eBusiness Weekly
Dr Keen Mhlanga
Financial and accounting obscurity refers to practices or situations where financial or accounting information is intentionally or unintentionally made unclear, difficult to understand or hard to access.
This can happen for various reasons, such as to hide financial wrongdoing to make it difficult for outsiders to understand a company’s financial health or simply due to poor record-keeping practices.
Financial and accounting obscurity can be a major red flag for investors or other stakeholders as it can indicate that a company is engaging in deceptive or unethical practices.
Examples of financial and accounting obscurity include lack of transparency whereby a company do not provide sufficient information about their financial performance, making it difficult for investors to make informed decisions.
Creative accounting whereby accountants use various techniques to manipulate financial statements to make a company’s financial performance appear better than it actually is for instance recognising revenue too early, hiding expenses or using aggressive accounting methods.
Complex financial instruments can be used to hide risks or obscure the true value of an investment. Off-balance sheet items which can make it difficult to get an accurate picture of the company’s health by not recording those assets and liabilities.
There are several ways to collapse financial and accounting obscurity which are being offered by financial advisors in Zimbabwe such as Finking Financial Advisory.
External audit
External audit can play a significant role in reducing financial and accounting obscurity by providing an independent and objective review of an organisation’s financial statements, transactions and internal controls. Auditors can detect errors and irregularities in financial statements by verifying the accuracy and completeness of the transactions.
External auditors also enhance transparency which helps to build trust and confidence among stakeholders and they also provide recommendations on improving controls. They also provide assurance that the financial statements are free from material misstatement and are in compliance with accounting standards and regulations.
Tax registration and clearance
Tax registration and clearance can reduce financial and accounting obscurity by providing transparency and accountability in financial transactions. This can be done through record-keeping that is maintaining accurate and up-to date financial records which helps to reduce obscurity by providing a clear picture of financial health of the business.
Tax clearance and registration require businesses to disclose their financial activities to the relevant tax authorities. This promotes transparency and makes it more difficult for businesses to engage in financial and accounting obscurity.
This also create an audit trail that can be used to track financial transactions as any irregularities can be identified and investigated. Tax registration and clearance also require businesses to comply with tax laws and regulations as businesses are required to report their income and expenses accurately.
Corporate Training
Corporate training can be helpful in reducing financial and accounting obscurity through improved understanding of financial and accounting principles which can help employees gain a better understanding of financial and accounting principles such as financial statement analysis, budgeting and forecasting. This can help them make more informed decisions and avoid confusion or misunderstandings related to financial matters.
Training can improve communication between finance and non-finance employees, helping to ensure that financial information is clearly communicated and understood. Improved financial literacy through training can lead to better decision making by employees at all levels of the organisation and this can help financial obscurity and promote financial stability.
Corporate training can help ensure that employees are aware of and comply with financial regulations which are enacted to improve corporate governance and financial transparency. This also helps employees to understand the importance of transparency in financial reporting and encourage them to be more open and honest in their financial dealings and this can reduce financial fraud.
Outsourcing financial reporting team
Outsourcing financial reporting can be helpful in reducing financial and accounting obscurity by providing expertise in financial reporting and accounting standards which can ensure that financial statements are prepared accurately and in accordance with regulatory requirements.
Outsourcing financial reporting can help ensure consistency and standardisation in financial reporting across the organisation and this can reduce confusion and misunderstandings related to financial matters.
This can also improve focus on core business activities which can help to avoid financial obscurity by enabling the organisation to concentrate on its strengths and competencies. Outsourcing financial reporting can be cost effective compared to hiring and training as in-house team.
This can help reduce financial obscurity by providing accurate financial statements at lower cost.
Outsourcing can provide access to advanced technology and resources that may not be available in-house and this can help improve the accuracy and efficiency of financial reporting processes and reduce the likelihood of errors or inaccuracies.
Modern information technology
Modern information technology can automate financial processes such as data entry, reconciliation and reporting and this can help to reduce the likelihood of errors and inaccuracies in financial reporting.
The use of modern information technology such as accounting software like Quick books and Sage Evolution can improve the accuracy and timeliness of financial reporting, helping to reduce financial obscurity.
It also provides greater transparency in financial reporting by enabling stakeholders to access financial information in real-time and by providing detailed information on financial transactions.
Modern information technology can help to data security by providing secure storage and transmission of financial data, reducing the likelihood of financial fraud or theft.
It also facilitates collaboration between finance and non-finance employees by enabling them to work together more effectively and to share financial information more easily. It helps stakeholders to make informed decisions based on accurate and up-to date data.
Business insurance
Business insurance can provide protection against losses due to unexpected events, such as natural disasters, accidents or theft. This can help reduce financial obscurity by ensuring that the business has financial resources to recover from unexpected events.
Business insurance can provide protection against liability claims such as lawsuits or legal claims which can be costly and time consuming. This can help reduce financial obscurity by ensuring that the business has financial resources to defend itself against legal claims.
Dr Keen Mhlanga is an Investment Advisor with high skills in Finance. He is the Executive Chairman of FinKing Financial Advisory. Send your feedback to [email protected], contact him on 0777597526.
