The two worlds of accountants: Practice and Industry

Whenever I tell someone I’m an accountant, the comment that inevitably follows is “you must be so busy at tax time.” Many people just associate accounting with taxes, and that is it. Those brave accountants who focus solely on tax do exist, and they usually work for an accounting firm.

Traditionally, accounting firms (practices) provide tax preparation and assurance/audit services. Some also do bookkeeping. The individuals and organizations who use their services typically only deal with them around tax and audit times. These firms can also provide advisory services - for example, if you were going to sell your business and you needed to have a valuation done.

The other type of accountant is those who work in industry. This is the type of accountant I was my whole career up until very recently. They are employed by an organization and are part of the accounting or finance department internally. They take care of all of the day to day accounting tasks and compile financial statements periodically throughout the year so that company goals and targets can be assessed on an ongoing basis (usually compared to a budget).

What is the role of an accounting department?

“To tell the story of what has happened by compiling and analyzing the numbers.” Depending on how frequently this compilation is being done will determine how well the department is able to steer the decision-making of the organization. This is also highly dependent on the relations between the accounting department and the other departments who may be making the decisions. (See my blog post on the Finance silo to see an illustration of this.)

The accounting department can vary in structure depending on the size and preference of the company. In general, the main players are as follows:

CFO (Chief Financial Officer): The CFO is responsible for the finance function in an organization, with the roles below reporting up to them. They review the financials and liaise with other senior members of the organization to communicate any areas of concern from a financial perspective. They have oversight over the budgeting process and ensuring the company’s goals are being met.

Controller: Usually reporting to the CFO, the controller is responsible for managing the members below who make up the finance department. They will keep a close eye on the organization’s cash flow and ensure that there are good internal controls being observed throughout the department. Prior to distributing any financial statements or reports, the controller will thoroughly review and make any additional adjustments which may be required.

Financial Analysts: Critical thinking is key for an analyst. They must “look beyond the numbers” to find patterns or trends which can help the decision-makers make their decisions. An example of something that might be assigned to a financial analyst would be to look at profitability by product offering. They’re also usually responsible for some repetitive work such as bank reconciliations and balance sheet reconciliations, to ensure that everything that needs to be moved from the income statement to the balance sheet (or vice versa) gets moved on a monthly basis.

Accounts Payable: This role is responsible for paying the bills of the organization. This includes entering vendor invoices and batch paying them on a set schedule as well as processing/reconciling company credit card statements and employee expense reports. They take great care to ensure that backup documentation is available for each transaction for audit purposes and that the expenditure has the appropriate approvals and are coded to the proper GL account.

Accounts Receivable: This role is responsible for ensuring that the organization’s customers are paying their bills. They often-times create invoices for customers and follow up on payments that are overdue. How quickly an organization collects on its receivables can greatly affect its cash flow situation so this is an area that must be very diligent.

This is an overview of the traditional accounting department. Some organizations will not have this many members of their accounting department, and some will have multiples of each role - depending on the size and complexity of the organization.

Organizations that have an internal accounting department usually still work with an accounting firm at tax time. With the controller usually acting as a liaison with the external firm, they provide the tax experts with everything that has happened that year for a second set of eyes and for the actual tax filings to be done.

If the company is publicly traded, or have certain debt requirements, they will also have an external accounting firm perform an audit on their financials. This acts as assurance to stakeholders that the company’s financials are fairly stated and not misleading in any way.

The robots are coming.

The accounting world is evolving at an incredible pace, in no doubt due to the pace at which technology is evolving. I was at a CPA Tech conference recently where the main theme seemed to be “yes, the robots are coming.” As you get to the bottom of the above list of roles in a traditional accounting department, you will find an increasing amount of automation available.

Will robots and AI completely deem accountants obsolete? No.

Will robots and AI completely change how traditional accounting has been performed? 100% yes.

Since technology has advanced to a point where many tasks can be automated, there is a decreasing need to staff a full complement of accounting professionals at some organizations. From electronic receipt banks that can extrapolate transaction data from scanned or uploaded bills, to automatic bank feeds into cloud-based financial systems, to financial statements being produced with the click of a button, accounting has never been more convenient.

However, if you want to take advantage of these advancements in technology, you have to be willing to shift your thinking away from how things have always be done. I think this is the biggest hurdle between the current and future states of most organizations. It’s natural to resist change, but sometimes you just need to take a leap of faith.

Practice and Industry Accounting merged into one?

I want to continue doing what I have mastered in my career, which is guiding the inner workings of an organization through financial awareness and continuously challenging the status quo.

Small catch though: I don’t want to do this as an employee.

When you are an employee working in an accounting department, you don’t always feel that you can speak your mind and tell those in charge what you really think. This can be because you’ve tried to speak up in the past and have been ignored, or because you have people above you who are flat-out uninterested in your input (these are the ‘my way or the highway’ types). Either scenario produces a staff full of people who go along with the status quo not because it is the best way to conduct business, but rather because it is the path of least resistance for them.

I want to create for my clients a blend of both accounting worlds.

I will oversee your accounting function and be available for questions around accounting treatment of various items on an ongoing basis. I will compile financial statements at the frequency you need to make your decisions, and present these statements to you in a way that makes sense. Most importantly, I remain an independent third party whose advice remains objective.

I will work to guide your business through decision-making, while keeping my finger on the pulse of your financials so that any issues can be addressed when they occur.

If your financials are only being compiled once per year at tax time, in Canada this can mean they’re only being examined for the first time up to 18 months after the activity has occurred. If there are red flags in there, you have missed your opportunity to course correct before a small problem becomes a large one. Ongoing review of your financial position is not only crucial for decision-making, but it is also important to maintain true peace of mind that you aren’t missing anything important.

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I LOVE banishing the “finance scaries” by teaching entrepreneurs in an easy-to-understand way. If you’re reading this, you might benefit from my FREE Financial Health Check, which will assess how you’re doing with the financial management of your business, and provide you with customized resources that will hopefully resonate with you.