How Can Companies Make Their Accounting Transparent?

A recent paper published in The Accounting Review found strong evidence that increasing the level of transparency in a company’s financial statements has many benefits for the business. This transparency fosters greater investor interest and diversity, as well as shielding management compensation. However, despite these benefits, companies should be careful to avoid creating silos and keep their data easily accessible. For advice from Swindon Accountants, visit Chippendale and Clark Accountants in Swindon.

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Here are some tips for improving the level of transparency in a company:

First, companies should establish a culture that demands the truth and accuracy of financial reporting. This can be achieved by avoiding incentives that tie performance bonuses to public earnings reports. These incentives are counterproductive because they are backward-looking. Instead, performance bonuses can be tied to internal KPIs that are aligned with long-term success metrics. This way, employees will be more inclined to tell the truth than manipulate the numbers to meet short-term goals.

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Secondly, companies should make a commitment to making their accounting more transparent. This will benefit them and their investors. As a result, they will attract more investors who are willing to invest their money in their stocks. Furthermore, a company that is more transparent will be more profitable. In other words, transparency will improve the overall value of a business which can only be a positive thing. In addition to reducing the risk of a company, it will also reduce uncertainty in the markets.