You Are Precisely Incorrect


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The difference between precision and accuracy, is there such a thing?

Each month the financial information we generate and send out internally and externally as a company is inaccurate before the information is even sent. As an Accountant, this is difficult to hear and even more difficult to admit and put in writing. The reason for this inaccuracy is largely attributed to the number of estimates that are made each month in preparing financial information. The circumstances may be similar at your place of work as well. Examples of estimates in our financials include how much revenue, as a projects-based company, to recognize on a project (typically driven off of projected costs to complete a project), valuation of accounts receivable (how do you determine what is collectible vs. noncollectable?), valuation of our fixed assets (who has the time or desire to go through each of our fixed assets and determine what the market value of those assets are?), etc…

If financial information is inaccurate before it is even sent out, why invest the time, money and effort that is needed to compile this information monthly? Although the financial information is not 100% accurate, a level of precision in preparing it is still critically important for a number of reasons and a number of different users. A few examples of how the monthly financial information is utilized and relied on are as follows:

1.) In preparing the monthly billings for customers
2.) Business leaders use the information to make informed decisions and to help understand and gauge year-to-date progress toward company goals
3.) External users are making decisions and relying on the financial information to determine credit availability and to bond projects

While 100% accurate financial information may not always be attainable or desirable, a certain level of precision is. Determining that level of precision can prove difficult, as a number of factors weigh on this. The thing you need to do is to make sure you are focusing on the right level of detail each month for your situation. One way to ensure you are looking at the right areas is to imagine if you were given 5 hours to close your monthly financials on any given month. How would you allocate your time? Are the right areas getting the correct amount of time? Then, attribute this back to your monthly financial close process. Does the allocation of time look similar? Are you spending too much time in one area and not enough time where you should be spending more?  Just because you can put in the extra time to get your financials precise, doesn’t mean that time is well spent. Keep the big picture in mind and focus your time and effort on getting the important details as accurate as possible within the permissible time constraints.