In the second instalment of our series “The importance of Technical Accounting in the Modern World”, I caught up with Derek Yasumatsu, Head of Technical Accounting and Revenue Recognition at Nokia, to get his take on what makes technical accounting so crucial to businesses in technology.
Why is Technical Accounting so important in the world of modern accounting?
I think that it is very important for all types of Accountants to have at least some basis in technical accounting. In my experience, to understand the numbers and to explain to management, it is not enough to just obtain an understanding of the underlying business transaction or economic event that drive the numbers, you also need to have an equally strong understanding of the accounting methods applied and why they are appropriate. Technical accounting gives you this knowledge of the accounting whether you are a business controller, financial planner or transactional accountant.
What are the advantages of having experts in this space in an organisation?
The advantages of having skilled in-house technical accounting experts is extremely important to an organisation. In my view, to be a good technical accountant, you need three things in order of importance:
- Knowledge of the underlying business/industry
- IFRS/GAAP technical expertise
- Knowledge of the company (processes, stakeholders, etc)
Of these three, typically only in-house accountants are able to deliver on 1) and 3). Without an understanding of the company’s business nor understanding how to access needed information (i.e. company knowledge), an external consultant is at a big disadvantage. After all, accounting is meant to faithfully represent the economic substance of the underlying transactions – how can one achieve this when you lack the basic understanding of that substance? I see that use of external consultants often results in companies getting generic cookie-cutter solutions that don’t take into account the company’s specific fact pattern.
Only in-house experts are able to develop this most crucial skill and they are also able to use their network of contacts within the company to get the information they need. When they combine this with sufficient technical accounting expertise, it creates significant synergy that I believe drives value in technical accounting.
Without an understanding of the company’s business nor understanding how to access needed information (i.e. company knowledge), an external consultant is at a big disadvantage.
What are the risks of not having expertise in this space?
Companies that rely extensively on external support tend to lose control of their own policies. Often, such organisations also do not have sufficient expertise in-house to fully understand the accounting positions created by external consultants. This is a big risk for a company both in terms of being able to manage an efficient finance function as they rely exclusively on expensive external support for all actual as well as planned transactions. It is also difficult for management to evidence that it has met its stewardship responsibility over the financial statements of the company.
Companies that rely extensively on external support tend to lose control of their own policies.
What are future challenges/themes that will arise in this space?
I expect that companies’ accounting policies and positions will come under more frequent and detailed challenge as a result of the latest mandatory audit firm rotation requirements. Many companies have had decades long relationships with their auditors where a deep understanding of the companies’ policies and practices have developed.
Companies that are not able to develop, explain and defend their policies and practices may experience big challenges including internal controls issues when they introduce a new auditor.
*The views that Derek has expressed are personal and should not be deemed to be those of Nokia.