Author: Prashant Gupta

Data Digging

Data Digging in Accounting: Insights for Improved Cash Flow

Transforming Accounting: From Data Digging to Enhancing Cash Flow

Accounting has traditionally played the role of the data keeper. However, recent developments have expanded the roles of account teams, changing this perception from mere data recording to actively enhancing cash flow. Businesses have regarded the accounting team as both a booster of cash flow and a cost center, with their main function being the maintenance of records of company activities. The 21st Century has realized the importance of data and its analysis. Moreover, data analysis is not just limited to operational activities; it has also made its presence felt in the accounting function. One such Data Digging exercise we will be focusing on today is boosting cash flow through ledger reconciliation.

The Impact of Ledger Reconciliation on Cash Flow

Our experience with clients has led to the following observations from ledger reconciliation activities:

  • We identified Rs 998 crore in vendor-unadjusted advances.
  • The company raised a Rs 3,761 crore debit note that vendors or customers did not book.
  • Vendors reversed a Rs 2,942 crore invoice, even though the company had claimed GST credit.
  • Vendors issued Rs 314 crore in credit notes that the company did not account for.
  • Customers deducted Rs 53 crore in TDS, which the company failed to record.

All the above can have a direct and/or indirect impact on the cash flow of the Company. If the account team is able to identify such a mismatch on a timely basis and deep dive into it, then it can convert itself from a cost center to a profit center.

Data Digging for Cash Flow Enhancement

Manual reconciliations, even with Excel – MATCH, HIGHLIGHT, or LOOKUP formulas, bear the risk of human errors. Any inefficiency or deficiency in reconciliation plagues the entire enterprise; it affects the credibility of financials, causes inefficient decision-making, and affects the goodwill of a company. Automated reconciliation is the solution to all the above issues.

Data Digging

The Power of Automated Reconciliation

Automation can simplify and streamline the tedious reconciliations process. With minimal human involvement, the entire process of vendor communication, follow-ups, tracking, gathering, and summarizing voluminous information works automatically in the background. The added leverage of real-time analytics makes companies proactive and efficient. 

Enhancing Data Digging with Technology

Using technology for reconciliation has led to the observations shared above. Thus, CFOs and account teams should continue to adopt technologies that allow them to analyze and interpret the vast amount of data at their disposal.

The Role of Technology in Accounting

A team of chartered accountants started Firmway, a cloud-based automation software, to simplify time-consuming reconciliations. Using the latest technology, such as AI, it performs reconciliations on par with industry standards and practices.

Technology makes reconciliations, be it vendor, bank, GST, or TDS, simple and efficient. It also simplifies the communication of reconciliation differences through a world-class online action tracker. Thus, adopting technology in accounting and reconciliations should be a priority for CFOs and account teams.

GSTR-2B Reconciliation: Protecting Your Bottom Line with ITC

GSTR-2B Reconciliation: Protecting Your Bottom Line with ITC

Background

In recent years, fraudulent practices have been prevalent in availing Input Tax Credit (ITC). In FY2021, more than Rs 35,000 crores of ITC was wrongly claimed. This misuse primarily stemmed from Rule 36 of the CGST Rules, 2017. This underscores the critical importance of GSTR-2B reconciliation.

Rule 36 amendment and its impact

The amendment introduces GSTR-2B as a benchmark for determining the amount of eligible ITC. From January 2022, businesses can avail of ITC only to the extent reflected in GSTR-2B. Earlier, Rule 36 allowed buyers to avail of provisional ITC (over and above the amount prevailing in GSTR-2B) up to 5% of the eligible ITC reflected in GSTR-2B, but not anymore. Restricting ITC to GSTR-2B impacts businesses negatively, especially large-scale companies with crores of ITC in the funnel. Thus, it has become increasingly vital to reconcile GSTR-2B and the purchase register.

GSTR-2B Reconciliation

The Importance of GSTR-2B Reconciliation

Imagine losing crores of ITC due to inefficient reconciliation of GSTR-2B and purchase register. It will impact working capital and may even lead to a financial crisis. According to Ernst & Young, industry trends depicting mismanagement of ITC may increase working capital requirements by 5–7% and negatively impact profit before tax by 1–2%.

The following illustrations explain how inefficient GSTR-2B Reconciliation and purchase register may lead to the loss of ITC:

  1. Say out of Rs 1,00,000/- of total purchases, the supplier furnishes details of Rs 70,000/- in GSTR-1. Therefore, GSTR-2B will depict eligible ITC as Rs 70,000/-, and ITC worth Rs 30,000/- will be lost until the supplier updates it.
  2. A failure to update purchase-related credit notes in GSTR-2B can also result in overclaiming ITC, which is subject to penalties. CGST law prohibits ITC claims for credit notes, even if they are not yet updated in GSTR-2B.

Thus, the onus of reconciling GSTR-2B and the purchase register to reduce the risk of ITC disallowance and penalties is more prevalent than ever.

Why automate GSTR-2B Reconciliation? 

Reconciliation of innumerable transactions in GSTR-2B and the purchase register is a tedious task, especially when done manually. Reconciliation is possible with Excel formulas like Lookup, Match, etc., but to some extent only. There is always a risk of corrupting Excel files with heavy GSTR reports and purchase registers. Moreover, manual intervention in applying formulas also exposes you to errors, thus marking the need for automation in reconciliation.
According to Deloitte’s GST@5 survey 2022, reconciling ITC with auto-generated reports (GSTR-2B) is the highest-ranked issue with GST, and automation is an ideal solution. Adopting technology and automation for GST is prevailing in all large, medium, and small-scale enterprises, as they are losing crores of funds in ITC mismanagement.

One such software that can help you save crores is Firmway. It is a SaaS-based software company specializing in multi-GSTIN and multi-month reconciliation of GSTR-2B and purchase registers. This innovative platform automatically carries unmatched items from the previous month and matches them with the data from the following months. Achieving up to 95% accuracy, it relies on a unique blend of technology and algorithms. Not only reconciliation, but technology also smooths the next steps: vendor communication and summarizing reports. Thus, opt for technology to simplify the voluminous task of ITC reconciliations and save yourself from litigation.

External Confirmations In Audits: Best Practices For Success

External Confirmations In Audits: Best Practices For Success

Consequences of Non-Compliance with SAs

Members of The Institute of Chartered Accountants of India (ICAI) must conduct financial audits following Standards on Auditing (SAs) when fulfilling their attestation function. These standards include procedures for external confirmations. These standards represent widely accepted audit procedures. Deviation from SAs, especially in matters related to external confirmations, necessitates a formal declaration by the member. Failure to do so may lead to disciplinary proceedings under The Chartered Accountants Act, 1949

One such standard is SA 505: External Confirmations. It discusses the use of external confirmations and procedures to obtain direct evidence from third parties as required in SA 330: The Auditor’s Responses to Assessed Risks and SA 500: Audit Evidence

External Confirmation is necessary to provide a true and fair view of a company’s financials. It serves as an extremely crucial piece of the puzzle when determining whether such financials are free from material misstatements or not.

External confirmations

External Confirmations is a substantive procedure used to obtain audit evidence as a direct written response from a third party (customer/ vendor/bank) to the auditor in a paper, electronic or any other form.  Generally, auditors use it to determine account balances, status, or terms of agreements. There are primarily three types of confirmation requests:

1. Positive Confirmation Request:

It requires the confirming party to directly respond to the auditor whether it agrees or disagrees with the information provided in the request. Positive confirmations provide reliable audit evidence.

2. Negative Confirmation Request:

It asks the confirming party to respond directly to the auditor only if the confirming party disagrees with the information provided in the request. They provide less persuasive audit evidence than positive confirmations.

3. Blank Confirmation Request:

It is a type of positive confirmation request where the third party (confirming party) is asked to fill in the amount or provide certain information. It provides persuasive audit evidence since the confirming party must verify the information before responding.

Why external confirmations is needed?

For instance, in Mahavir Jain vs. Disciplinary Committee (Appellate Authority), the auditor formed his opinion without obtaining and examining external confirmations of all bank balances as required by SA 505. Consequently, the Chartered Accountant Act of 1949 held him guilty under Part 1 of the Second Schedule. This was due to his failure to exercise the due diligence expected of him and not obtaining sufficient information to form an opinion.

Further, SA 505 is the 3rd most non-compliant standard as per Quality Review Board in Financial Year (FY) 2020-21.

Process of external confirmations

As we know, obtaining confirmations manually via letters or even e-mails is a cumbersome procedure. One needs to maintain records and follow up continuously. External confirmations involve repetition of the following steps for every audit:

  1. Determine the information to be confirmed;
  2. Choose the appropriate parties;
  3. Design the confirmation requests, properly addressed with a request to send responses directly to the auditor;
  4.  Send and follow-up requests.

To simplify and streamline this process, major firms are adopting automated confirmation procedures. This enables audit teams to concentrate on analyzing results and identifying exceptions rather than investing time in evidence collection.

A team of Chartered Accountants started Firmway, a web-based SaaS software company, to help auditors automate the confirmation process in compliance with auditing standards. They digitized the entire confirmation process. Auditors benefit from automating the time-consuming external confirmation process in the following way:

  • Save 90 % man-days by automating the process of sending, receiving, and tracking confirmations using our portal
  • Complete audit documentation as highlighted in peer review process 
  • Increase response rate by 2x
  • Send 1000+ confirmation requests in compliance with standards on auditing
Customer & Vendor Reconciliation

Vendor Reconciliation Made Easy With Firmway

Mastering Customer & Vendor Reconciliation: How Firmway Increases Reconciliation Efficiency?

Mastering customer and vendor reconciliation is a crucial account closure process that ensures the composition of an account balance matches with customer/ vendor reports. It substantiates that balances in financial statements are free from errors or misstatements. As a part of internal controls, it ensures the accuracy and completeness of certain ledger balances, such as banks, fixed assets, payables, receivables, etc.

The world is rapidly moving towards digitization, and this transformation is equally impacting the field of accounting. Automation, while a powerful tool, will not replace accountants but rather complement their roles. In fact, according to the 2021 EY Smart Closing & Reporting survey, where over 40% of company representatives were interviewed, there is a growing demand for higher levels of automation in various accounting processes, including accounts payable, receivable, and general accounting. Enter Firmway, a cutting-edge software solution that not only automates but also simplifies a wide range of reconciliation tasks, aligning perfectly with leading technology standards.

Out of all the ledger balances, reconciling customer and vendor accounts is the most tedious task due to countless transactions. Let’s understand customer and vendor reconciliation and how Firmway can increase and automate the reconciliation exercise.

Understanding Customer and Vendor Reconciliations

Customer Reconciliation 

Customer reconciliation is a critical activity for every business. It involves analyzing the receivables statements to identify any errors or irregularities. Customer reconciliation is a useful tool to get a clear idea of the actual position of receivables. In certain exceptional cases, it can be effective in identifying fraudulent activities pertaining to accounts receivable.

Advantages of Mastering Customer Reconciliation

  • Transactions with customers directly affect the revenue. Reconciling their accounts provides evidence supporting reported revenue. 
  • With regular reconciliations, you can keep track of aging accounts to ensure timely follow-ups. 
  • Helps facilitate internal and external audit and identify prospective bad-debts at an early stage.
  • Significantly reduce the likelihood of errors in receivable account management.

Vendor Reconciliation

Vendor Reconciliation 

It involves comparing general ledger balances of vendors (suppliers) with statements from concerned vendors to identify and resolve differences.

Vendor reconciliation means reconciliation of a vendor’s account with the statement provided by the vendor.

Benefits of Mastering Vendor Reconciliation

  • Vendor balances are a result of credit purchases. Therefore, vendor reconciliation statements provide supporting evidence of purchases. 
  • Regular reconciliations help you resolve disputes and ensure the timely settlement of vendor accounts. 
  • Process checks the entity’s payables to vendor and vendors’ outstanding balances. This enables the company to identify duplicate invoice bookings.

Reconciling vendor and customer balances involve the study and analysis of countless transactions. KPMG’s Automation of financial reporting and technical accounting, September 2019 report, shows that more than 50% of businesses prepare financial records using MS Word and Excel. Furthermore, it is not a sustainable solution to accommodate the growing number of e-commerce transactions. Additionally, customer and vendor reconciliations provide corroborating evidence for two major account heads – revenue and purchases, of an Income statement. Moreover, the quality of these accounts is afflicted by manual intervention. As a result, inefficiency in the reconciliation process enhances the susceptibility of financial records to errors and misstatements.

Streamlining Reconciliation with Firmway’s Automation Software

To address these deficiencies effectively, it is essential to standardize and streamline the reconciliation process using automation software. With Firmway’s Reconciliation software, data retrieval from customers and vendors is automated, ensuring a seamless experience. Moreover, using the embedded algorithm and smart AI tool, it can swiftly convert it to Excel format, organize it, and meticulously compare it with accounting records of respective companies to identify discrepancies. As a result, it saves accounting staff a considerable amount of time, allowing them to efficiently analyze the above-found differences.

Firmway: Your Solution for Seamless Customer and Vendor Reconciliation

Firmway is a web-based SaaS software providing automation in the space of confirmations & reconciliation. It offers multiple tools and services to automate all-round reconciliation and confirmation exercise whether it’s Customer & Vendor Reconciliations, 26AS Reconciliation, MSME Confirmations. It helps accountants and auditors utilize time and resources on analytical work rather than gathering and reconciling information. How are you dealing with reconciliations and confirmations? Time to do it with Firm-way!

Auto Reconciliation

AI and ML Unlocking New Potential in Auto Reconciliations

Transform Auto Reconciliation with Breakthrough AI and ML

In this digital age, forward-looking organizations are adopting cutting-edge technologies, such as Artificial Intelligence (AI) and Machine Learning (ML), on a continuous basis. AI and ML and other technologies, including Auto Reconciliation, are not just trends; they are driving transformative changes. According to Mckinsey’s The State of AI in 2021 report, 56% of businesses are actively working to incorporate AI into various business functions, including finance, operations, marketing, and others.

AI and ML

Understanding of AI and ML

As AI and ML are in their infancy stages, people often confuse them as being the same. AI is a technology that uses math and logic to simulate computers to mimic human behavior. In contrast, ML is the application of AI through mathematical models to enable continuous learning and improvement in computers. For instance, Google Assistant is an example of AI and Google’s Search Algorithm is an ML.

AI and ML benefit not only the IT operations of companies but also prove advantageous in all other business operations, including accounting, finance, supply chains, etc.

 

The Urgent need for AI and ML in Finance Automation

One of the most monotonous and tedious tasks in accounting is reconciliations. Traditional reconciliation involves the collection of ledgers manually by the accounts team & reconciliation with the support of excel & spreadsheet formulas. Imagine the following scenario

  • Lacs of line items
  • Large vendor base also compel to undertake separate GST reconcile, therefore Indirect Tax team also needs to be involved
  • TDS applicability for all the transactions can lead to separate reconciliation of TDS receivable or 26AS. 
  • Payment and/or receipts are being recorded on adhoc basis.

AI and ML can enable the system to process various complex transactions into simple rules, offering customization opportunities within seconds. For example, TDS and GST reconciliations can be simplify by coding computers to learn the method of identification and application of different rates without any human intervention.

AI and ML will not only save employees time and effort but also lower the scope of human errors. According to Accenture’s CFO Reimagined, automation can cover a substantial 60-80% of accounting activities. Moreover, automation will greatly boost data integrity, preventing significant unidentified differences and freeing up employee hours for analysis. AI and ML also offer automated communication, reconciliation, and early loss identification, expediting settlements.

Firmway: Pioneering Auto Reconciliation with AI and ML

Firmway is one such SaaS-based interactive platform that simplifies reconciliations. It automates all the steps involved in reconciliations (communication with third parties, obtaining accounting records, reconciling, and generating summary reports) and strives for minimal human intervention. Businesses are rapidly transforming with technology, but there is still room for improvement, especially in accounting and reconciliations. Anticipating a revolution in the world driven by artificial intelligence and machine learning, Firmway plans to wholeheartedly embrace AI and ML to technologically advance accounting and auditing in the coming years. By effectively utilizing AI and ML, it aims to streamline and expedite reconciliation processes, ultimately saving users time and money. Moreover, it is diligently developing tech-savvy solutions for clients, actively putting innovations to work.

Finance Operations

Finance Operations Triumph Unlock CFO Innovation

Elevating CFO Leadership in Finance Operations Integration

As the role of the CFO continues to evolve, consequently, finance leaders are increasingly taking on a more strategic role in their organizations. The shift is important considering the fact that CFOs are core to the finance of any organization. The strategic role includes not only managing the financial health of the company but also driving operational improvements, delivering business growth, and integrating finance ops. One of the key ways that CFOs can achieve these goals is through an integrated finance operations transformation approach.

Adopting Integrated Finance Operations Transformation Approach

An integrated finance operations transformation involves taking a holistic view of the finance function and identifying key areas for improvement. Additionally, the improvements can include streamlining processes, implementing new technologies, and automating manual tasks. By aligning finance operations with business goals and objectives, CFOs can drive significant value for their organizations. But how can an organization adopt an integrated finance operations transformation approach?

Finance Operations

Key Steps for Integrating Finance Operations

The following are some of the key steps that CFOs can take to implement an integrated finance operations transformation in their organization:

1. Identify Areas For Improvement:

The first step in any transformation is to assess the current state of operations. Before bringing transformation, we need to know the current status and lacunas. This includes identifying bottlenecks, inefficiencies, and areas where the finance function is not in tandem with business objectives.

2. Develop A Roadmap:

Once areas for improvement have been identified, CFOs should develop a roadmap for transformation. This step involves strategizing the future path. This should include clear goals, timelines, and metrics for measuring progress.

3. Implement New Technologies:

Adapting latest technologies is more of a necessity than a choice. One of the key ways to drive operational improvements is by implementing new technologies. Additionally, these technologies can include automated accounting systems, adopting cloud-based solutions, or implementing business intelligence tools.

4. Streamline Processes:

Another key aspect of an integrated finance operations transformation is streamlining the existing processes within the organization. This can include standardizing processes across the organization, eliminating unnecessary steps, and implementing process automation wherever appropriate.

5. Enhance Reporting And Analysis:

Top-level executives are often disassociated from ground-level operations. However, reporting is the way through which crucial information reaches top executives in any organization. Therefore, improving the quality and timeliness of financial reporting and analysis is critical for CFOs to drive business growth. This can involve implementing new reporting systems, adopting advanced analytics techniques, and enhancing data quality.

In a Nutshell: Integrating Finance Ops for Strategic Growth

By following these steps, CFOs can drive significant improvements in finance operations and position their organizations for success. An integrated finance operations transformation approach is key for CFOs who want to step out of their conventional roles and take a more strategic role in their organizations to deliver business growth.