# Public company accounting processes with 8x8’s Eric Van Cleve Brex’s CAO Erik Zhou discusses public company accounting considerations and best practices with Eric Van Cleve, Controller at 8x8. **URL Source:** https://www.brex.com/resources/controllers-classified/season-2/episode-03 --- Episode 03 Public company accounting processes with 8x8’s Eric Van Cleve [Spotify](https://open.spotify.com/episode/6qNlfTiXUCGmWeTuywprrR?si=14b2885f0e9c4812) | [Apple](https://podcasts.apple.com/us/podcast/controllers-classified/id1712897034?i=1000674852460) Episode summary In this episode of Controllers Classified we explore the role of accounting in scaling businesses as well as public company accounting processes with Eric Van Cleve, Controller at 8x8. The episode begins with a recap of Eric’s career in accounting, detailing his discovery of accounting in college and how he worked his way up the ladder once he landed client side out of college. He notes that he found the most success when he focused on being interested, proactive, curious and capable. The episode then turns to a discussion on how to think about directing accounting operations at scaling companies. Eric shares how he thinks about team structure to ensure efficiency in the close process as well as his decision making framework for where to automate and where to offshore. In every decision he tries to factor in not just current but also future business needs. From there, the discussion deep dives into private vs. public company accounting, with Eric providing advice to finance and accounting leaders at pre-IPO companies regarding what to prioritize as they think about SOX readiness. He notes that these companies must be able to confirm that the answers they get to in their data are in fact the right answers. In other words, teams have to be able to prove out their control processes and ensure that reporting obligations can be met. And of course, teams should familiarize themselves with 10Ks and 10Qs. The episode closes with Eric’s favorite accounting joke. Why did the accountant break up with the calculator? Tune in now to find out! Show notes - Streamlining accounting processes for a faster close [07:19] - Automating and accelerating accounting processes [10:09] - Accounting processes at public companies [27:51] - Preparing accounting teams for audits [33:48] Guest bio ### Headshot ![Jack McCullough](https://brand.brex.com/transform/588e0d95-ac41-423a-a52a-e472fb49eefe/Jack-McCullough) ### Bio Eric Van Cleve, Controller, 8x8 With over 20 years of accounting experience, Eric has led teams of over 15 people and is capable of directing accounting operations including SEC, audit, scaling a company, cost cutting, and negotiating. He enjoys working with seed, startup, growing or established companies. “You need your team to know what the right answer is so that way when you’re delivering it to the auditors, they can do their basic checks.” ### Transcript [00:00:00] **Erik:** Welcome to another episode of Controllers Classified. I'm your host, Eric Cho, the Chief Accounting Officer at Brex. And today we will be exploring the role of accounting in scaling a business as well as public company accounting processes. Our guest today is Eric Van Cleave. Eric's great name. Uh, he's the controller at 8x8, um, and Eric has seen it all. From the challenges of rapid growth to the strategies to ensure financial stability during expansion. Welcome to the show, Eric. ** Eric:** thanks so much for having me on, Eric. Happy to be here. ** Erik:** I always kick off by asking the guests, like, how did you end up in accounting? ** Eric:** I took one, one accounting class, uh, at the end of college and, you know, it was, uh, you know, I, I should have done that from the beginning, but, you know, it was just that one class at the end and found myself loving it and jumped in, you know, headfirst. ** Erik:** so you got in at the end of, of college. That means like you had catching up to do to get all the major credits then. ** Eric:** I took an accounting major from there and then I. Got my [00:01:00] MBA and you know, the rest is, the rest is history. ** Erik:** and then tell me about your story. So, so like, you know, when I was, I got my accounting major, got my degree, I ended up working at a accounting services firm at first before moving into industry. Um, what was your story? ** Eric:** so my story is, I, I started a lot, uh, in industry, um, you know, from the beginning, in which case I started at the, the low ranks and, and just worked my way all the way up. So I saw it from, you know, from the, the very bottom right. And, you know, now have kind of a broad picture as to, to where to see things. So, you know, I've, uh. You know, in terms of, in terms of scaling and talking about business and companies like that. So, you know, it's interesting to have been kind of like a small, small company and, you know, working my way all the way up to, to huge companies. Right. So I've seen, seen both big and small. ** Erik:** I was at my accounting services firm. I worked at a big four. Um, I worked there for 11 years. Um, and the first thing when I moved into industry was it was a huge transition. Just, [00:02:00] you know, I was, um, I was auditing, right? So I wasn't responsible for the actual books and records. I wasn't doing any of the creation. Uh, of the, of the, of the books and records, I was just checking the work. And so when I got this role, uh, I had to, I had to really change my mindset on like, you know, it's not so much the result. I mean, the result is obviously important, but the process itself of doing the books and records, uh, became really important. And I feel like, you know, because you just went straight into kind of industry to do that, you got to see all of that firsthand. Like, so, so have you been through all of the kind of, uh, sub functions within accounting or, or how has that worked throughout your career? ** Eric:** Yeah. I've been in, in all the sub functions. So, you know, AR and AP and GL, right. Fixed assets. Cost investments, and you kind of, kind of build upon that, right, uh, how to have a small foray with, you know, corp [00:03:00] development and, you know, invest, you know, looking at, looking at all the different, um, you know, kind of functions within an organization and, and understanding and picking what are the best practices along the way after you've done that for 20 years, you, You figure the, you can figure the things out that you like and the things that you don't. ** Erik:** And in those, in those situations, I guess, you know, what I found is that Brex specifically, like we hire folks. We don't, I don't have a training program for all the staff that come through the ranks at Brex. So, you know, when I was at my firm every year, there'd be a one week training or two week training. It catch you up on all the technical stuff. It catch you up on things that are happening in the various industries that we worked on. Um, like what was your experience getting the training that you needed or how did you go about that, um, being an industry? ** Eric:** I found myself being very proactive and going after the areas that I wanted to be a part of, right? Because a lot of times what I found is that, you know, managers and directors and [00:04:00] VPs, what they're really looking at is, you know, who's, who's interested. Right? Number one, and number two, who's capable, right? So if you're, if you're, if you're capable, and you're have a have a good level of aptitude, I think you can find yourself being in, you know, all the interesting transactions that the company will have, right? Because they want to see, you know, people who are motivated and can get the job done, right? And it's always okay to ask questions, because you're not expected to know everything, especially while you're learning. But the biggest thing is, you know, can you communicate up? Can you communicate down? Can you You know, make sure that you can execute like more on a, on a project plan basis. So, and, and that's kind of the fundamental, you know, ways of being able to look at those, um, you know, learning opportunities that a company can provide. ** Erik:** What about on the technical side? So, you know, like the biggest chops that I, I got when I was at the firm was I, I worked on so many of these like complex transactions and I really delved into GAP and I became more of a technical accountant than anything I had to really pick up on the operations. [00:05:00] Um, how do you, how do you think about yourself and keeping up with the technical side or, or, or how involved you are on that? Yeah. When it comes to gap accounting ** Eric:** when you first start out, you don't realize that, you know, there's, you know, a pronouncement memo that every company is writing to make sure that all the technical accountants are staying up on things. Right. But, you know, one of the biggest factors is, you know, You, you, you, you research the accounting, you make sure that you understand the transactions, you're going for like a full loop on, you know, the process, you kind of find out, you know, what are the, what are the actual like process flows, you look at internal control, controls and the narratives that they've got, and then you can start to piece together like what the full spectrum is. Because one of the things that I found with a lot of interviewing through all these jobs is that, you know, there's, there's definitely a categorization between What's a technical accountant and what's an operational accountant. I found many times there was, you know, discussions within interviews that you are discussing, you know, how good you are in capable in both of those different areas, because it might slot you in [00:06:00] roles, you know, that you might be better suited for, just like any employer would want to make sure they're maximizing their, the skill set of the people that they're hiring, right? So, Fundamentally, to be good at both, you have to put enough time into researching those, right, so, you know, if you're going to do, say, an equity investment, right, you need to kind of need to know the accounting, and you want to go in and dive into the foray of that, but, you know, you collaborate with, you know, your auditors, your internal auditors, your SOX group, if you have them, right, and You know, you, you leverage all of that information and then you just do a little homework on your own. So that way when you go to those discussions, you're, you're, you're well prepared, right? You're not, you're not asking silly questions. You're, you're, you're showing that you have an interest in that, you know, anything that they teach you, you're going to be able to retain and absorb and use for a better purpose. ** Erik:** for the audience, um, can you give a little background on, uh, the current size of your team and company and, and how you thought about structuring it? ** Eric:** So, right now, we, my, my team is about 35 people, right, [00:07:00] um, from top to bottom, and, you know, the, the finance organization, obviously, is larger within, you know, within the, within the company, but, you know, the way that, you know, we, you know, we're, we're still working through the, You know, the best optimization there. And, you know, one of the things that I I've learned out of my, you know, all my experiences, you know, what, what's the real goal, you know, of the, of the accounting team, right. So, you know, cause each function is going to be a little bit different, right. So if I'm looking at, you know, an accounting, you know, a technical accounting group, right. I'm going to be thinking about, well, you know, what's the speed at which we can actually document memos, interact with the auditors. But if I'm talking about, you know, how can I actually get, You know, our operations team to be able to close the books faster, then what I'm doing is I'm thinking about, you know, should it be functional, should it be control or ship down, right? And obviously looking at all those independent, you know, decisions, but ultimately, you know, if you want to get to like a one day close. Right? You probably need to structure your team in such a way that you're closing your subledgers first, right? Maybe in [00:08:00] Asia Pac, then in EMEA, you've got, you know, people who are analyzing, you know, a lot of the details. And then, you know, in the U. S., you've got kind of the higher level consolidated view on, you know, does all the information make sense? And if everything is looking good, you're kind of done. And if you're not, you got to send it for another lap. So, you know, being able to improve on, you know, the actual close takes a lot of effort. But it also takes some structuring and organization. You know, some, some fundamental view of, you know, how comfortable are you for, like, estimates and, you know, accruals and things like that as you're going through it, because you obviously, you can make some decisions in the process to make sure that everything is reasonably, you know, and fairly presented in your financial statements. I'd love to dive deeper into what you just said related to estimates and like. Business day one close. I'm curious if the size of your team, um, is commensurate with the speed of which you close the books. So like, does that mean if you want to do BD one, that means you just have to hire more people because there's only so many hours in the day, like 24 [00:09:00] hours. ** Erik:** And so you need more people because. You know, you need more hours to be done quicker to get BD1. Or how do you think about that? Maybe leveraging estimates, et cetera. ** Eric:** I suppose it depends on, you know, what you define by close to begin with. Right? Because everybody might just close AP on day one and then they'll go like another seven days and they'll be cranking through it, right? So it's understanding, you know, what's, what's materiality and what's the, what's the right, you know, level of, um, you know, attention to individual transactions and going through all of those details, right? So, so when you're thinking about, you know, Individual transactions. What you're doing is you're, you're really, you know, assessing what's, you know, what's obviously most important. Like you want all your recs to be, you know, completely signed off and reconciled and down to zero, right? At the end of the day, because that just makes sure that you've got, you know, proper, proper, you know, You know, documentation and you know everything that's in those accounts, but if you're trying to get to like a, like a level, you know, day one, right, you're trying to get to a day one, right, you're, you're really [00:10:00] going and, you know, looking at the significant transaction that's, that the company has and trying to manage the volume, you know, across all of those, you know, You know, transactions as well. So, you know, if I have a process, you know, that, you know, is pretty manual, you might look at, you know, adding some automation to be able to do that, because there's a, there's a philosophy of, you know, eliminate, automate, and accelerate. And when you're looking at those components, you kind of think about, well, what is the work that the team is doing that just doesn't need to be done, right? Like maybe the team just hasn't assessed, right? They're, You know, the service level agreements and be like, Hey, I send out these three reports, but nobody looks at it at all. Right. So, you know, do you really need to send those? Probably not. Right. And then can you, right. And then can you automate it? Like, you know, can you do memorize transactions where, you know, or recurring transactions, same dollar amount, you just sort of manage a list and just make sure that all those details are being processed. So you're automating. You know, all of these manual entries that you don't have to do anymore. You still have to review it, still need to make sure there's support, there's still an agreement behind it, but the actual process of doing it is like, I'm not [00:11:00] uploading a journal entry and going to two levels of review and all of that, right? Like, you know, it's already based on initial agreement where you get the approval up front. Nobody can change it until, you know, the stop date in the system as an example. So, and then you just look at things that you can, you know, accelerate. Like, You know, do you need, you need a file that has 50 tabs in it, or, you know, can you get away with something that, you know, you've got like a SOX tab to show, you know, here's where I follow my SOX process, the auditors are happy, and, you know, here's my, here's my support, and then here's the little stamp of review that, you know, you've got from, from, uh, from your, you know, whoever is reviewing the transaction. So, there's a lot of extra detail sometimes when I see in these files that just aren't necessary, right? But, you know, if you understand what the auditor needs, which is, you know, You know, from a control perspective, you've got, you know, all of your screenshots and everything in there. Right? There's, there's a lot of times when you go into companies that people are doing things just because they don't necessarily understand every, every aspect that needs to be executed. So when you start to look at all of that, you can, you can speed things up. ** Erik:** you're [00:12:00] working at a public company now. What's your strategy to actually identify all these things? Like when you, when you join 8x8, um. Were all these things like already eliminated or did you go through the process of making these structural changes when you arrived? ** Eric:** Every company has opportunity, right? And every, every company will, you know, just depending on how much attention has been there before. So generally the way that I would approach it, regardless of whether it's 8x8 or a different company, Right? Is I typically look at, you know, what is, what is the time to close currently? Like, where are the teams located? You know, how are you, how are you executing? What's the volume? I set up some KPIs to see, you know, is it, um, You know, if I have 10, 000 invoices at the companies to process, how many AP people do I have? Am I leveraging automation? Right? There's so much like OCR readers and things, right? So you can kind of, so you set up a structure where you have, you know, have high level oversight. And after a while, you start to get used to, you know, can a single in, you know, a single processor [00:13:00] process 25 a day, 50 a day, 100 a day, and you start to, you know, Benchmark those metrics, and if the company is slow, then, you know, you start to look at automation. If the company is fast, you start to think about, you know, can I, can I shift the process? ** Erik:** can you give me an example of like something that you did shift that you ended up saving time when you were at 8x8 so far? ** Eric:** so a lot of automation, you know, really requires, um, you know, focusing on, you know, the full process from beginning to end. Right. So, you know, one of the, one of the scenarios is, um, You know, we, we were able to shift, um, you know, more people over into AsiaPAC, right? And we, we started being able to close, you know, sub ledgers first, because really, really the fundamental goal is to get a 24 hour day, right, out of it, right? Because technically, if you're in the U.S., right, you can work from 6 a. m. You know, all the way until midnight, but you still don't have a 24 hour day, right? You, you've got the people who are pouring their hearts out into it, but you're not, you're not necessarily getting the books closed any faster, right? You're just burning [00:14:00] people out. So, so it's looking at, you know, so one of the things that we've, um, one of the things we've shifted, you know, is, you know, we're able to get, you know, a lot of the work completed, you know, first for, you know, getting the subledgers actually like closed, right? And even for companies that are, that are in the U. S. And they're only in the U. S., right? In those cases, there is automation tools as well that are out there, right? And then, maybe I won't name names, but You know, it's, you know, you look at the, the OCR readers and you look at the, you know, you look at the, um, you know, AI processing and all of that, like, you can get yourself up to like, you know, 80%, you know, of, of those, right? And then you can also have AI, which is, you know, actually like reading agreements and looking for the key, the key elements, you know, within those, right? So if you need like a summary of like a technical agreement or technical accounting, you can kind of benchmark the two against each other, but with a background, you can still review. Right. And so looking at some of those examples, they, they do help [00:15:00] to, you know, automate those. Right. But I think fundamentally, the biggest factor is the data that you're using to make those improvements. Because if you can actually go down to, you know, my, my total population of JEs, let's call it 10, 000, you know, across the, you know, across a month, right? You have that many JEs, Right? Even if one J. E. takes a minute, right, that's 10, 000 minutes you have to manage, and then obviously that's all the people that support it. So, to be able to fundamentally change your organization like that, you have to know what you're dealing with. Because what a lot of people will do is that they'll just be like, oh, the Philippines is low cost, let's do that. Right? Or the, or India is low cost, let's do that. There KPI behind doing that, because you're still probably overpaying for the labor that you've got within the organization. ** Erik:** Yeah, there's different kinds of scale that you need to bring into your organization as it grows and matures. So I'll give you a great example. Like even at Brex, we're a Fintech. And we have a bunch of bank accounts and we have a lot of money flows that [00:16:00] come in and out of they just as a normal course of operations. And so our bank reconciliation process is like a big deal for accounting. So every day we get a, we call it a by to file or a bank account information file from all of our banks that we leverage for our business. Um, and we try to do. That bank rec overnight. And that's because we have a team in India that's able to do that. Now, if we didn't have that team, frankly, everyone goes home at like 5pm or 6pm, right? Bank statement just closed, but they're not going to be working through it. And then they end up spending the next morning, etc, going through that work if we were onshore. And so we, we, we're, we're also striving to have this like 24 hour turn on, on the key operations and accounting, um, here at Brexit. And that's where that India team is so helpful. We, we bank accounts close overnight. They're doing the first reconciliations for every single account. In the morning, we see the results of that. And there's about a two [00:17:00] hours where we overlap with the India team and we can discuss some of those items. And usually by the end of the morning, like. You know, there's a couple of things that we end up following up with the rest of the business on to get more detail, but it's done by then. And that's, that is actually one of the key factors on why we can close the month earlier in the cycle versus like what we did before. When we implemented that, we moved all this work to the left and flattened out the spike, so to speak, at the, at the end of the month. Um, because inevitably, like, there's all this stuff happening, and if you can't keep up with your bankruptcy every day in our business, Um, it piles up and you end up like concentrating it all in that first week after the end of the month. I don't know if you have any experience with that. Um, but yeah, I totally hear you. Yeah, 100%. ** Eric:** Yeah, because, you know, even, even on the bank reconciliations, right? Daily daily recs are key, right? I mean, again, it's all based on volume, right? But, you know, it's in larger global organizations, you may have. You may have 50 accounts, right? And you might have centers of, you know, collection and you might have multiple customers paying into it and [00:18:00] payments going out and, you know, different types of transactions, right? So, so bank recs themselves, right? Like, you know, there's other, you know, treasury management software systems that, you know, You know, take advantage of that. And they actually do all of the, they do all of the cash entries for you. They're, you know, they can, you can literally learn, teach them, you know, what's a repeatable transaction. So bank fees is coded and actually ported back into your ERP automatically. There's a little bit of spend to do that, but you know, all of that stuff happens on a, on a regular basis. And, you know, I don't want to go on to a tangent of cash forecasting and all the other stuff that those can do, but you know, they're, they're pretty handy tools. But as far as like, you know, actual accounting work. Right? They, they process a lot, right? So ERPs have some functionality to do that, right? But it just really depends on which selection that you make. So, you know, I think, uh, bank recs are key. You know, if you just go down, you know, just go down the balance sheet, right? Like, you know, accounts receivable, if you can automate, you know, the bills that are going out, and if you have recurring bills, right, you get the approvals like that. [00:19:00] And then, you know, you get, you know, You know, if you have credit cards, you get like automatic, you know, automatic payments and settlement that automatically like applies against it, right? So, you know, there's uh, you know, a lot of the banks, right? They have um, lock boxes where you can, you know, get, you know, sort of, you know, auto AR, you know, application, right? So, so there's a lot of um, you know, additional, like any sub ledger you have. You can probably get to a very high level of automation within each and every one of them, right? So, really the things that you start looking at are going to be more of the, more of the non standard, right, transactions where, you know, if you use systems to help you process those, right, Then you have the ability to do kind of look through those agreements and, you know, get, get some key, you know, criteria, you know, digested, in which case you can also then get those new ones recorded where, you know, most of the executives will want to be looking at it. ** Erik:** one of the questions I always get, um, from folks in my peer group is, you [00:20:00] know, when, how do I decide between leveraging an offshore team versus trying to automate it? Maybe the solution is actually doing a little bit of both. Yeah. Uh, but that sounds like really expensive if you want to do both. Um, Eric, I don't know if you've come across this situation where you've kind of ping pong back to the, okay, I automated it, Oh, but this automation doesn't cover all the new changes to our business, so I'm going to supplement with manual and then once you get up to scale on the manual, so, okay, let's go back to automating it cause we got critical mass on this, you know, like that, that's happened almost a couple of cycles already at Brex. It's interesting. I'm curious about your perspective. Yeah. ** Eric:** I might, I might answer it through like scalability, right? Maybe, you know, small companies through, through large companies, right? So, you know, what are the things that, you know, if you're at a tiny company that has like three people. Right. I mean, you know, generally the person's trying to do sales as well as trying to do like, you know, accounting and those elements. Right. So, you know, there, you know, [00:21:00] maybe, maybe it's not as important to, you know, look at, you know, automation. Mostly it's, you know, who are, who are the right partners and do you have the right staff right on board to be able to execute, right. But everything is basically like a manual process, but now let's say you fast forward and now you've got a company that's got say a hundred employees, right. You've got like five finance people, right. In those cases. Right? You can actually start to, you know, focus on, you know, a little bit more of automation, but then, you know, you're probably more of like a US centric team, right? Because, you know, you're still don't have, you know, necessarily the capacity to go out to, say, like, India and create new registrations for, for headcount and be able to build that entire organization, you know, out there, right? And in these cases, though, You know, even if you're just simply using like QuickBooks, right, I mean, QuickBooks Online has a lot of like functionality that's built in, right, where you can actually automate and repeat and billing and AP and really what you're doing is you're fundamentally building all the processes, right, in those cases, right, but then, you know, let's say you fast forward and I have a thousand [00:22:00] employees, right, at a company and now what you're doing is you're, you're starting to leverage, you know, you've got a lot of volume to be able to support that kind of a company. Right? And, and ultimately when that happens, you're, again, it's always going to be based on what is the, what is like the, the true cost, because anytime you put in a system for automation, in some ways you'll be, you'll be locked into a process, right? Because you probably need IT to integrate it, you need to configure it, you need to pay professional services to do all of that. So the, when you're, when you're implementing these softwares and locking it in, what you want to do is you want to evaluate, you know, what is, our future state plan to be, right? The best thing that companies can do is make sure they have a proper roadmap, you know, as to what their infrastructure is going to be. Because if you just start picking and choosing software because it automates this and automates this, right, you'll, you'll still be left with, you know, You know, a team that is doing manual process because they're stitching all the systems together, right? So it's really creating an architecture that [00:23:00] they'll talk to each other, right? Because if you have, you know, if you have a, if you lead with Salesforce and your orders go through, and then, you know, it could just create a disaster if your data isn't necessarily properly managed, right? So you have to have proper controls in the process and validate. So, so to answer your question, Do you pick an outsource team or do you pick automation? Really, it's what is my future outlook going to be, right? Do I, do I want something that's low cost where I can have, you know, three people in India do the same, you know, do the same value as this automation, right? And then I just need to support the process with manual work at a low cost location. Then I might be like, well, let me, let me pick India, right? But if I know that this process is one that I'm going to be, you know, It's, it's like the gold standard. Let me go ahead and get it automated. It'll cost me, you know, maybe 20, 000 in professional fees. And, you know, then I can have the three people in India focus on, you know, the, the exceptions to the automated process, right. As opposed to individually. [00:24:00] Doing the process, right? Because I think a lot of people like to review things as opposed to doing like a day to day preparation as well, right? Nobody, nobody wants to just click journal entries all day, right? If you just have like a GL accountant, right? I think you can get a lot more value out of people by, you know, by picking people that have a little bit better, um, you know, understanding of accounting. ** Erik:** that really resonates with me. I think when it, when, when it comes down to my learnings, having been at Brex almost like six years, it's, it's, this is my first job out of the big four working industry. It's, um, when we have made decisions, it, the, the, the ones that we made that went really well were those situations where, okay, we are automating this because this is a process that will call it stand the test of time. For at least five to 10 years. Right. And that's something where, because, because I knew the process wasn't going to change, there wasn't going to be as much configuration management and dinette, you know, having a dynamic [00:25:00] configuration going forward, et cetera. Um, but there were, there have been situations where, okay, let's automate this and then, well, Brexit was a startup and still operates like a startup for many things, and then we change something around and I'm like, okay, well now it's actually more painful sometimes to manage that automation and reconfigure it given the process changes that, uh, we went through as a company. If that makes any sense. Not sure if, ** Eric:** It It does. Yeah. That's one thing, you know, that's kind of a op operational baggage that, that companies can, can carry forward. Right. And you know, and, and in some ways it's, you know, keeping up on, you know, each and every one of those, you know, particular transactions. Right? Because then if, you know, like for example, if you look at, if you look at your payroll systems, right? Those are the ones that, you know, people don't necessarily wanna change that much because, you know, paying people is so paramount and important Right? To the success of the company, right. And. You know, obviously there needs to be cash available for that process, and there needs to be, right, as you're, as you're funding, right, each and every one of the people, and there's so many, um, [00:26:00] you know, there's so much regulation over that, right, that, you know, you just, you just can't fail in the process. So when you, when you think about, you know, being able to structure payroll, right, as a, as a faster process, then it's, you know, how are you, you know, Do you have all your systems, you know, available for, you know, more, you know, direct, um, payments that are going out to everybody, right? Are you, are you processing check payments? Who's your provider? You know, have you set it up, right? Are you, are you looking at all of your, like, benefit accruals, right? Like, you know, sometimes, you know, on benefit accruals, people are looking at each and every invoice that comes on, but, like, if you just, you know, if you applied a fringe rate, Right. You might be able to get to the same conclusion. Right. And again, you know, everything just needs to be fairly presented, right. In all material respects. So ultimately if you've done your homework, you should be able to get there. Right. It just makes it a lot faster. ** Erik:** I think what you're talking about is at month end, is there a way to simplify the estimate for that benefit accrual so you can get. That part of month and close faster because when the actuals come through, [00:27:00] you know, the idea is like, if your estimate is close enough, you're not going to need to go back and change anything, right? Cause it's not going to be a material difference. ** Eric:** Correct. That's right. ** Erik:** Okay. Um, you know, one thing you just mentioned, like the regulation and all that, like you, I haven't operated in this environment yet, but you work at a public company. And so I guess, tell me about the impact of potential controls reliance or like what you need to prove out to the auditor in that environment or how, how, how is scaling at a public company different than being at a private company? ** Eric:** So I guess I would say at a private company, in many ways, you can, you know, you can do whatever you can't do whatever you want, but because you obviously have to still file taxes and you have tax returns and things, but you know, you're, you're not, um, You're not necessarily required to, you know, go down the, you know, the rabbit hole of, you know, here. Can it prove out every control process and prove out, you know, that all your financial reporting obligations will be met, right? Because there you're reporting to the [00:28:00] PCAOB behind the auditors. Right, you've got a SOX framework you have to manage. All of your, you know, your executives are signing off on your financial statements, right? So, so there's a lot more regulation that goes into, you know, an SEC process, right? And SOX control that, you know, would be, you know, paramount. And so, you know, obviously one of the things that your external auditors are going to care about is going to be, you know, is, The PCAOB and all the, the details that they, you know, in the, you know, kind of their, their review over the, over their auditors, right, is, is now, you know, affecting, you know, what public companies are having, right? Because, you know, fundamentally, it used to be, you know, that, you know, you report to the, you report your financials to the SEC, but a lot of times, you know, you're, you're dealing with an additional regulator now, because in, in those reviews, you need to make sure that your financials are not also called out. So, Management is definitely spending a lot of time owning their controls and making sure that all those are executed. And I think when you, when you start [00:29:00] putting, you know, good details into your work papers like, you know, your SOX process and a recon that shows here's the, here's the 10 steps that I go through. You make sure you've got all your screenshots. You make sure you've got all your details that are in there. It's supported. You've reconciled it. I mean, I think we mentioned bank corrects earlier, right? So you have a statement. Is there any differences that are in there? And if so, you make sure that you get them booked to the general ledger and you You know, everything is then tied out at the end of the day. So, you know, the, the biggest factor is, you know, what's the full process that you have to go through to be able to make all that happen, right? Cause fundamentally you're going to have, you know, you're going to have a bank statement, right? You're going to have your, the things that you're entering into your GL and just the concept of course, is that you're, you know, the system is just a system you're putting in what's there. A lot of times what people think is that, you know, I, I ran the report from the system. That's the gospel, right? But it's not actually, it's not actually the case, right? Because the goal is. Right? It's based on contracts. It's [00:30:00] based on funds flow, right? The auditors don't really care, you know, what the system says. They want to know that it's actually contractually valid obligations and that the cash was remitted for those details. So when you actually go into it, making sure that SOX is there is a management representation that, you know, everything was properly executed, right? And there, the auditors are there to check your, check your work, kind of like a teacher who checks your homework, right? It's, you know, did you get all the answers right? And if you didn't get all the answers right, Then you, then that's the, that's the framework that you're working with, right? It's really just putting the onus on yourselves to make sure that you, you got the answer right, um, first and foremost, right? And if you don't, ** Erik:** that's where you run into trouble. ** Eric:** But I, ultimately it's, you know, for, for each and every control that's there, if you're going to shift something, right, you need to look at that. So I'll give you an example. Right? So let's just say that, you know, before you were doing a manual FX upload process, right? And, you know, as of, as of September 30th, right, you're, I always recommend doing it [00:31:00] after quarter end, because, you know, if you do something before quarter end, then it just creates more issues. But, so if you, if you do, say, on, you know, October 5th, right, you, You know, you, you go ahead and you, you input an FX process. It's automated, right? One of the things that that'll probably convert instead of like a manual control where you're reconciling all of these details, it'll then be probably be more of an ITAC, which is an IT Application Control. And in those elements, then it's generally like a, you know, you test it once a year as opposed to, you know, maybe every month that you're dealing with FX rates as an example. Right? And instead of that, then, you know, you're, you get comfortable that, you know, those are components are there and then you get efficiency over your, over your controls as well. ** Erik:** that teacher example really resonates with me because getting the audit, actually, for me, in my experience, this is my experience as an auditor, especially in the later years of my career at the firm, and also my experience being audited. You know, what ends up happening is the teacher is checking your homework and the teacher is [00:32:00] checking the answer, but they're also checking your work. Like when you do a math problem, you have to prove out the math problem. Like my, my daughter is learning algebra right now and she has to do the whole formula simplification and do row by row before she gets to X equals what? And, and, um, that, that is, One of the more important things that like auditors look out for when they do the, in my, from my experience, the work on a public company. Um, you know, my question back to you by having that extra requirement to show the work, the document, the evidence that you follow the certain process that you didn't just get to the answer, so to speak, how much of that is, um, Added to the head council, so to speak, or the resource requirement for, uh, you as a public company, ** Eric:** Well, it's definitely, uh, definitely an adder, right? And, you know, the, the cost benefit is, is always what [00:33:00] the, the real, uh, you know, fundamental, you know, process is. And we look at, you know, industry benchmarks to see what, what makes the most sense for, you know, each and every, you know, control that's out there to be able to prove that all this, uh, work has been completed, but. You know, it, it's hard to put a specific number on it, right, because it's just the efficiency of the controls, uh, that, that you have out there. But what I would say is, you know, probably, you know, probably adds maybe, you know, 10 to 20 percent additional time in a process, right, for just being able to make sure that everything is, you know, properly documented. Right? I mean, it shouldn't be, shouldn't be a huge burden that somebody spending double the time just because they're taking a screenshot from a, from a report they ran, right? Just use the snipping tool, done in five seconds, and you just add it in. The biggest, the biggest factor is more the training of it, more the review of it, right? You want your leaders to know what the right answer is. So, because, because that's, I think that's really the disparity, you know, having come from industry and [00:34:00] learning, you know, what is the right answer, right? It's. When you're, when you're a, like, junior accountant, you don't really know what the right answer is, you know you've been trained, right, and you know what people have told you to do, but to be honest, you really don't know what the right answer is, right, so you're relying on, you know, people to tell you that, and, and really the auditors know the right answer. They just don't really know how the soup is made, so to speak, right? So, ** Erik:** you know, what they know, they, they, they're the, they're the folks that come to the restaurant and do the tasting menu, but they don't know how it's all made. Right. They, they, they, they're the food critic, et cetera. Yeah, makes ** Eric:** that's right. Yeah, you don't want too many cooks in the kitchen, but at the end of the day, right, you want, you want all of your team to know. So, so you want your controllers, your chief accounting officers, your directors, your senior managers, you need all of them to know what the right answer is. So that way, when you're delivering it to the auditors, really what they're doing is that they're just doing some, some basic checks, right? And, you know, I think that's where you start getting the leverage of that. And if not, you [00:35:00] know, for a smaller company, you know, you probably get your value out of checking with, you know, your, your accountants and professional service providers. And at a larger company, like billion dollar companies, that's where, you know, the, the accounting team can hold their salt. Cause one of the things is. I found that in all my experience, you'll have a multitude of different accountants on your team as well. Some are like the steady eddies, like they'll be happy doing the same thing over and over for the next 20 years, right? But then I think really what makes optimal accounting teams and the ones who actually can drive change is, is going to be the ones that you really have You know, somebody who's really cares, right? Finance is a helping organization. It's not somebody who just like tells you no, or can't have a PO open because they're trying to like manage the spend. I think really what it is, it's, it's optimizing the business for financial return, and it's just making sure that. You know, in accounting, right, are you getting your bills paid? What's your DSO? What's your DPO? What's your, right, what's your cash [00:36:00] collection cycle? It's how are you managing all the working capital? So when you have finance folks, I say finance loosely because it's more of an accounting focus, when you, when you have really strong accountants, They can help you see these gaps and then be able to help close, you know, on those particular elements. And so getting all those ideas from the team is, I think, another element, right? So creating roundtables where the team feels comfortable to voice what they're seeing, right? And then the people actually get the information, because I think information risk is another area that makes it tough to optimize and streamline. ** Erik:** We have a lot of folks in the audience that are IPO companies. Um, that's kind of the bread and butter customer set for Brex. If, if you were talking to someone. Who is working at pre IPO. They're thinking about doing that in the next couple of years or three years. What, what are the things you would tell that person to focus on now, knowing that this is a possibility during that timeframe ** Eric:** ideally, you know, you're [00:37:00] going to have financials that are, you know, sorted for, for a period of three years, I would first look at what are your reporting obligations going to be, right? Get yourself familiar with, you know, what Qs look like, right? Ultimately, that'll be the benchmark of what you're reporting on and, you know, looking at those financials and individual line items that, that you need to look at, right? Like, you know, not every single, you know, line item in the P& L needs to be called out. Right? Not every line item in the balance sheet needs to be called out, right? If you look at the SX rules within, you know, the SEC, right? It's very specific, whether it's 10 percent or 5%. Right. And the rules that are related to that. And so if you, if you understand that, because, and then you're going to have share registration statements, which is, you know, S1, S8, et cetera, there's, uh, you know, S3, S4, and those types of things, but every, every share registration that you're making, right. Is, is naturally going to have an impact, you know, on, you know, the, the reporting that you have and, you know, the obligations and the legal structure [00:38:00] surrounding that exercise, but, but realistically it's, You know, do you have a proper control environment in place such that, you know, you, once you go, you'll be there, right? Because there's different levels that you have to consider as well. Are you an emerging growth company? Are you a smaller, smaller reporting company? Are you a large accelerated filer? Are you an accelerated filer? There's different rules that you have to follow for each and every one of those buckets you'll check on the face of the, of the financials. So if you, if you look at that, Then you just work backwards, right? Because then it'll put you into 404B, which is, uh, you know, SOX. And then there's also 404A, which is lighter SOX as well. Just refer to it as, but, you know, do your homework and research. Naturally, if you create a SOX framework that delivers on all of those key controls, which are ones that have an impact to the financial statements, as well as, Key reports, which are the things that support those, you know, financial results. Ultimately, I think those are going to be like your key elements. Other than that, you know, make sure that you've [00:39:00] got your, you know, investors lined up so they'll, they'll be ready to fund you. And maybe your stock takes off, ** Erik:** for the audience, just to kind of refresh ourselves on the definitions of some things that Eric just said, um, when you're a large accelerated filer, you're like market cap is really large. I think it's like over a billion dollars, I'd say. And you have. Uh, earlier filing requirements for your 10 K and 10 Q. I believe your 10 K is like 60 days, and then your 10 Q is 40 days, um, and you actually have to have SOX, like a SOX opinion specifically, uh, in your 10 K report. But if you are a emerging growth company, Uh, within the first five years, like if you meet the definition for that, or if you meet the definition for a smaller reporting company, my understanding is like the requirements are a lot, not a lot, but like, they are less strict, like, you may have 90 days to follow your, uh, 10K and 45 days to follow your 10Q, um, and I think even on the SOX side, like, there's, there's not really a full SOX reporting requirement, uh, in that stage, [00:40:00] right? ** Eric:** Right. And I mean, just, you know, do your homework and work with your, work with your legal team and your accountants and they'll, they'll make sure that you can figure it out. But, but ultimately that's the concept, right. At the end of the day. So it's, it's just preparing, it's preparing your. So when you go to your first audits that you should be there, but naturally many Series B companies are already starting to look at, you know, audited financials and Series C companies are, they're looking at audited financials. Maybe a Series B isn't there yet, but Series C. I would imagine that, you know, they're already being expected from, you know, from these large, uh, you know, basically from the investors backing them that, you know, they would require more, uh, more of those financials. So it should be, you know, so if you're, if you're in a Series A, probably don't require it. If you're in a Series B, they might start asking you about it. In a Series C, I would almost expect you. And then every later round would have that. So just as long as You know, you've got all of the right protocol in place to be able to manage that. I think you should be fine. The biggest element [00:41:00] is that management owns the control and all of that framework and the reporting, right? The auditors don't own it, right? They're just giving you an opinion that you did your homework right. ** Erik:** I hear that. I, I, uh, just to finish off this segment, um, you know, one of the things that I took with me, having been in audit for so long, now that we do have controlled discussions with our auditor, I'm able to explain to them, well, this is the actual operational reason why this is structured this way. Like I, I understand your observation, but even if I applied this, the level of accuracy or additional accuracy I would get is not material. But it's hugely burdensome on my team to accomplish, if that makes any sense. So I'm able to like better have those kinds of like business discussions to some extent with the auditors. And that's when I push back, I push back when like the incremental benefit or accuracy, sure there it's [00:42:00] there. Will it change how we operate the business or will it even change like how any stakeholder who reads the financials will view the company? Well, if the answer is clearly no, then that's when I definitely push back because that's like time wasted for my team. ** Eric:** Yeah, absolutely. Right. And that's, that's all goes into the scoping, right? So just make sure you have a good handle on the scoping requirements as you go through it. And, and to the point of, you know, scaling businesses, right? It's, it's really, you know, what are the most material line items that you're going to be having in your financials and what's high risk versus what's low risk and thinking through each of those components. Because if you're, you could be wasting a lot of time, you know, on low risk areas that are, you know, repeatable and. ITAC driven as opposed to, you know, high risk manual review areas where you should be focusing the majority of your attention on because that's also where the auditors are going to be focusing the most attention ** Erik:** That's where they should be focusing on. ** Eric:** Indeed. This is ** Erik:** where they should be. Sometimes there's a focus on the low risk areas for whatever reason, but that's where they should be focusing on for [00:43:00] sure. we close off each of our episodes with a segment called finance leaders are fun too. And I'm not sure if you came prepared with any fun accounting stories or accounting jokes. Um, but curious if you have any. ** Eric:** Absolutely. Yeah. I don't, you know, I'm a, I'm a fan of dad jokes. So, you know, why did the accountant break up with the calculator? ** Erik:** Why? ** Eric:** Because she felt they just weren't adding up anymore. Oh boy. Oh man. You know, it doesn't matter, right? It doesn't, it doesn't matter whether we laugh as long as everybody's laughing with us or at us, they're all, they're all getting a laugh out of it. So there we ** Erik:** I'm having a laugh. So I, I, I, for one, enjoyed that very much.Eric, thank you very much for being on the show. We really appreciate your insights, um, especially on the public company readiness and just thinking about how to create your processes for greater success on the accounting team. ** Eric:** Absolutely. Yeah. And thanks for having me on. 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