For even the most thorough of SaaS CFOs, there’s a nagging question that’s always risky to ignore: “How are we doing on our accounting compliance?” With new accounting laws and regulations emerging every year, it’s a question SaaS finance leaders are increasingly fretting over. Compliance with government accounting standards can have consequences that ripple through all levels of your enterprise.
We can’t stress enough the importance of compliance in accounting. In this article, we’ll discuss the ins and outs of accounting compliance and explore some SaaS industry-specific best practices for maintaining compliance – so you can stay confident even during an audit.
You’ll learn how to:
- Use automation to stay compliant: Abandoning manual processes is one of the most effective accounting compliance measures you can take as a SaaS CFO. Once automated workflows have been established, you’ll barely even need to think about industry-specific regulations.
- Rid your company of the “rushed and worried” mindset: Many accounting compliance errors come about simply because employees were rushed in their current task because they were worried about their overflowing to-do lists. We’ll help you optimize your processes, making your team less stressed and error-prone.
- Pass every compliance audit with flying colors: Cloud-based accounting software makes it a breeze to set up advanced IT security architecture. This matters significantly – along with other audit-related benefits we’ll discuss – because it helps you prove to auditors that you’re guaranteeing the transactional security of your customers. This is achieved through regulations like ASC 606 and others.
However, before we dive into all that, let’s zoom out somewhat and cover a few basics.
What is compliance in accounting?
Accounting compliance means ensuring that your financial reports are accurate and in accordance with current laws and regulations. This means staying in line with government accounting laws and GAAP (Generally Accepted Accounting Principles), which is necessary if you want to record transactions correctly.
These various regulations and requirements are for the benefit of companies and customers alike. Accounting laws help establish a fair and level playing field; compliance standards help keep transactions and personal data safe and secure. Three industry-specific examples of accounting compliance include:
If your organization is subject to the Healthcare Insurance Portability and Accountability Act (HIPAA), your financial system must have the accounting compliance tools and certification to safeguard protected health information (PHI).
Part of HIPAA compliance is being able to distinguish who had access to protected health information and when. Tracking access to protected health information is one of the HIPAA requirements. This means you also need to know that your technology partners have the compliance tools, certification, and commitment to safeguard PHI.
New Research: Finance Professionals and PHI
Financial systems may be putting non-acute providers at risk for HIPAA violations.
ASC 606 compliance
The ASC 606 compliance guidelines were drafted by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) in 2014, which went into effect in 2018 for public companies and in 2019 for private businesses.
ASC 606 is officially titled, Revenue from Contracts with Customers (Topic 606). The purpose behind these accounting standards is to standardize both when an entity may recognize revenue and how much it may recognize.
The FASB and IASB diagrammed 5 steps that entities need to take to achieve ASC 606 compliance. These are:
- Ensure contract and collectability threshold transparency.
- Outline performance obligations for uniformity and clarity.
- Identify variable pricing terms.
- Allocate part of the transaction price to performance obligations.
- Properly recognize revenue.
Sarbanes-Oxley (SOX) compliance is a must for public companies, but several key provisions also apply to accountants, auditors, and executives at small and medium-sized businesses. SOX compliance standards mandate that entities must have sufficient controls in place to protect against potential liabilities and threats.
Regardless of whether your organization is a covered entity for SOX, many of its requirements are considered best practices and beneficial to all businesses. These practices help to ensure the accuracy of financial statements, as well as protect your business and its stakeholders from lawsuits, fraud, cyber attacks, and more.
Accounting compliance best practices
Best practices for compliance vary widely across organizations due to differences in industry practices, maturity, size, and complexity of business operations. As organizations grow and scale, they need to further strengthen core systems, processes, and controls to meet the needs of an increasingly complex business environment, which might include:
- Enhanced regulation and compliance requirements
- Organizational complexity
- Increased stakeholder attention
- Data-driven reporting requirements
- A need for robust and effective governance
- Rigorous auditor scrutiny
Depending on geographic location, industry, and finance requirements, an organization might be subject to Generally Accepted Accounting Principles (GAAP), the Sarbanes-Oxley Act (SOX), the International Financial Reporting Standards section of the European Union’s International Accounting Standards (IAS/IFRS), General Data Protection Regulation (GDPR), and more.
The importance of compliance in accounting cannot be overstated. So, what are some simple but effective best practices that help guarantee accounting compliance?
Here are three best practices that will help you stay fully compliant with government accounting standards:
1. Build compliance checklists.
When it comes to completing financial and accounting processes, communication is extraordinarily important. Failure to communicate can lead to costly compliance slip-ups, as one team member assumes another completed a task and neither checks in about it. Cloud-based accounting software gives you access to detailed checklists encompassing your key workflows, so nothing slips through the cracks. Here is how Corecard, a public and leading provider of card processing systems, built their SOX strategy.
2. Automate your compliance onboarding.
The regulatory landscape often changes quickly, leaving companies vulnerable to penalties or failed audits if they can’t keep up. By introducing automation into your accounting processes, compliance updates will be integrated automatically when needed.
3. Migrate documentation to the cloud.
When you rely on spreadsheets to keep track of important data, you risk accidentally losing or deleting them. This could be a serious issue during an audit and reflect extremely poorly on your company.
So, what if “the worst case scenario” were to happen? What if your company was audited to ensure compliance with government accounting standards?
Total confidence during a compliance audit
Many organizations will undergo an external audit, either as a compliance requirement or in preparation for certain types of business transactions. The primary purpose of an external audit is to enhance the credibility of an organization by attesting to its financial health. An external audit refers to the examination or scrutiny of financial statements of an organization by an independent body, which can produce several results:
- Independently verified financial statements and information for an organization’s shareholders, board, lenders, investors, customers, funders, donors, and other key stakeholders
- Independent assurance over the design and operating effectiveness of an organization’s system of internal controls
- Identified risks and opportunities to enhance an organization’s compliance with its legal and regulatory obligations
- Preparation for due diligence when planning a transaction, such as a merger or sale of the business
Compliance audits don’t have to cause severe stress, if you’ve put the right systems in place upfront. The main thing about staying confident during an audit is to know upfront that you’ve put compliance safeguards in place. Sage Intacct helps you accomplish this by:
- Streamlining your compliance documentation
- Leveraging continuous closing for total accuracy
- Ensuring accounting compliance through audit trails
Accounting compliance in action
Accounting compliance procedures can get complex, even if a team leverages automation. Finance managers usually outline their team’s relevant practices and procedures in onboarding documentation. Sage Intacct can help you seamlessly store, access, and update your documents as needed.
Errors made during previous close cycles can negatively impact your audit results. With automated cloud accounting software, you’ll be able to enhance your compliance results by sidestepping the singular close process altogether. With continuous close technology, your books will be automatically adjusted as each transaction takes place.
Detailed audit trails through Sage Intacct enable you – or your auditor – to drill down into the details of any transaction and chart its entire lifecycle. When was it first initiated? When exactly has it changed, if at all, and why? With the right accounting software, all this essential compliance data is just a click away and securely stored in the cloud.
Compliance you can count on
Accounting laws and regulations are growing more complex. Don’t leave your SaaS company’s accounting compliance to chance. Give yourself the gift of an automated accounting department. You can hear how public SW company, IZEA, manages SOX compliance for themselves.
Sage Intacct is designed with compliance in mind. We built an entire Compliance Workbench that allows you to manage much of these controls and risk. The platform and application functionality make it easy for you to adhere to compliance and regulatory legislation. You can also institute business practices and controls that help to ensure the accuracy of financial statements, reduce effort during audit engagements, and protect your organization and its stakeholders from lawsuits, fraud, cyber-attacks, and more.