How a software user interface and general user experience can affect accuracy of financial statements
I was working on a client’s review of financial statements a while ago and noticed a few exceptions in the cost variance accounts that did not resemble the usual variance you see when purchase prices on POs do not exactly match the vendor invoice prices or when work order costs do not match product standard costs, etc. These variances were of a different kind and grossly distorted current liability and the cost of goods sold in the period.
I took a closer look and noticed that some of the variances were caused by not relieving certain unvouchered receipts when vendor invoices were matched to those receipts. As we all know, proper accounting requires an accrual of liability when inventory is received (if you are a purist, generally at the point the goods leave the vendor’s warehouse) and then reclassification of this liability to accounts payable when the receipts are matched with vendor invoices.
This case involved vouchering of vendor invoices without indicating to the software that certain inventory items had to be removed from the unvouchered liability ledger. That simply did not happen. What happened instead, a variance cost account was debited – one that was chosen during software setup as a default account for situations like this or when there is a true variance between the invoice and the actual receipt.
This was a simple case of operator error, namely, neglecting to match all available received inventory items when a vendor PO was recalled and reviewed against the vendor invoice. Users of this program simply saved invoices, bypassing the matching process.
Similarly, in a different area of the program, users receiving inventory at the warehouse managed to send the cost of these receipts to a difference cost variance account instead of causing it to debit the inventory control account or issue it to specific work orders and thus increase the WIP value.
I looked at the program screen and tried to perform these operations myself in a test environment. I did not like what I saw. The screen layout was illogical in my view, making it harder than it should be to process these transactions. It was relatively easy to forget checking certain boxes to indicate to the program to remove matched items from the unvouchered liability ledger. In short, the software vendor did not make it hard for the user to cause errors.
There were no reminders to check certain things before saving and you could not see the total variance caused by the transactions to be used as another gauge of potential error. The results obtained from this process were reflective of the poor user interface causing poor user experience. The inventory receiving screen had similar issues.
I don’t know whether the software vendor made any meaningful changes to the user interface based on my feedback, but I do know that such seemingly insignificant issues can result in large variances ultimately leading to material errors in both internal and external financial statements.
The design of financial software applications’ user interfaces should closely follow the typical workflow in each work area. If the software allows users to customize this workflow, then the individual function workflow in the software will closely match the actual, physical workflow.
In our example, an accounting staff member processing supplier invoices should be prompted by the user interface to check first for any inventory items received and referenced by the processed invoice, so they can properly be removed from the suspense list (reducing unvouchered receipts liability), or that certain inventory items must be issued to work orders upon receipt or placed in stock inventory.
Paying attention to the design of user interfaces, including providing clues on proper usage of functions, as well as context sensitive help and clearly written tool tips can go a long way in making the user experience more pleasant and error free. When this is accomplished, everyone, from the receiving clerk to the company CFO benefits.