Firms are beginning to invest more in a construction accounting system to steer clear of errors that can not only affect future spending at the company, but also it's reputation within the industry. A recent study released by Concordia University's John Molson School of Business showed companies that adjusted their past financial statements may have subpar accounting, or even worse, partaking in potential fraud.
The authors of the study, Lawrence Kryzanowski, professor and senior research chair in finance in Concordia's John Molson School of Business, and Ying Zhang from the University of Manitoba, also unearthed that firms that are issuing restatement for their financial records may have below average corporate governance, which can publicly embarrass the business as a whole.
"These restatements can result from a number of factors including accounting errors or omissions or fraud," said Kryzanowski. "If a negative statement affects the future expectations about a firm, its management and its corporate governance, it can cause the stock's price to decline, and can in some cases eventually result in the demise of the firm."
Leadership roles could change at poorly managed firms
Construction companies that leave much to be desired with their accounting are more prone to shake things up at the top, according to the study. When evaluating the 127 Canadian firms in their research, Kryzanowski and Zhang discovered an interesting pattern: Firms that restated were more likely to replace their presidents, CEOs, CFOs and/or external auditors, while, in turn, adding more auditors at the business.
"When these firms make changes to pre-restatement management and external auditors, that signals that they are dealing with their internal agency problems," said Kryzanowski.
Clean up accounting at the company
Digital resources such as construction accounting software is one way businesses can get their recordkeeping up to an acceptable level, but there are also a number of other ways firms can improve their accounting practices. A list provided by Forbes outlined just what construction business owners can do to better manage their records.
- Understand the effect labor is having on the bottom line
- Bring in a professional accountant to set the books straight
- Never mix personal and business records
- Set aside time each week to double check all spending
- Remember to leave money to take home as a salary
Following these easy tips get get construction firms started on the right foot to ensure they will never have to deal with accounting issues.