Data Analytics in Financial Reporting: Enhancing Decision-Making in Accounting
May 18, 2023
The increased use of data analytics (DA) across various industries has improved overall operations and business efficiency. For example, in the financial sector, the opportunities for accountants through the effective use of data analytics in financial reporting are massive. DA helps accountants make fast, informed decisions for their clients or companies. In addition, DA helps optimize operations to improve accounting procedures continuously.
What Is Data Analytics?
Data analytics is the discipline of gathering data to glean insights into certain aspects of a business. For example, in terms of accounting, looking at data can help make standard accounting processes more efficient and allow decisions to be made more accurately and efficiently. Above all, accountants can provide management with additional insights on costs, regional or individual performance, product lines, and other critical business metrics.
Data Analytics in Finance
When it comes to accounting, a lot of responsibility lies in making critical financial decisions for an organization. Therefore, keeping track of an organization's income and spending is integral to business accounting. Consequently, the use of DA within this field has proven to be a game changer when it comes to enhancing accountants' professional decision-making skills. Information typically presented in reports can be presented graphically or in dashboard formats. Frequently, drill-down capabilities through the graphics expose the underlying data.
The Role of an Accountant
In any business, an accountant plays a crucial role in financial decision-making. Accountants can help companies to make important decisions when it comes to budgeting and financial forecasting. In addition to taking preemptive action, accountants help businesses make adjustments in line with current economic climates and set realistic targets for net sales and gross revenue.
Through their hands-on involvement in financial analysis, accountants also guide employee relations. For example, accountants using DA create key performance indicators (KPIs), analyze employees' overall financial impact on the organization, and develop employee metrics that influence the organization's financial standing.
By incorporating DA into accounting departments, the rate at which critical financial decisions are made and the accuracy with which they are made can drastically increase if used effectively.
Data Analytics and the Opportunities for Accountants
Aside from improving day-to-day financial operations, DA presents several new opportunities for accountants to take advantage of on behalf of their clients. Businesses can achieve increased production rates and improved decision accuracy through DA.
Informed Decision Making
Using DA drives decision-making in accounting, with some systems allowing professionals to pull the relevant data to reveal financial patterns, assisting accountants in making informed and accurate financial decisions on behalf of their clients or organization.
Financial decisions move beyond simply budgeting accurately and making predictions. Accountants can assist their customers in building business plans and hone potential business opportunities by using DA. Tools like 4ImpactData contain codified knowledge in Power BI dashboards that analyze cash flow and optimize various operations.
Improved Client Interactions
Through the proper use of DA, accountants can provide advice to their clients based on their specific needs. DA can tell accountants a lot about how their clients fare in their industries and help determine the best route for financial reform and take effective next steps. Tools like Abrigo ProfitCents provide comparative financial metrics for industry sectors.
Executives often turn to accountants to help make critical calls, not only financially but in general business operations too. With DA opening the door to more information and insights, it allows accountants to leverage data and knowledge to advise their clients accurately.
Data analytics can help accountants drive results that ultimately increase client satisfaction, giving them increased authority and ownership over their decisions. Combining accounting expertise with complex databases is the future of best accounting practices.
Operating Within Complex Parameters
Some organizations operate within more complex parameters than others and using DA can simplify these parameters to make them more understandable to the organization's executives and other staff. In addition, proper use of data can break down seemingly complex processes and financial circumstances into digestible pieces of information, allowing accountants to combine their expertise with relevant facts and figures to make critical decisions. Tools like Tableau, Qlik, Domo and Zoho Analytics combine multiple data sets to analyze complex processes and parameters. View other options at K2's Accounting Software World website.
Business and finance parameters are never set in stone. Therefore establishing market and economic patterns can be difficult when done manually. DA provides an opportunity to stay on top of changing economic environments, allowing accountants to add value and make decisions based on live data. Organizations have to be adaptable and remain current to succeed.
Using Data Analytics for Tax Returns
Another critical aspect of accounting is assisting and advising clients and organizations on the right processes to follow when it comes to tax returns. Organizations rely on accountants' expertise and experience to file taxes, not only correctly but in a manner that financially benefits their organization based on the space in which they operate and their performance over the financial year.
Keeping Track of Businesses Through EINs
Accountants will often liaise with the IRS or Canada Revenue Agency (CRA) to file taxes for their clients or assist in filing their tax returns. One of the critical pieces of data required for this is access to an organization's employee identification number (EIN). Using data analytics, accountants can ensure that the information on record with the IRS associated with their client's EIN is current and that they continue to operate within the correct financial parameters in an ever-changing business environment.
An EIN also helps banks that provide business accounts maintain records of their client's performance and operations. In addition, with DA, accountants can advise on other products and services available from these banks, which may be more cost-effective for business account holders, possibly saving a business time and money in their financial affairs.
Sales and use tax compliance is also critical in most of the United States. SALT (state and local tax) is also essential to compliance. Unlike Canada and much of the rest of the world that uses VAT, GST or HIT, sales tax laws are byzantine and complex down to the local governmental unit. Analytics can predict SALT liabilities, while automated platforms like Avalara AvaTax, Vertex or CCH SureTax can assist with the filings.
Types of Data Analytics Available to Accountants
In modern accounting practice, four main types of analytics are available to accountants in today's business world. In short, the four types include:
- Descriptive analytics. These provide accountants with insights into the current financial environment and answer questions about what is happening within their client's industry.
- Diagnostic analytics. Problem-solving is another crucial role accountants play. Therefore, diagnostics can help accountants make decisions about why certain things occur and help them provide clients with practical solutions.
- Predictive analytics. An accountant's decision-making establishing a route forward can be tricky manually because of speculation. Predictive analytics can help drive accurate and effective decisions for the future and mitigate risks.
- Prescriptive analytics. This type of analysis can help accountants advise their clients on the exact actions to take when implementing change. It answers the question of "what to do" in given circumstances.