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Accounting Compliance and Controls: What To Know

By Ryan Luchs

Every company that deals with money needs to deal with it properly and keep their books legitimately balanced. This can be difficult for first-time business owners. Especially those who are more used to applying their own learned skills as a service or making products than they are with managing finances. That is where Accounting Compliance comes in. Accounting Controls refer to the processes and procedures in place for a company to record and verify all financial transactions. This includes revenue, expenses, assets, and liabilities. Following these rules as well as external legal guidelines is Accounting Compliance.

Simple errors can lead to major conflicts, especially where taxes are concerned. This is why compliance is important, it keeps the business from getting in trouble with other parties or with itself. But this is a skill that must be learned and applied, not everyone is good at managing their money in such a detailed manner. For that, there are solutions, both as products and services. They can be Internal Controls or External Controls. Internal Controls are things like software, filing systems, or whatever processes one uses to stay compliant. External Controls are separate companies that work to handle accounting for their clients and do all the busywork for a fee.

Examples of Internal Controls in Accounting

The main method of establishing and managing Internal Controls is through software. Any business that’s making money will operate through a bank and those banks are online. Credit card transactions are locally and remotely tracked online. Everything operates on computers now, including accounting. Software systems can be downloaded onto nearly any computer, some even fit on smartphone devices for highly mobile accounting management. 

SoftLedger is an example of a cloud-based, API driven accounting system. It exists completely online and allows users to track and manage their financial data from anywhere. It’s highly scalable, allowing anyone to utilize it whether they are a small business or a much larger firm. They even integrate third-party accounting controls, being a piece of software many companies use who manage the finances of others. Since it’s cloud based, the data can be accessed anywhere. This is ideal for businesses where every member is constantly on the move, or entrepreneurs who travel for their work. 

Examples of External Controls in Accounting

For much larger businesses, or businesses with a staff that collectively have very little accounting skills, external controls may be the perfect option. These are entire teams of people or other companies that handle accounting compliance through their own systems. The main downside to using an External Control is that they are businesses and thus require paying. Potentially costing much more than it would be to hire an employee to be the company accountant. But, External Controls usually have access to more advanced methods and technology.

External Controls cover a broad range, as they include anything that could directly impact the financial compliance of the business. This includes the government who writes the rule which requires compliance, competitors in the market who drive businesses to manage their finances most strictly to stay active, media exposure which can alter the state of a market and thus the access to profits or liabilities that companies can gain, and so on. If other companies or entities influence the way your business handles its money, they are External Controls. External Controls can be checked and balanced by having comprehensive and up to date Internal Controls for Compliance.

Internal Controls VS. External Controls

When debating what to focus on for the sake of accounting compliance, it’s important to note that you can never completely be without one or the other. Internal Controls are down to the things you do, yourself, as a business to manage money. Whether it’s a software suite, a cloud-based solution like SoftLedger or it’s all hand-written and organized the way you like it, that is an Internal Control. It’s the way you deal with tracking the money your business gains and loses. External Controls will always exist, and their actions will cause changes in your company whether you want them to or not. 

Having strong and steady Internal Controls will help keep management high, but that requires time which those will spend away from the business’ main line of work. And, it’s a skill some people don’t have. It could be cheaper in the long run to hire someone in and let them set up an accounting procedure for you. This would be integrating an External Control into an Internal Control, bridging the gap. Or if a company has more to do than just tracking its money and requires active, continuous management, outsourcing the work to another company may be more profitable than hiring and training multiple accountants.

Why Is Accounting Compliance Important? 

There’s no ignoring every External Control out there, especially ones tied to governing bodies. Government at every level can have a say on how your money should be managed. These relate to laws, which is where Compliance becomes crucial. Breaking a law, even by accident, will incur fines which will hurt the business. It’s money lost with no production, and not a business expenditure. Preventing fines and other fees is why Accounting Compliance is so necessary. 

Integrating Accounting Compliance is made easy by widely available software and online solutions. SoftLedger can be a great way to ease Internal Controls into a company with simple to follow controls and covers a huge range of business applications. It’s also cheap enough to afford for long or short-term solutions while still leaving plenty of room open for the business to improve and settle into finding its own way of handling accounts. Compliance is meant to be within reach, with a little work, for every company so they can stay stable and avoid legal troubles. 

Determine which approach works best for your business and what will help it stay compliant in the future. As long as you’re making and spending money, you are Accounting for it, and you need Accounting Controls and Accounting Compliance.

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