Challenges for accounting departments in 2023
In 2023, accounting departments likely will face challenges in four areas: budget uncertainty, creating sound estimates in an uncertain environment, applying new accounting and financial reporting standards to comply with U.S. GAAP, and labor market uncertainty.
- Budget uncertainty. In any given year, it’s impossible to predict what lies ahead. At present, the level of volatility in the economy is extraordinarily high. Uncertainty about the direction of interest rates, recession fears, and other concerns are creating challenges for accounting departments when it comes to planning. All the unknowns can make the exercise of establishing an annual budget next to impossible. Accounting departments need to have the ability to do robust scenario planning and stress testing to tackle whatever challenges the macroeconomic environment presents.
- Significant estimates. Cash flow forecasts are a critical input to a variety of a company's accounting estimates, such as asset impairment assessments, fair value of assets, and going concern analyses. The ultimate path of interest rates and the eventual reality of a recession – or not – will have a bearing on how estimates are established. Accounting departments will need to use their cash flow forecasts to assess whether the company will have the cash, revenues, or income in future periods to support its ability to continue as a going concern and determine whether impairment charges are warranted.
- New accounting and financial reporting standards. Some of the more significant changes in accounting standards of recent years – revenue recognition and lease standards – are now fully baked into most companies’ financial reporting processes. One new standard, however, might carry a lot of significance in 2023: reporting credit losses. The new rules on reporting of credit losses will be a nonevent for some companies but quite impactful for those with significant lending activities. While the SEC has not yet finalized its proposal on environmental, social, and governance (ESG) reporting, if rules are finalized in 2023, ESG reporting standards likely will create a substantially higher reporting burden as companies articulate their impact on the environment.
Another area to watch in 2023 and beyond will be the reporting of digital assets. Events in November 2022 demonstrated the volatility of the crypto asset market and the importance of approaching crypto and digital assets with great care. On Dec. 14, 2022, the FASB announced a tentative decision related to accounting for and disclosure of digital assets. As these assets continue to attract attention, more rules and regulations dictating their treatment in financial reporting are likely to emerge.
- Labor market uncertainty. Like in all areas of business, accounting departments will face challenges navigating through the uncertainty in the labor market. Accounting departments have difficulty staffing with quality professionals who understand GAAP, how to close the books, and how to adhere to financial reporting requirements.
Layered on top of those challenges are the evolving expectations related to remote and hybrid work arrangements. Companies doing a first-year audit, trying to go public, or lacking sound control environments could face several hurdles in this environment.
Opportunities in 2023: Capitalizing on data
Despite the challenges ahead, 2023 will also bring opportunities for accounting departments to accomplish their goals in new and better ways. Data continues to be a significant theme for businesses across departments, and many companies are putting significant effort behind identifying valuable data streams and finding ways to harness data. Financial reporting and accounting departments could use any number of ways to put data to work, including analyzing the customer base, studying different business lines to understand which are most profitable, and cutting expenses.
With all the demands on their time, accounting professionals can get caught up in going through the motions without stepping aside to explore how the data they use can be leveraged. Forward-thinking accountants, though, will take the time to examine the possibilities, both in terms of what they could learn and how they could use data to increase system and process efficiencies.
Increasing capacity for the future
The labor market challenges companies face today – staffing shortages and other constraints – can be viewed as catalysts to accelerate the adoption of exciting new technology-based solutions that are playing a growing role in business. Accounting departments could take advantage of opportunities such as exploring automation, modifying systems and reporting, or outsourcing some components of workflow.
For example, while it takes time, effort, and dedicated resources to identify a role for automation to streamline business processes and increase efficiency, this investment can pay dividends, no matter what the macroeconomic environment brings. Automating manual processes can reduce inefficiencies and allow workers to spend time on more dynamic, higher-value work – a win-win for employees and companies alike.
In some cases, though, companies simply lack the internal capacity to manage certain challenges. Whether to maneuver through the ebbs and flows of the accounting workload, to respond to one-off issues, or to identify opportunities for automation – and then implement them – companies might benefit from engaging a third party. Outsourcing some functions within accounting has become increasingly popular as a buffer against labor market uncertainty.
Accounting departments likely will face unexpected challenges in the new year, but by being proactive, accountants can help advance broader business goals in 2023 and beyond.
