks through the purchasing process. For example:

• Raw materials are ordered and received for use in manufacturing processes.

• Outside contractors may be hired to handle particular tasks such as machine repair and maintenance.

• Office equipment is purchased based on approved plans and requests from employees.

• Selling – A company generates income by selling products or services. The income level must be sufficient to achieve net profit and positive cash flow. The company definitely needs cash obtained from sales to run the operation continuously. Therefore, it is necessary for the business to be managed for profit. In the economic growth period, sales are expanded in response to the market demand. But during an economic downturn, sales forecasts may be reduced. Then the management has to adapt to the business environment change to survive. Regarding sales transactions, there are several activities that need cooperation between accounting and other departments:

• Credit Control

• Invoice Issuance

• Collection

• Debit or Credit Note Issuance

• Delivery Confirmation

• Inventory Physical Count

• Payment – Obligations incurred in business processes have to be settled correctly according to the agreed credit terms with the third parties. For liabilities from purchasing on credit terms, and loans secured from financial institutions, settlements are to be made through the selected payment processes to ensure efficiency of the operation – such as money transfer through electronic banking system, checks, or deduction from receivable amount. The payment transactions also cover internal operational transactions such as monthly payroll, petty cash reimbursement, cash advances to employees, travel expense report settlements and so on.

• Collection – One important source of cash-in flow is from collection of the company’s debts. Generally, major cash collections are made from outstanding accounts receivables. Other types of cash collection include:

  • Loans drawn from the bank creditor.

  • Cash return from employees for the settlement of outstanding accounts.

  • Cash sales collections.

The above 4 types of transactions constitute the majority of the financial picture of a company as shown in the balance sheet and the profit and loss statement. Thus it is important for an accountant to start understanding the business through these transactions. During their accounting careers, accountants will constantly have to apply their knowledge to enhance the success of their employing companies by performing roles that cover several business aspects: business planning, internal control enforcement, risk management, business process improvement, and so on.

An accountant may perform a number of job functions in the accounting and finance department. The nature of the work may vary from processing invoices and payments to the analysis of cost information and account closings. One might progress from a junior accountant to the highest position in that same organization, whereas others may change jobs before becoming a controller.

My first controller position came after 10 years of working in the accounting and finance field. Since then, I’ve seen the roles of a controller evolve according to the changing business environment. Before we explore the controller’s changing roles, let’s review some of the different types of accounting work that comes first.

Junior Auditors

As you start off on your career path, you need to build up some necessary skills. Auditing work can be a good start. Many companies looking for a controller want candidates with experience in this field as well as senior-level experience for at least 7 to 10 years.

Becoming a junior auditor can open the doors to the accounting world quickly. It may serve as a shortcut towards the ultimate goal of being a controller. Auditing work can be challenging, and is suitable for those who can work under pressure and can learn new things quickly. But remember these key factors:

• Auditing is not a guarantee of success. The nature of the work often does not allow one sufficient time to understand the business processes in detail. An audit assignment may only allow about 1 – 2 weeks finishing the field work — or even less than that depending on the company’s size and the number of audit team members. Tight schedules are inevitable during the peak period – 5 months after the annual accounting close. A junior auditor may be assigned to perform audits for only a few sections for each client. Thus it is not unusual for junior and senior auditors to change their jobs within the first 5 years.

• Sometimes what you learn from auditing the clients’ financial statements, accounting records, and internal control system regarding a year’s business transactions can be rough and broad. Remember that the audit will be done on a test basis. So you have to allocate appropriate time to each part of the audit assignment such as cash balance, accounts receivable, fixed assets and so on. The way you do the audit must be based on the scope of work determined from the internal control system evaluation results. In theory, the higher the level of reliability, the less scope of the audit to be performed. So even after 3 to 5 years of auditing, you may not know much about the company’s business and management.

• During the first few years, technical training is necessary for the entire auditing process, including planning, fieldwork, and review. However, many audit firms choose an on-the-job training approach rather than formal training. For a small or medium-sized company, an audit team usually consists of 3 to 5 people: one in-charge auditor, a senior auditor, and one or more junior auditors. The training is done through close supervision and mentoring.

Auditing work is a seasonal business where the peak period will be during the 5 months after the year-end close. Many companies use the fiscal year ending on the 31^st of December, so the peak period will be from January to May. Why the first 5 months of the year? This is because each company is required to submit the annual income tax returns within 150 days after the fiscal year end, including audited financial statements as supporting information. However, some auditing firms handle audit work throughout the year because their clients are listed companies. These companies are required to get interim reviews on a quarterly basis. The scope of work is limited, but the auditor may arrange for other kinds of audits such as internal control system reviews. The year-end audit volume of work can be reduced accordingly.

Regarding human resource utilization and control, each audit staffer has to fill out a time sheet identifying the time spent on each client, with a brief description. The information contained in this time sheet can be used for performance evaluation purposes. Some audit firms will take advantage of this low season period to conduct internal training.

Accounting System Consultants

The nature of management consulting services in accounting can vary according to the particular problems that each company is facing. Such services may include setting up the accounting system, improving the internal control system, serving as the cash custodian, performing special verification of assets or inventory existence, etc. But in general, an accounting consultant is expected to provide effective solutions for the clients. Unlike audit work, the duration of an accounting consultant’s service period for each job can be difficult to anticipate. Some assignments can drag out a lot longer than the original plan.

One day while sitting in an audit client’s office in Bangkok, I received a call from my boss asking me whether I was willing to take a management consulting assignment upcountry. My first question was how long it would take. He could not tell me. But I thought this would give me a good opportunity to learn some new things, and I could get away from the traffic jams in Bangkok for a while. I was sent to Chiengmai province in the north of Thailand. I am not sure I would have accepted this job if I had known that it would take 20 months to finish it.

In some cases, a management consulting assignment requires personnel with different kinds of expertise to form a good mix. It’s like a team of specialized doctors that form to treat a serious illness. In this case my team consisted of a senior partner, an IT consultant, and myself for the basic accounting and internal control system. We were asked by a group of bank creditors to control the movement of cash from accounts receivable and make a transfer back to the lenders. This sounded quite simple but it really needed effective controls and close monitoring to ensure that the company’s assets were protected.

As a consultant you also need to get along with people well. Bad relationships can lead to failure in handling the assignment. This skill is even more crucial when you work in a government agency, where the style and culture of work is quite different from private companies. Working and acting in a professional manner are crucial factors in consulting work. The image you project and first impressions can help build up a good relationship with the client.

One day, my consulting team was sent out to meet with a client, a group of petrochemical companies specializing in plastic and tape products. Our IT expert had a doctorate degree. He was 28 years old. Another team member was a very sharp manager with a lot of consulting experiences in both private and government sectors. He was 26 years old. I was the junior of the team in terms of consulting experience.

During lunch with the Japanese factory general manager, we discussed his company’s business. Everything seemed to go well, but then he commented: “You all look too young for such a big assignment like this.” Your appearance and image are so important that your clients can perceive you in a positive or negative way based on that alone.

Most accounting consulting services involve a process of work that may start with the following steps:

• Understanding the nature of the client’s business. This can be done by interviewing the company’s employees and managers, reading company documents such as meeting minutes, accounting books, invoices and payment vouchers, and by reviewing the document flowcharts of each operation.

• Designing and recommending new systems that will meet the requirements of the client. This requires you to figure out what your client’s problems are. I strongly object to the unprofessional practice of taking the design and solutions from a previous assignment and duplicating them for a new client without bothering to make customized modification.

• Training the client’s staff about the new system to be installed. You need to prepare a well-documented handbook with clear descriptions, explanations and examples of each step. You need to act like an instructor and be open to questions and answers at the end of the session. Sometimes after the implementation phase, your proposed solutions may need some adjustments to better fit into your client’s environment and culture.

• Implementing the new system and making sure that your clients are satisfied with it. A potentially painstaking approach is when you overlap the old and new systems. Some people will have to do double the work during that period. So it is important to design your work from the practical point of view. This will allow you to keep changes at a minimum before submitting the final version of the work manual or instructions.

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In coming up with a new system change (i.e., a new purchasing work flow), you can start by challenging the existing flow. Find out, by asking relevant people or investigating the documents used, the reasons for performing each step. I once worked with a company that required 6 copies of a purchase order (P.O.) form. The need for 4 of them was cut after the new designing process had been finalized.

The design of the document format is also important. It should be reviewed before any conclusion can be drawn as to how to improve it. Can several data fields be cancelled, combined or retrieved from the database? These kinds of questions can trigger new ideas to streamline the process and trim the huge and complicated system.

The Management Information System (MIS) consultant’s role for a client can be considered as that of a trainer. You need to provide education, guidance, and assistance for the client’s staff during the implementation process. So it is necessary that you possess skills in interpretation and communicating what you think is best for your client. You should figure out what will be most practical and suitable for the client’s company. It has to add value to the services you provided. So it is crucial that your client’s staff have confidence in your professionalism and ability in the specialized field.

Your appearance is important. It does not mean that you need to dress in really expensive clothes — but you need to act, speak, and present yourself in a professional way. You may need to be careful with your explanations and comments. How your client perceives is an important factor in your success.

Accountants

An accountant’s roles are the direct opposite of the consultant’s roles. In other words, the role is changed from being the coacher to the practitioner. You need to work together with colleagues from other departments such as purchasing, sales and marketing, warehouse, production, and so on to achieve the company’s goals. As a core team member, basically you have to gather all business information from all functions and summarize it into the form of accounting documents, such as financial statements (balance sheet, income statement, cash flow statement, and other analysis reports).

The first day on board as a new accountant, you cannot expect to be able to do your job fully right away. Well- managed companies will likely welcome new employees with an organized orientation that may take at least one full day. The primary purpose is to explain the company’s rules and regulations, introduce the organization and senior management team, and so on. The orientation can also serve as a bridge for the newcomers and the existing staff to get to know each other and shorten the transition into smoothly working together.

A typical accounting department can be structured into several sections, for example:

• General ledger section

• Account payable section

• Account receivable section

• Fixed assets section

• Costing section

• Taxation section

The workload under each section may vary. In order to achieve the most efficient human resource utilization with a minimum headcount, some functions may be applied to optimize the accounting processes so that one accountant can handle more tasks from different job functions. By doing so, the accountant can learn a variety of accounting duties. During someone’s absence they can perform that work to maintain the continuity of flow. This can enhance the accounting department’s performance as a whole.

Account Close

It has been a professional goal for many accountants handling various accounting functions to one day do the month’s end account close alone, and ultimately produce the company’s financial statements. Some of the reasons may be:

1. It is a challenge. Some accountants, especially those in a large organization, have to stay in the same position for a long time – a few years or more - without any job rotation. This can make them feel frustrated that they know only part of the whole accounting process. To have a chance to close the account successfully would be a big opportunity and challenge.

2. It is a very important task. To run the monthly account close process until you can issue the final financial statements requires a lot of effort from all concerned, from both within and outside the accounting department. The end result of the accounting process is information that is reliable and useful for all vested users who may want to use it for analysis or decision making purposes.

3. It is an achievement. During study in college or university, the accounting faculty students have to take number-crunching tests many times. You are thoroughly trained to make sure that the trial balance compiled shows both total debit and credit of all general ledger accounts correctly. If it is not balanced, you need to trace all transactions back to the original sources to check out where the errors were made. Accounting people understand very well the hardship in arriving at the correct financial statements. However, once you graduated, you may have never done a closing again. So if one day you can have a chance to do it in the real world, it can affirm your accounting knowledge.

Accounting by Function

Within an accounting department, each accountant is assigned core responsibilities. A junior accountant may start by handling a small part of the work, such as verification of transactional documents, preparing payment vouchers, and maintaining up-to-date general ledgers through daily data input.

Most accounting work covers the input, processing and output of data. This also includes collecting data, checking its correctness, and recording transactions into the general ledger system before the financial and management reports can be generated from the accounting system. For example:

• The raw material purchasing transactions have to be verified and recorded after the materials have been received in the warehouse.

• The sales invoices are generated to facilitate the sales transactions, and for supporting the finished goods delivery to customers.

• The fixed asset register is updated when fixed asset items have been acquired or usage has begun. Then the monthly depreciation can be calculated correctly.

• The production cost calculation gets done for finished products produced according to the actual production quantity reported from the production line.

• Monthly payroll is processed for all employees according to attendance and employment contract conditions. Overtime and certain benefits have to be accounted for correctly.

• Factory overhead and administrative expenses are recorded in the correct accounting period. Adjustments may have to be made to ensure the correct accounting treatment according to the company’s accounting policies, such as the recording of accrued expenses, writing off prepaid expenses and so on.

• Financial reports have to be produced in the standard format and within the target deadline. Normally companies should close their monthly accounts within 5 working days.

It is not surprising to see that accountants often spend considerable time retracing transactions under an accounting process or investigation. In order to avoid a lot of accounting adjustments at the monthly closing of the book, it is essential to ensure that the occurring transactions are free from errors. Several types of accounting errors can be often found, especially those that can be considered avoidable adjustments, such as:

• Wrong account codes applied to the transactions.

• Wrong cutoff of documents such as sales and purchasing during other periods that were recorded in the current period; or non-recording of the current period transactions.

• Incomplete accounting entries such as non-recording of the depreciation expense or missing sales invoices.

• Wrong accounting adjustment made in prior period.

Accounting adjustments are made to correct the accounting record because there are limitations in going back to change the original transaction for an accounting period that has been closed. However, for current period transactions, corrections can be made directly to the original accounting transactions.

In an accounting team, each person must make sure that proper accounting processes have been made on a daily, weekly and monthly basis. Some of the key accounting positions include:

Cost Accountant

The product cost is crucial information. The management would like to understand the cost of the products manufactured so that it can assess the efficiency of the production. In addition, the product cost is used by sales and marketing people for product price set-up. If you are a cost accountant, your main duties include making sure the product cost has been properly calculated, analyzing and explaining variances from standard cost, and making sure that the cost information has been prepared and distributed to users on a timely basis. The cost accountant has to communicate closely with the production department team to exchange information and ensure data accuracy. This includes bill of material (BOM) verification, physical inventory counting, and production scrap reports.

Accounts Payable Accountant

On the balance sheet, the accounts payable item is usually one of the high-value items in the current liability category. As this represents the amount to be paid to suppliers, it can impact the company’s working capital directly. It is necessary for the accounts payable accountant to ascertain that outstanding claim items are recorded completely. Under-recording creditors’ claims may result in a negative cash flow forecast that could ultimately affect the company’s operation. So this position should be supervised and managed efficiently. Ways to verify the accuracy of the accounts payable records include reconciling the accounts payable control account and individual account payable ledgers or using the account payable aging report.

Payment Accountant

One accountant is assigned to initiate company payments through payment voucher preparation. This payment can be made either directly to the payee or to the creditors when liability becomes due. The responsible person has to make sure that payments have been made to the right person, at the agreed-upon payment terms, for the correct amount and with proper approval according to the company’s procedure. Furthermore, the payment accountant should have a strong understanding of basic tax regulations concerning requirements when the payment is made — such as withholding tax for different types of business transactions or value-added tax (VAT) invoices.

Fixed Assets Accountant

Most of the company’s investment is typically put under the account group of fixed assets. The fixed assets accountant has to keep track of the movement of the company’s fixed assets from the start of the purchasing, receiving, depreciating and retiring. The fixed asset items can be classified into the following categories:

• Land

• Building

• Machinery and Equipment

• Office equipment

The accountant is responsible for periodical depreciation records. The up-to-date fixed asset register must be maintained and referred to in order to serve this purpose. Otherwise, the company’s depreciation expenses can be under- or over- recorded, causing the distortion of financial statements.

Tax Accountant

The company can avoid the potentially huge financial loss caused by tax problems if there is a good tax planning and compliance system. The penalties and surcharges charged to a company may be due to unintentional practices or lack of taxation knowledge. Thus it is necessary for a company to have one person take care of its tax and duty issues. This person may take responsibility for the regular tax return form filing and overall tax planning.

Accounts Receivable Accountant

The credit sales made to customers result in an accounts receivable balance at the end of the period. Accounts receivable represents the amount to be collected from customers when the payment term becomes due. Failure to collect the debt on time can cause cash flow problems. So it is necessary for accounts receivable accountants to monitor any overdue items so that any non-collectable amounts can be avoided or kept at a minimum. The aging report should be used as a tool to assess the status of the receivable in a timely manner. Appropriate reserve for doubtful accounts may have to be made to reflect the net amount that the company can collect from all outstanding debts.

General Ledger Accountant

The general ledger accountant is responsible for the month-end account closing process. This includes the preparation of the financial statements, including balance sheet, profit and loss statement, and statement of cash flow. The operating result must be reported in a timely manner. The general ledger accountant should understand the reporting requirements of the company or of its head office if the company is an overseas subsidiary.

In addition, as part of the monthly close process, the balance sheet account reconciliation and breakdown analysis should be done properly. This activity can uncover any errors made by relevant people in the accounting process. This accountant sometimes functions as the checks and balances to help strengthen the company’s internal control system.

Expectation from Accountants

In order to account for the entire realm of business transactions and processes, accountants need to get the work done as efficiently as possible. With the volume of transactions and complexity, mistakes can be made. The cause of the problem in certain cases may not be easy to identify, resulting in incorrect presentation of the accounting numbers. Accountants who find mistakes should take immediate action to resolve the problem. However, the solution may require help and cooperation from several parties.

Information generated through the accounting process should be used to help the company run its business better. This can be achieved by effective communication and coordination with other department personnel. Accounting information should be interpreted with understandable language. Presentations should be clear to those without a lot of accounting knowledge.

The following are 3 important actions to be considered.

Tell management the problem

In many cases, the problem is not informing management quickly. This can cause a big surprise and much damage. Accountants need to evaluate the impact of the problem and bring it immediately to the attention of the management.

The problem may involve other functional staff. Accountants are aware of most issues because at the end of the day, they have to review all incoming documents and reports that may reveal negative financial impacts to the company.

Some problems can even cause operating loss and cash flow problems unless people work together to fix them in a timely manner. For example:

Unapproved Capital Expenditure

Capital expenditure is a type of spending that has to be booked as an asset item rather than as an expense. To determine which expenses should be capitalized, an accountant has to consider whether it meets the criteria under the accounting policy. In general, the following are guidelines for capital item decisions:

• The amount is larger than the minimum as set by the company’s accounting policy.

• Its useful life is longer than one year.

In most cases, acquiring a fixed asset involves a lot of money, so the company usually sets a procedure to make sure that the investment is worthwhile. Therefore, a systematic analysis and proper justification is required to understand the return on investment and whether to proceed. Proper approval by authorized managers is part of good corporate governance. Here are examples of capital expenditure items:

• In order to extend its production capacity, a company has to invest in expanding the production facilities and additional machines.

• For security purposes, a company needs to build a separate climate-controlled warehouse to store hazardous chemicals.

• Incoming parts from suppliers need to be inspected for quality standards. With increasing demand from customers, the company needs to add more inspection equipment to speed up the material receiving process.

The need to get a capital item can be initiated by any person who has to get the job done, fix the existing problem or improve the process. To achieve this, that person should understand the company’s rules and regulations. The company may set the standard procedures to be followed, as shown in the example sequence below:

• The production engineer, as a requestor, decides that a new machine should be purchased to replace the old one that broke down during the production run the other day.

• Detailed study and analysis supports the decision to buy a new one.

• A purchase requisition form is prepared and filled out with information such as requestor name, description of the asset with details, supporting backup documentation and study, estimated amount, and date required.

• This purchasing request form is forwarded to the requestor’s supervisor for review and first-level approval.

• The controller reviews to make sure that the request for the investment is justifiable with sufficient backup before signing the document as approval evidence. The controller also checks the capital budget plan to see whether this item is included. Otherwise, additional explanation and approval might be needed.

• The managing director or higher-level approval is consulted before the P.O. can be issued to vendors.

It is possible that sometimes the flow of documents and approval process consumes too much time. That may cause concern for those who want to see the purchase done as fast as possible, and they may want to skip important steps intentionally. Hence, the purchase is done without proper approval. That means a breakdown of the internal control system.

The fixed assets accountant is the one who finds out this mistake. He or she needs to bring the issue to the concerned parties for corrective action. If that doesn’t happen, this problem can persist and becomes a practice that gets difficult to change.

In some cases, the problem was concealed through purposefully wrong accounting records. Perhaps instead of recording the expenditure as a fixed asset, it was booked as an expense. As a result, the company’s assets are now under-recorded, whereas the expense is over-recorded, causing lower profit or higher loss. However, this kind of deliberate accounting error can be identified by an internal audit or by the annual audit performed by the external auditor.

Update the Progress

When there is a low-performance accounting unit, you might see follow-up emails sent to the accounting department both from internal employees and outsiders. You may be surprised at the number of activities within the company that involve accountants. Some of them could be:

• Asking for approval on long-outstanding documents with questionable issues such as purchase requisition forms, invoices, and credit notes.

• Asking for the status of outstanding payments to suppliers regarding questionable shipments.

• Follow-up on requested new product costs.

• Request for an update on the import duty issue under investigation of Customs.

• Request for an update on the capital expenditure approval so that purchasing can be done.

• Asking for an update on outside contract reviews on financial aspects.

• Follow-up on a project feasibility study.

• Asking for the financial forecast of next month.

In an attempt to improve the accounting performance, accountants should know when and how to give an update on outstanding work to the appropriate people so that concerned people can provide relevant information and effort to help get things done. Or if there is possibility of non-achievement, this could help everyone on the team figure out alternative backup plans.

Accountants can give updates through a few channels such as:

• Verbal update

• Emails

• Presentations at regular meetings

• At a special meeting

There are several situations that will require accountants to provide appropriate updates:

• If the company is under the VAT system, change of the VAT rate is inevitable. When the government announces a VAT rate change, the accounting department may take responsibility for ensuring that the sales invoices under the new rate will be issued correctly to the customers. The invoice (or tax invoice) format has to be complete and correct under tax laws. Progress reports on such change are needed by salespeople and managers so that they can inform customers.