Formerly, it was thought that accounting was just about accounting methods, figures, and financial spreadsheets, which embody the level of accounting called compliance accounting. It focuses on accounting functions, tax accounting and services, and financial performance reporting. However, it has evolved over many decades to involve strategic accounting, which many firms and sole practitioner accountants now offer as a standard service and as part of their accounting and advisory services.
- What exactly is advisory accounting?
- The Three Levels of Accounting Services
- 1. Compliance Accounting
- 2. Performance Accounting
- 3. Advisory Services
- The significance of advisory services in the accounting industry
- Advisory vs. Compliance-Focused Accounting
- How Does Advisory Accounting Benefit Businesses?
- Continuous Client-Accountant Relationship
- Accounting Assistance Beyond Basic Financial Statement Preparation
What exactly is advisory accounting?
Simply put, it is a term used to refer to other value-added services provided in addition to basic accounting services. These value-added services include technology and automation services, strategy and consulting, app advisory services, among others and AFO Wealth Management Forward (WMF) is there to provide you with these services that will help you to translate accounting data into business decisions, which will result in profitable returns.
Some sole practitioner accountants and accounting firms offer advisory services in a bid to serve their clients better, but apart from an advisory focus, they could also take a compliance-focused approach or traditional approach to the way they offer their services. This brings us to the three levels of accounting which are explained below.
The Three Levels of Accounting Services
1. Compliance Accounting
These services concentrate on helping clients stay compliant with regulations. Accounting and advisory firms that offer this service typically help with financial reporting, bookkeeping, and tax accounting services. The disadvantage of this is that value or remuneration is derived from the amount of hours spent on each task. This means that it is possible for devious accountants to state a number of hours spent that is more than the actual amount of time spent on a task for a client. However, advanced cloud computing technology has enabled the automation of a lot of routine tasks that are done in compliance accounting.
2. Performance Accounting
Here, accounting firms and sole practitioner accountants concentrate on the use of financial reporting and business intelligence tools to analyze a client’s business health with the aim of enhancing their growth and profitability.
The following financial metrics are used as the key performance indicators (KPIs) here.
- Growth of sales
- Net profit
- Net profit margin
- Gross profit margin
- Sales targets
- Productivity of staff
- The current ratio of current assets, versus current liabilities
3. Advisory Services
Accounting and advisory services are offered in the context of managing risk, succession planning, and long-term strategy. Here, clients are advised on business related functions and financial matters related to accounting automation, technology vendors, and human resources.
At times, this may mean taking on the role of a part-time chief financial officer (CFO) for clients in order to offer financial insights and expertise for the achievement of profitability and long-term growth.
The significance of advisory services in the accounting industry
There is an evident need and opportunity for accountant-advisors within the industry seeing that accountants are no longer required to only create financial reports and spreadsheets. Owing to the need to ensure compliance with regulatory bodies and other finance related matters, accountants have had to step into the role of advisors to ensure the smooth running of the companies they are a part of. This is done in order to prevent limited client service, which could eventually lead to client dissatisfaction.
Many opportunities abound when attention is shifted from technical services to advisory services.
Advisory vs. Compliance-Focused Accounting
An accountant’s usual job used to involve just ensuring that financial records were well managed in compliance with extant regulations and federal laws, best practices, and accounting standards. It later became imperative that ethical financial behavior and compliance be given complete attention.
Advisory services focus more on technology integrations, accounting valuation, consulting, and strategy, while compliance-focused accounting concentrates on accounting audits, tax services, and accounting data compilations. These advisory services allow a level of additional services to be provided to clients that are already receiving basic services like financial reporting and tax filing.
How Does Advisory Accounting Benefit Businesses?
It could sometimes be hard for clients to see how advisory services could benefit them since they believe that the basic compliance focused services take care of all their needs. This does not stop expert accountants from conveying their offers of advisory focused services to clients though.
There are still a large number of businesses that depend on accounting software for their tax needs and the preparation of financial statements. These software do get the job done, however, it is necessary that as business needs evolve and become more complex, businesses ensure they are prepared to handle more than just tax services and financial statements. As a solution, they will need excellent advisory services that AFO Wealth Management Forward (WMF) is able to provide.
Continuous Client-Accountant Relationship
It is not uncommon to hear from business owners that their accountants do not always have a true understanding of their business model, but with advisory and accounting services, this problem is eliminated because accountants will not just be preparing financial reports and filing taxes. Being in an advisory role will ensure that accountants have a proper understanding of the industry they are in, for them to be able to diversify the investment portfolio of their client, or uncover formerly uncharted areas where revenue opportunities abound and can be taken advantage of.
Improving client-accountant relationships helps to improve internal operations and it increases an accountant’s motivation.
Accounting Assistance Beyond Basic Financial Statement Preparation
Business owners have the advantage of obtaining expert advice and judgment when they engage advisory and accounting services of an accounting firm or sole practitioner accountant. They will handle tax accounting and financial statement preparation quite well and will be there when you need to navigate other tough accounting issues like when you are at a loss as to whether or not you should classify your employee-share payment as equity or a liability.
In addition to other advisory and accounting services that AFO Wealth Management Forward (WMF) offers, we also provide a course for CPAs and accountants that would like to become registered investor advisors (RIAs) or those that would like to implement wealth management services like estate planning and life insurance, financial planning, and investment advisory into the services they already offer.
Contact us today to take advantage of the quality services that we offer to help you with navigating the complexities of accounting and financial planning.