The Impacts of Transparent Accountancy

Posted on: March 11, 2021 by Huntersure

As you work with your business clients to find them the right accountant professional liability coverage, it’s essential to make sure you guide them through the many reasons accounting transparency is vital. The impacts of transparent accountancy range from avoiding complicated audits and complying with legal regulations to simplifying accurate accounting and building up trustworthy relationships with investors.

Your client may be held liable for opaque accounting practices, so understanding the importance of transparency is key.

Your Client’s Investors May Be More Encouraged To Work With Them

One prime benefit of practicing transparent accounting is that it can help your clients strengthen their investor relationships. As a general rule, investors like to know a company’s exact financial state, and respond well to openness and honesty. Similar benefits your clients could experience when they’re open to relevant individuals about their finances include:

•     Giving backers a better understanding of the company’s current financial situation
•     Staying fully informed to strategize for both short-term and long-term finances
•     Building trust and professional relationships with investors by providing transparent, reliable information
•     Encouraging investors to buy stock and to continue to invest in them

It Could Help Strengthen Companies’ Budgeting and Capital Allocation Efforts

Transparent accounting doesn’t only have benefits for your clients’ financial backers and legal department – it may be able to help strengthen and even simplify their budgeting efforts as well. When your clients know exactly where every penny is going, capital allocation efforts may be smoother to implement. Your clients could hold their accounting department to this standard by requiring them to:

•     Maintain a consistently accurate picture of a company’s finances
•     Understand what resources and capital are available to allocate to certain parts of the budget
•     Work towards long-term goals rather than cutting corners

It May Help Remove Perverse Incentives and Ensure Legal Compliance

Finally, it’s worth pointing out to your client that unclear accounting standards or opaque practices can sometimes put perverse incentives in place. In some situations, for example, executives may be tempted to fudge the numbers before a big investor meeting or leave out important numbers from the official record. These situations can not only cause legal headaches for a company, but they can result in complicated audits and more. To avoid negative incentives, your client should:

•     Ensure executives are incentivized to disclose accurate information rather than skewing reports before disclosure deadlines
•     Ensure compliance with all relevant accounting principles and tax laws and avoid legal consequences, potentially including penalties, court cases, and more
•     Meet industry quality standards to help avoid complications in auditing situations
•     Encourage independent, fact-based decision making at the company

Whether you work with small business clients or large corporations, maintaining accurate financial records and committing to transparent accountancy practices is essential for several reasons. As you help your clients secure the accountant professional liability coverage they need, work through these points with them to ensure a full understanding of the impacts truly transparent accounting can have.

About Huntersure

Huntersure LLC is a full-service Managing General Agency that has provided insurance program administration for professional liability products to our partners across the United States since 2007. We specialize in providing insurance solutions for businesses of all sizes. Our program features can cover small firms (grossing $2.5 million annually) to large corporations (grossing $25 million annually or more). We make doing business with us easy with our breadth and depth of knowledge of E&O insurance, our proprietary underwriting system that allows for responsive quoting, binding and policy issuance and tailored products to meet the needs of your insureds. Give us a call at (855) 585-6255 to learn more.

Posted in: Accounting