Customer Stories
Audit Process Optimization: Leveraging Technology for Increased Audit Efficiencies
About the Author: As Lovevery’s Vice President, Controller, and the 2022 Controller of the Year, Ashley Griesshammer has played a pivotal role in guiding Lovevery’s accounting team through a period of explosive growth. Since joining the company, Ashley has been instrumental in enhancing processes and formalizing the accounting function, contributing to Lovevery’s ability to scale efficiently.
In addition to her impactful work at Lovevery, Ashley has previously shared her expertise by contributing valuable content to FloQast. One such contribution is her insightful article titled Beginning a New Accounting Leadership Role Strong, where she provides guidance on establishing a strong foundation in a new accounting leadership role.
Recently, FloQast published an e-book on how technology can improve audit efficiency based on Ashley’s first-hand experience. Check out the full e-book here.
One of today’s most often talked about topics is how automation and leveraging automation tools, will affect the accounting profession. Having gone through this process myself somewhat recently, in this post, we’ll dive into some of the efficiencies that can be gained in your annual audit by implementing automation in your accounting systems and workflows. Most people groan when they hear of system implementations, and for good reason – a significant automation overhaul is not without pain. But the gains from a project like this multiply years down the line for accounting and data teams.
Transaction Automation: A Cross-Functional Approach
Transaction automation works best for companies with high volume, similarly sized transactions – perfect for e-commerce businesses with a large direct-to-consumer customer base. Lovevery is a perfect example of this – the subscription nature of our business with defined time frames for play kit shipments (based on your baby’s age and stage!) introduces excellent predictability. The more automation that can be built in recording daily transactions, the lower the risk of error occurrence from manual intervention and recording.
What does this look like in practice? Specifically, this can cover:
- Posting revenue to appropriate income accounts upon shipment (606 compliance!)
- Holding revenue in deferred accounts while awaiting shipment
- Routing sales tax to specific tax accounts on your balance sheet vs. a P&L
- Automatically classifying discounts into appropriate expense categories instead of lumping them into revenue (as appropriate for your business).
How do you achieve this type of automation? This won’t be a project specific to just the accounting team, and will involve cross-functional partnership with your operations and IT teams – achieving success in a project like this requires total company buy-in. While any given structure will change based on your specific business needs, the primary goal remains the same: Systems need to talk to each other. Your order system needs to connect to your ERP/General ledger system; your warehouse needs to talk to your order system and GL to provide fulfillment information.
Using standardized transactions with consistent data identifiers, tags, or other essential fields, allows for a population set that is easily analyzed. Manual journal entries can be too large, lack consistency month over month, or don’t include the detail an auditor might need – perhaps necessitating further clarification down the road (which, obviously, isn’t ideal) While transaction automation isn’t perfect, and some manual analysis at period cut-offs will be required with the potential for adjusting entries, it greatly reduces the size of adjusting entries and the risk of misstatement. During this project, we were able to reduce the amount of revenue manually recognized by 41% each month while also greatly limiting the risk for manual errors.
A little while back, I spoke about my experience with an ERP implementation on FloQast’s podcast, Blood, Sweat & Balance Sheets. Most audit firms are now working with various analytical or data evaluation tools. By:
- Reducing the number of manual journal entries our team was doing
- Ensuring our transactions were automated,
- Housing everything within the system
- Having consistent data markers
our audit team was able to easily use their proprietary software to analyze some of our largest accounts (like sales and COGS).
We provided them with a simple transaction export from our ERP system that they could load into their proprietary software — techniques like this work exceptionally well for a company with consistent sales patterns. The software will pick up transactions that, for us, are unusually high in dollar amount or unusually high in occurrence. Substantive testing can then be limited to those transactions that have been flagged and the bulk of the sample population passes the automated testing. We were able to cut the amount of samples we need to provide the auditors (think pulling a sales order, a bill of lading, a credit card charge, multiple documents for a single transaction) by well over 50%, saving our team full weeks of work during our audit season.
Centralized File Storage
This may be the least “techy” solution of the bunch, but it is still worth mentioning. Leveraging a cloud-based, centralized file storage for your accounting team is imperative. This makes collaborating on documents much easier than sending versions through e-mails. It also alleviates the problem of documents being saved on a team member’s local storage drive – maybe they’re out of office, and the auditor needs a file you know is on a desktop, but no one can send it over until that individual returns.
Keeping organized folders by:
- Month
- Year
- Accounting sections (sales, inventory, expense reports, payroll, etc.)
…lets all team members access relevant information the auditors might need and provide it as quickly as possible.
I also recommend starting a new audit folder as soon as you wrap up the prior year’s audit. You can immediately start saving items you know you’ll need to provide your audit team the following year as they come up (charitable donation receipts, that one tricky reconciliation) rather than searching through old e-mails when the request finally does come.
Finally, roll forward your work papers – if everything is saved in a central and accessible location to the team, it’s effortless to roll forward workpapers even if a new individual is in the job. Let’s say you hired a new AP person and want them to complete the AP reconciliation PBC – they can look back at last year’s file and do their best to duplicate the work (assuming it was done correctly!) before reaching out for help.
Close Efficiency Tools
This wouldn’t be the FloQast blog if I didn’t talk about FloQast! Before implementing FloQast, our team used a Google Sheet to track our close progress. Reconciliations were saved in file storage, and that was pretty much it. Since we’ve implemented FloQast, we’ve been able to export a reconciliation completeness report for our audit team, quickly locate requested reconciliations because of FloQast’s own file management, and document tasks and signs off that have been completed without a worry they were from an altered source.
Taking the time to properly set up system design, a file management system, and other foundation-laying items might be a low priority for an accounting team amidst the day-to-day running of a company. Still, it is critical to leverage future efficiencies among their team. In addition, technology advancement is a project that’s never truly done – I always tell folks our ERP implementation is perpetually 95% done. Constant upgrades, changes, and additional automation can be built into your systems and processes. Leading your team with an open attitude to change and improvement will benefit your organization continuously.
Connect with Ashley on LinkedIn for more updates on her professional journey and insights into the dynamic world of accounting at Lovevery.
For a deeper dive into Ashley’s experiences and strategies for improving the audit process, FloQast has recently published an e-book based on her insights. You can access the e-book here (insert the specific link when available).
Don’t miss Ashley’s insightful discussion on her journey from finance to accounting, her strategic steps to improve processes, and her outlook on the accounting profession in a recent episode of Blood, Sweat & Balance Sheets. To hear more about Ashley’s experiences and perspectives, check out the full episode.
