Page 246 - Accounting Best Practices

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12–10 Eliminate Small Accruals
of $2,500 for any journal entry, above which approvals are still required. This
approach usually eliminates the bulk of the approvals, while still reserving the
oversight privilege for those transactions that are large enough to truly warrant
a review. This method usually requires a periodic review of all transactions
to ensure that the preset ranges are being observed.
• Reduce to one approver. In cases where there is more than one approver, there
is rarely a need for it. For example, if a journal entry for more than $5,000
must be approved by an assistant controller, but anything over $25,000
requires the approval of the controller, it is usually sufficient to give the
assistant controller a much higher signoff authority, reserving only the most
unusual situations for the involvement of the extra person. If a controller still
insists on requiring a secondary review of all approvals, then either the con-
troller is a certifiable micromanager (which may require counseling) or else
the person issuing the first approval is not sufficiently qualified to give it (in
which case he or she should have no approval authority at all).
• Shift the approver to an available person. A common occurrence is that a
high-ranking person is the only one allowed to approve certain transac-
tions. If that person is commonly traveling or in meetings, then a process
cannot be completed until the person becomes available to give an
approval. Consequently, the best approach is to reassign the approval to a
different person who is always on-site, usually an assistant controller or
accounting manager.

All of these approaches are targeted at reducing the processing time required
to track down a designated approver. Given a company’s individual circum-
stances, especially involving the risks of not approving a processing step, the
ultimate solution to this problem will be a mix of these solutions. The key issue
to remember is that some situations do indeed require some kind of supervisory
control, so there is always some approval requirement for at least a few key
deliverables.
Cost: Installation time:

12–10 ELIMINATE SMALL ACCRUALS

In some companies, there is a focus on achieving perfectly accurate financial
statements, no matter how many extra accruals are needed to ensure that expenses
are recorded absolutely perfectly. Though there is a certain degree of professional
satisfaction in issuing a set of absolutely accurate financial statements, this can
use up a considerable amount of accounting resources, which could be better
used elsewhere. For example, it may require 20 extra accruals, along with the
attendant analysis, review, and approval effort, to yield financial statements that
now have a profit altered by one or two percentage points. Realistically, such a