Are you a business owner, finance organization, or firm struggling to get the hang of maintaining accounting compliance? The process can surely be overwhelming with different financial standards like GAAP principles, IRS regulations, and FASB guidelines present. But compliance safeguards your company and keeps finances in line. It’s not just about regulations—it’s about being precise and responsible as well.
However, constantly revising different financial standards brings even more complexity to accounting compliance. And this is where adopting best practices for accounting compliance becomes essential.
Don’t know what these are? In this article, we’ll be exploring the best practices that will allow you to be at the top of your game when it comes to accounting compliance.
What is accounting compliance?
Accounting compliance is the name for the process that involves abiding by the rules and standards laid down by financial organizations like the IRS, FASB, and the AICPA. This covers businesses ensuring their financial statements are accurate, they file tax returns correctly, and follow the generally established rules and frameworks in their accounting practices.
Check out our article about IRS red flags, or how to avoid getting tax audited.
By keeping to these accounting regulations and staying compliant, businesses can protect their public image, avoid facing financial and legal roadblocks, and reduce the risk of getting penalized.
Best practices for accounting compliance
Accounting compliance can get complex, with firms needing to adhere to various regulations and rules depending on the type of business they conduct. Here are some best practices that firms can adopt to stay compliant and avoid costly penalties.
1. Understand and implement GAAP
One of the first steps that’s essential to staying compliant is understanding the Generally Accepted Accounting Principles (GAAP) thoroughly. These are the set of principles that lay the foundation for the preparation of financial statements that any business makes.
Research from AICPA shows that companies who adhere to GAAP are half less likely to deal with compliance issues than companies operating in similar niches that do not. If a business fails to follow GAAP, then they might be misrepresenting their financial situation. This comes with the risk of costly mistakes, legal action, and losing the trust of investors or facing penalties from regulatory bodies.
For example, accrual accounting is one of the cornerstones of GAAP. This will require you to recognize your revenue whenever you’re earning it and not when you’re receiving the payment. This helps businesses draft accurate and precise financial reports that reflect their economic activity as it happens.
This best practice would apply if your business, let’s say, provides consulting services and charges a client $35,000. However, you know that you won’t get paid until March. GAAP requires you to record the revenue in January and not in March, when you’ll be receiving the payment. This will give you a true representation of your earnings for the year as they happen on a month-to-month or period-to-period basis.
Learn more about GAAP-compliant ways to recognize revenue.
2. Implement strong internal controls
Another important factor is establishing strong internal controls. These are essentially the systems that are designed by businesses to lay the groundwork for the accuracy and compliance insurance around the financial data. These controls help businesses ensure every financial transaction is recorded accurately, tax returns are correct, and any errors or discrepancies between internal records and reports shared with stakeholders or regulators are quickly spotted and rectified.
A key part of this is separating financial responsibilities—no person or team should deal with every step of a transaction. Diving these duties helps prevent mistakes and keeps everything accurate.
For instance, companies can appoint one employee to enter the data into their accounting system while another employee or the software solution can review the data and approve it to send it to higher bodies. By creating checks and balances in this way, companies can reduce the risk of errors, oversights, misreporting, and fraud and add a stronger layer of security to how they report their finances.
3. Ensure tax compliance
IRS statistics indicate that more than $600 billion of taxes go uncollected each year, primarily because companies report financial data inaccurately or don’t comply with tax regulations. This makes tax compliance an important, ongoing aspect of business operations, requiring companies to report their revenues, expenses, as well as tax obligations accurately and transparently.
For example, if you had a total revenue of $1,58,000 in the past year, then you need to include this in your tax return report. If you fail to even show just $28,000 of your revenue, you can face strict penalties. The IRS can fine you for 5% of the unreported amount of your revenue and add additional interest. These can be some costly steps for businesses, especially small to medium-sized enterprises.
Being tax compliant also ensures adherence to regional and national tax laws. Key tax laws include the Internal Revenue Code (IRC), which sets federal tax rules, and Sales and Use Tax Laws, which vary by region and outline how businesses handle taxes on goods, services, income, and property.
Failure to do so can leave businesses with hefty fines and interest on those penalties, as well as legal action from the IRS. Tax compliance is also necessary to keep all of the financial information of a business organized, to keep track of financial transactions accurately, and to file tax returns without any delay.
Study our complete guide on tax accounting for businesses.
4. Stay updated on accounting standards
Constantly stay informed about the accounting standards as they don’t remain the same over the years. Regulatory organizations like Financial Accounting Standards Board FASB revise their existing set of rules and regulations for businesses to follow.
Businesses must implement several key guidelines. For instance, they must regularly reconcile financial records with bank statements to identify discrepancies early. Access to sensitive financial data should be restricted based on job roles, and businesses must maintain thorough documentation and audit trails for all transactions. Plus, businesses should provide ongoing training to employees on financial procedures and regulations to ensure compliance and raise awareness of internal controls. These actions help safeguard financial integrity and prevent mismanagement.
Companies should also act in accordance with regulations like the Sarbanes Oxley Act. This is especially important for public companies as SOX addresses how these should ensure accuracy and transparency while reporting their finances. To stay current, you must also review updates to GAAP and other relevant standards, make sure that all your team members are aware of them, and implement these new practices.
Keeping up with updates in standards and regulations changes is the way to remain compliant, avoid scrutiny, and retain credibility with all the stakeholders involved.
5. Adopt tools and technology to streamline operations
To make accounting compliance easier, businesses can also adopt automation, relevant tools and technology to handle their accounting operations more effortlessly. Research by PwC shows businesses that are turning to automation for their accounting processes tasks, at least half of the total tasks end up saving an average of 40% of their time on compliance-related processes. This also means that compliance allows businesses to focus on more strategic and demanding decisions and avoid non-compliance fines or penalties.
How Synder makes accounting compliance easier
Now that there are different software solutions for creating financial reports, accounting compliance has become even easier. Software like Synder can help you automate the recording of financial transactions, draw financial statements, and even recognize your revenue in a GAAP-compliant way. This not only helps you comply with accounting laws and regulations but also cuts back the time that businesses usually spend on manual record-keeping of their financial data or manually creating financial reports or tax compliance data.
Imagine you run a multi-channel ecommerce store. Instead of having to manually reconcile Shopify, Amazon, and PayPal sales data, Synder automatically brings all the transactions into your accounting software (like QuickBooks Online, Xero or Sage Intacct), categorizes them, and makes reconciliation a breeze. It even handles things like payment processing fees, payouts, and multicurrency transactions with precision.
Software solutions like Synder can help you keep your data updated and accurate and reduce chances of errors. This will especially help you when reporting taxes.
Get first-hand experience of Synder with our 15-day free trial or join our Weekly Public Demo for a guided tour with our specialist.
6. Conduct regular financial audits
Financial audits are one of the most important parts of maintaining accounting compliance. They can help businesses verify that all their financial information is updated and accurate, that their internal controls are working as intended, and that the company is adhering to accounting regulations. At the same time, this helps business owners and managers gain a competitive edge with the added transparency that these financial audits come with.
For instance, during an audit, an external auditor can notice that certain expenses have been miscalculated or misclassified and they have caused some overstatements in your balance sheet. As a result, you can promptly correct these errors and avoid the risk of facing fines or penalties.
7. Promote a compliance culture in your organization
Developing a culture of compliance within your company is as vital as establishing policies and taking technical steps. All of the accounting employees should know why they need compliance—not only for the company, but for their work and success too. This can help the staff be more diligent and particular about their accounting processes on a daily basis.
For example, you can encourage your employees to double-check their work to avoid errors and follow guidelines from organizations like FASB and the IRS. Many businesses also hold regular training sessions or workshops to keep employees up to date on the latest accounting rules and brainstorm more ways to stay compliant.
Conclusion
Finally, accounting compliance is an ongoing process that requires businesses to stay diligent, be meticulous, and use the right digital tools to get the best result. By following GAAP guidelines, having solid internal controls in place, staying up-to-date with tax laws, and using automation tools like Synder, businesses can reduce the likelihood of non-compliance and keep their financial operations running smoothly. After all, compliance isn’t just about following rules—it’s about protecting your business from costly mistakes and the reputational damage that can follow penalties and fines.
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