With advancements in technology, globalization, and consumer expectations, the traditional notion of supply chain management has evolved into a complex, interconnected web of processes. Not only has the landscape become far more competitive in terms of pricing, but there are a number of broader intricacies to navigate.
From raw material sourcing to delivering quality products to the end consumer, a solid supply chain is the backbone that keeps enterprises thriving. But, in this ever-changing environment, businesses encounter new challenges that demand innovative solutions, and the field of accounting is no exception. Our CPAs weigh in on some of the challenges they’ve seen in the modern supply chain. From financial reporting to the impact of global transactions, we take a look at some of the unique accounting challenges that businesses face in navigating accounting in the supply chain landscape.
1. Inventory valuation and management
One of the key intricacies to navigate when it comes to supply chain, is determining the cost of inventory. Using methods like FIFO (First-In-First-Out), LIFO (Last-In-First-Out), or weighted average presents a significant impact on financial statements. The choice of valuation method has a substantial impact on the financial statements as it can influence profit margins, tax liabilities, and overall financial health.
Similarly, when it comes to large inventories there’s the ever-present risk of items facing obsolescence or succumbing to shrinkage as a result of losses from theft, miscounts, or damages. Accurately accounting for these losses is crucial to maintain the fiscal integrity of the supply chain business. It is therefore important to consult with a CPA to help you navigate the complexities of inventory valuation while striking the right balance between financial accuracy and adaptability to the unpredictable nature of the modern supply chain.
2. Fluctuating costs
When it comes to supply chain dynamics, businesses often grapple with the volatility of costs. This challenge is often heightened by the unpredictable nature of the global market. Variable supplier costs amplify the complexity, as prices of raw materials or goods can sway based on global market conditions, geopolitical events, or supplier-specific issues. This constant ebb and flow demands a nimble approach to cost management, requiring accounting teams to adapt swiftly to these external factors that influence a business’s financial landscape.
Additionally, for businesses that operate internationally, another layer of complexity in this regard lies in the ever-shifting currency exchange rates. This can substantially impact the cost of goods purchased or sold. It is important to get expert input on navigating international trade and the intricacies that come with it, to ensure compliance.
3. Revenue recognition
Revenue recognition has proven to be a nuanced challenge when it comes to supply chain accounting. One particular hurdle is the long lead times that come from extended durations between order placement, delivery, and payment in certain supply chain transactions. This gap can add complexity when it comes to pinpointing the precise moment to recognize revenue. This can make it challenging in terms of compliance. To add insult to injury, handling returns and warranties can further complicate things in this regard. It is therefore advisable to sit with your CPA to establish clear outlines for handling these types of transactions.
4. Compliance and duties
Different countries have varied regulations, duties, and tariffs for importing and exporting goods. Keeping track of the requirements for each requires meticulous attention, which can be challenging to navigate. Fortunately, NetSuite’s capabilities provide the tools you need to navigate multi-currency transactions with ease. Our NetSuite CPAs can vouch for the fact that the software offers meticulous record-keeping. We recommend that you consult with an expert to aid compliance in this regard.