Differences: It is almost an adage that financial statements should be timely and accurate. These disciplines of timeliness and accuracy are two different topics. Financial statements may be accurate but not timely. They may be timely but not accurate.
Financial statements: Financial statements for businesses usually include income statements, balance sheets, statements of and cash flows. (Investopedia.com).
Timely: There is no finite rule on the timeliness of financial statements to be given by accounting to the owner of a privately-held company. The general rule is anywhere from a few days up to the end of the month after month-end. A more important rule than a specific date is regarding when the owner should know important matters. For example, a company may have a month with a significant increase in sales and the owner may be expecting to see a very good profit for that month. When eventually delivered, however, the internal financial statements show a significant loss for the month. The question then becomes, “When should the owner have been made aware of this fact?”
Complexity: Owners of privately-held companies are so intelligent that it is easy to keep financial information “in their head” when the company is small. All too often, however, the company grows to the point where not all important information can be stored in the owners head. Hence, the need for timely financial information plus someone who can give input about the changes in the financial condition of the company.
Priorities: Untimely delays in internal financial statements are often a matter of priority. It is common for business owners to give many short-term tasks to people in their accounting department. Those people may feel that the new tasks given to them are more important than completing the internal financial statements. This cycle may go on for so long that the owner does not see internal financial statements for many months.
Insiders: It is not unusual to find that people in operations, purchasing, sales, etc. are the roadblocks to the issuance of timely internal financial statements. For example, an operations manager may be responsible to provide the accounting department with information for the accurate calculation of cost of goods sold but refuses to provide accounting with timely information. In these instances, either the owner or others with some authority/experience should remove these roadblocks so the accounting department may do its job.
Basis: Most owners of privately-held companies also own subsidiary companies. These subsidiary companies are sometimes “start-ups” that incur income statement losses during the first few years. Owners often do not mind a loss in a subsidiary company because they feel the loss will be combined with profits of other companies when income tax returns are created. Some owners are unpleasantly surprised that certain losses in subsidiary companies can’t be used to offset income of other companies due to a general rule that is referred to as “basis.” This issue of “basis” can often be solved if financial information is timely and the owner, management and independent tax CPAs are given time for planning before the opportunity is lost.
IRS: The Internal Revenue Services (and most states) have deadlines for the filing of income tax and other types of tax returns. Untimely financial information may harm the ability of management and the tax CPA to do planning to minimize taxation. The filing of late income tax returns can cause penalties, which are not tax deductible and may become material in their amount.
Set a date: A good discipline is to give the accounting department a specific date that should be met each month for the issuance and discussion about the internal financial statements. Staff should be instructed to notify the owner when this date can’t be met and the legitimate business reasons for not meeting the desired date of the issuance of the internal financial statements.
Deer-in-the-headlights: Owners have the right to challenge staff about the reasons the internal financial statements are not issued on a timely basis. Owners sometimes get the deer-in-the-headlights-look from staff and do not receive a satisfactory answer. This may be a signal that the owner needs competent professional help to oversee the accounting staff to resolve the matter.