What is meant by Accounting Process Automation?
Today the Accounting world is going through a new era, which is heavily reliant on technological advancements. Accounting which spans a history of many years was initially practiced using paper-based ledgers. According to sources, William Burroughs’s adding machine was the first technology to be involved in accounting. McKinsey Global Institute’s a future that works: automation, employment, and productivity suggest that 50% of current activities might be automated by the year 2055. This statistic indicates that automation will inevitably affect accounting.
Accounting Process Automation can be simply defined as automating manual accounting tasks with the use of an accounting system. According to Sage’s Practice for Now 2020 survey, 2/3 of accountants believe automation of processes as a challenge. This automation is not limited to data collection and recording but also extends to the preparation of financial statements. The most important fact of automation is information will be free from human errors like miscalculations, omitting, and duplications. Therefore, companies can use this information to make better-informed decisions while saving time.
Accounting tasks that can be automated
1. Expense Management
Automated expense management is particularly beneficial for companies in terms of identifying, approving, recording and reimbursing expenses, which are borne by employees on behalf of the company. (Reimbursable expenses) Fraud is more likely to occur, as there is no standard methodology for identifying the true details of these types of expenses. It is also very difficult to gather proof documents and get approval for expenses. According to the GBTA Foundation and HRS’s survey, it takes around 20 minutes to complete one expense report and costs about $58.
When finding a solution for automating expense management, it is best to choose a tool with a mobile application that allows employees to submit their receipts to the relevant parties conveniently. Most importantly, it would be better if the software can facilitates data extraction and directly connect and record the expense in the company’s accounting system as well.
2. Payroll Management
Today, many companies use automation for tasks such as time and attendance tracking, tax filing, net pay calculating, updating the payroll system, distributing the paychecks and other activities, which are related to payroll management. Many mistakes can be seen in the final value, as many items have to be taken into consideration while preparing the salary. It is also very difficult to prepare the salary manually while complying with the statutory requirements. According to a study conducted by Ernst & Young, the cost of manually entering single data into the system by a HR person has risen to $4.70.
When finding an automated solution to manage payroll function, companies need to consider the tax filing, data conversion and integration capabilities, affordability, ease of use, payroll reports etc.
3. Bank Reconciliation
Automation can be used to reduce the repetitive tasks involved in bank reconciliation. The comparison made between the bank statement and accounting software can be automated with the help of technology. Most importantly, it will recognize the discrepancies and correct them while ensuring all the transactions are recorded in the system. Manual reconciliation is an error-prone task especially due to omitting and the use of wrong coding. It is also a time-consuming mundane task, which involves a lot of guesswork. These guesses may often lead to inaccuracy. Foreign currency transactions will increase the complexity involved in this process. As per a survey conducted by EY, 95% of work is wasted on transactions that are already matched.
Companies have to focus on an automated solution, which facilitates transaction importing. Currently, most online accounting software has in-built AI- powered transaction matching capabilities, which will be beneficial for companies in various ways.
4. Accounts Receivable
Accounts Receivable Automation can help the companies to automate the invoicing process (approving and sending), payment collection, data recording and finally the reconciliation process. Following up difficulties, inaccurate data entering, and errors in payment allocations are some of the major problems in a manual Accounts Receivable function. According to coreintegrator.com, an accounts person can manually process five invoices within an hour while automation can increase it to thirty invoices.
4.1 Accounts Payable
With the intervention of technological automation, companies can use electronic invoices to increase accuracy and transparency. Optical Character Recognition technology can be used to convert any type of document (PDF, JPG, PNG) into an editable source and extract important information from bills and also simplifies reconciliation.
An automated solution that can create and send invoices automatically, generate aging reports, automate payment collection, supports different payment methods, integrate with the company’s accounting software and manage cash flows will be more beneficial.
5. Financial Reporting
The ultimate goal of accounting is to prepare the financial statements and communicate those to the stakeholders. According to Deloitte’s Financial Reporting Automation report, standardized reporting tools can be used to generate financial statements with less effort and time. These integrations will streamline the financial statement preparation process while strengthening informed decisions. Finally, the financial statements will comply with International Financial Reporting Standards and are free from human errors.
Benefits of Automating Accounting Tasks
Time-saving
Automating monotonous tasks that employees are supposed to perform can save a lot of time and effort in the organization. Automating such activities can also minimize the time spent on re-checking. Further, direct data extraction and data importing facilities will reduce the time associated with manual data entry.
Increase Accuracy
We are well aware that the accuracy of accounting information is highly valued. However, from the data collection to data recording, alterations are added to the accounting information due to various human errors. Automation helps to keep those errors to a minimum by avoiding duplications and omissions.
Increase Productivity
The general opinion is that automation could lead to the loss of employment opportunities for employees. However, if the time and money saved by automation are used to improve the capabilities of employees, then automation becomes a factor that contributes to the well-being of employees. The productivity of the organization often depends on the job satisfaction of the employees. Employee satisfaction can be easily increased by automating tedious activities i.e. boring activities. In the end, an employee with high job satisfaction brings greater productivity to the organization and also takes the organization’s employees retention rate to a higher level.
Real time Data & transparency
Automation increases the transparency of transactions between parties. Automation often involves the use of very high-end technologies such as Artificial Intelligence, Robotic Process Automation and cloud technology. Therefore the users can access the company’s updated, real-time information from anywhere at any time.