Now, more than ever, there is a need to adopt accounting software by every business. This is after reports revealed that banks are actually making use of loopholes in accounting regulations to their advantage where they could alter results like profit levels and staff bonuses.
The Adam Smith Institute says banks utilize complex financial products that may conclude a profit value that is different from the actual one.
The blame can be put on the International Financial Reporting Standards (IFRS) according to Gordon Kerr, a former banker who authored the report. The IFRS allows banks to include in their current profits certain expected future income.
"The accounting regulation system needs radical reform so that banks are not encouraged to invest in risky assets to make themselves seem more profitable than they really are. Honest balance sheets are the cornerstone of a healthy financial system – right now, we don't have the transparency we desperately need to avoid a repeat of 2008," he said.
An example of this action is when banks buy CDS or Credit Default Swap. The CDS allows the banks to declare cash flow certainty despite the possibly of uncertainty.
"Accurate accounting is at the root of the legal and scrutiny framework; without accurate accounts basic laws are incapable of enforcement. As this report shows, banks have been using loopholes in these rules to inflate their accounts and create false profits to pay for bonuses and short-term gains for their shareholders," said Kerr.
So in order to get accurate and fair results, businesses must use bookkeeping software. Accounting software will definitely help avoid what had recently happened to Macomb County. It incurred a financial error that resulted to a $1.7 million hole to its budget. From that experience, there is truly a need for accounting software.
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