Why Investors Should Care About Their Accounting Systems: Key Features That Drive Better Returns

Introduction

When you think of investment strategy, your first thoughts probably go to market trends, portfolio allocation, or company fundamentals. But here’s something often overlooked: accounting systems. They’re not flashy, yet they quietly shape the information investors rely on. Accurate, timely accounting isn’t just bookkeeping—it’s the foundation for smarter decisions and stronger returns. And for investors, ignoring it can mean missing risks or opportunities hidden in the numbers.

Why Accounting Systems Matter to Investors

Investors depend on reliable financial information. If accounting systems are outdated, error-prone, or slow, then the data that drives decisions becomes shaky. That directly affects valuations, risk assessments, and confidence in management.

Research backs this up. A study by Hunton, Lippincott & Reck (2003) found that companies adopting Enterprise Resource Planning (ERP) systems reported significantly better Return on Assets (ROA) and Return on Investment (ROI) compared to non-adopters. They also showed stronger asset turnover (ATO). For investors, this means the quality of internal systems can directly influence profitability.

Better systems equal better insights. And that leads to better investment outcomes.

The Risks of Weak Accounting Systems

Not all accounting systems are created equal. Weak controls, outdated processes, and poor reporting tools can raise investor risks in multiple ways:

Higher Cost of Capital

Firms with internal control deficiencies face higher financing costs. According to Ashbaugh-Skaife et al. (2009), companies disclosing deficiencies in compliance with Sarbanes-Oxley (SOX) saw their cost of equity rise by 50–150 basis points. Even more striking, their average cost of capital increased by around 93 basis points at the first disclosure of deficiencies. But when firms remediated and earned an unqualified SOX 404 opinion, their cost of capital fell by about 131 basis points. For investors, this highlights how internal systems directly affect returns.

Increased Debt Costs

Weak controls also make borrowing more expensive. Dhaliwal et al. (2011) showed that firms disclosing material weaknesses under SOX 404 paid higher credit spreads, especially if they lacked strong bank or agency monitoring. In short: sloppy accounting can raise a company’s cost of debt, eroding shareholder value.

Higher Risk of Fraud and Breaches

It’s not just about the numbers. Accounting controls tie into operational security too. Westland (2018) found that 100% of credit card breaches happened after an adverse SOX 404 decision. Weak SOX controls correlated with an 8.5% higher breach likelihood. Stronger controls, on the other hand, reduced breach frequency. Investors who dismiss accounting systems risk backing companies more vulnerable to fraud and cybersecurity events.

Poorer Financial Reporting Quality

Reliability matters. Ashbaugh-Skaife et al. (2008) found that firms with internal control deficiencies had lower accrual quality, more noise, and abnormal accruals in their reporting. Once those deficiencies were fixed, accrual quality improved. Translation for investors: stronger accounting systems mean cleaner numbers and less noise in evaluating performance.

Key Features That Support Better Returns

So, what should investors look for in a company’s accounting systems? Certain features can make the difference between lagging insights and sharp financial clarity.

Real-Time Reporting

Delayed numbers delay decisions. Real-time reporting lets management and investors see accurate snapshots of performance without waiting for quarterly reports. This speeds up responses to risks and opportunities.

Automation

Automation reduces human error and speeds up repetitive processes. From reconciling accounts to generating forecasts, automation makes financial reporting more accurate. It also frees finance teams to focus on analysis rather than clerical work.

Integration with Financial Tools

Strong accounting systems don’t stand alone. They connect with treasury, forecasting, and portfolio management tools. Integration ensures consistency across platforms and gives investors a clearer view of company-wide financial health.

Audit Readiness

For investors, the ability of a company to pass a business audit smoothly is a sign of trustworthiness. Audit-ready systems keep records organized, controls documented, and compliance transparent. Companies that struggle with audits signal inefficiency and higher risk.

How Outdated Systems Hurt Investors

Outdated systems don’t just slow down reporting—they create blind spots. They:

• Make it harder to detect fraud or irregularities.
• Increase the chance of reporting errors.
• Lead to delayed recognition of risks.
• Raise compliance costs when regulators step in.

When investors overlook this, they risk backing firms that underperform not because of market forces, but because their internal systems can’t keep up.

Evaluating Accounting Platforms as an Investor

If you’re analyzing a company—or your own firm’s systems—how do you judge whether the accounting platform supports better returns?

Questions to Ask

• Does the system provide real-time reporting or only quarterly snapshots?
• Is automation reducing manual workload and errors?
• Are accounting tools integrated with other financial systems?
• Is the company consistently audit-ready?
• What steps are taken to fix internal control deficiencies?

Looking at Alternatives

Not every company uses the same platform, and some tools fit better than others. Investors should pay attention to whether management evaluates options that align with company size and complexity. For instance, reviewing a Sage Intacct alternatives guide gives insight into what features other accounting systems offer and how they might strengthen reporting.

Connecting Systems to Valuation

Ultimately, companies with better accounting systems often trade at lower risk premiums. Investors can expect stronger returns when they’re not forced to price in sloppy reporting or weak controls.

Conclusion

For investors, accounting systems might feel like the backstage crew—unseen but vital. Accurate, timely reporting isn’t just administrative—it directly shapes investment returns. Studies show that better systems lead to higher ROA, ROI, and cleaner financial statements, while weak controls drive up equity and debt costs. Features like real-time reporting, automation, integration, and audit readiness don’t just improve efficiency—they strengthen investor confidence.

Outdated systems, by contrast, add risks, inflate costs, and weaken trust. So if you’re evaluating a company, don’t just look at its strategy or assets. Look at its accounting systems too. Because the strength of those systems often determines whether returns are maximized—or left on the table.