Keeping Accounting on Top: Midyear Accounting Checks and Reviews on Accounting Stability

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The industry of accounting is one of the steadiest industries in the United States. The revenue it has accumulated in the past years is a reflection of its stability. The revenue of accounting, alongside tax preparation, bookkeeping, and payroll services in the United States reached approximately 137 billion U.S. dollars in 2013. In fact, accounting, tax preparation, bookkeeping, and payroll services lead the market with a net profit margin of 19.8% and remain the most profitable industries in 2015, behind legal services, and oil and gas extraction. A portion of accounting’s profit is thanks to the growing industry of outsourcing. The leading accounting and auditing firms worldwide (Deloitte, Pricewaterhouse Coopers, Ernst & Young and KPMG) alone made around 40 billion U.S. dollars between them in 2013, employing more than 717, 000 people. By 2018, this industry is projected to generate around 160 billion or more.

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However, being a giant in the market did not excuse accounting from legal cases involving fraud and the like. In a research conducted by Cornerstone Research in 2014 regarding Accounting Class Action Filings and Settlements, the reviews and analyses show that allegations of accounting fraud increased by 47 percent in securities class-action lawsuits in 2014 compared from the data from 2013. This just shows the vulnerability of accounting in the legal aspects.

This is just one of the main reasons why accounting and tax expenditure are closely monitored by the US government in the past decades. In the midyear newsletter of The Federal Accounting Standards Advisory Board or FASAB, they released a follow up in the Risk Assumed—Insurance Programs. The Program Board has approved edits on the terms of Insurance Program, Exclusions, Incurred but Not Reported, Insurance Claim, Insurance Contract, Cash Surrender Value, and Recoveries. Risk Assumed—Insurance Programs objective is to determine the risks the federal government assumes when it implements policy initiatives to provide safety and stabilize financial markets and the economy. It also aims to update the current standards that are limited to insurance contracts and explicit guarantees.

FASAB is a US federal advisory committee which has been established through the Chief Financial Officers Act of 1990 to develop generally accepted accounting principles or GAAP. FASAB serves the public interest by improving federal financial reporting through issuing federal financial accounting standards and providing guidance after considering the needs of external and internal users of federal financial information. The American Institute of CPAs or AICPA Council designated FASAB as the only body that establishes accounting principles for federal entities. FASAB has scheduled meeting regarding Risk Assumed Insurance Programs on the 24th and 25th of August, 19th and 20th of October, and on the 19th and 20th of December.

Various data and research about accounting will prove that it will continue to be a dominating industry for decades to come. And with the FASAB flourishing it up to make it a stable industry with lesser risk, we can count on accounting to stay on top of the market for a very long time.
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Cash Management: The Heart of Risk Management Services

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Risk management and like services would not become an industry nor a field if it were not for the unpredictable nature of financial investiture. Financial investiture is summarily closer to planting seeds than raising livestock—you can always get a healthier chicken to breed with your hens so you can yield more eggs but you can’t be sure how many and how sweet the apples will be until after a couple of years. That’s why risk management services are so important and that’s why cash management is your best weapon to reduce financial risk.

When talking about risk reduction, “financial” is almost always affixed. It is always in the context of money. In a constantly evolving industrial world, how do you get by managing financial risk for your company’s betterment?

Risk < Reward

There is such a thing as cost effective risk reduction (CERR) and its basic working principle is that no risk = no reward. Taken bluntly, it might look counterproductive to what we’re trying to do, i.e. reduce risk but investments and risks are the heart of innovation and discovery. Businesses continually have to invest in advertisement to be known, in technology to be enabled, and in manpower to stay in business and all these investments are risks. It’s only just a matter of reducing risk—never evading them—that makes the differentiating margin between reward and loss.

Cash Flow Prediction

You will know when a business is succeeding or at least has found stable footing when it has more incoming cash than it has expenses. That’s exactly what cash flow management is all about: balancing collections, income, and accounts receivable with disbursements & accounts payables. Cash flow prediction is more concerned about imbalance in that it needs to know how much you are going to need to pay so that you can predict how much more you’re going to need to make to be able to carry one with future plans. Also called financial forecasting, it might be one of the most important risk reduction mechanisms to make sure that you have the money you need as you go into risk. So what if you go into risk and it doesn’t go as well as you’d hope?

Contingency Fund

After you’ve accounted for how the best scenarios of your investment may play out, risk management services and cash flow prediction considered, you now have to prepare for the worst. After you’ve steered your company’s ship into stormy seas only to find nothing but high winds and no treasure, a contingency fund will paddle you back into calm and stable shores of liquidity. If investing is, in itself, investing in risks, a contingency fund is an investment in safety. A contingency fund does not only work when you need to make a risk so even without any immediate plans to make an investment, you can start on a contingency fund already.

Whether you are a small or medium business doesn’t matter—investiture is a risk you are going to have to take if you are going to make more money and do not want to stay in a limbo of stagnation. Risk management and cash flow management will be your left and right hands to help you break through a bigger market moving forward.
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