The importance of automating accurate accruals (+ how to do it better)

The cycle is all too familiar—finance asks for up-to-date accrual details and legal responds by sending out dozens of emails. After much back-and-forth, all this disparate and often inaccurate information must be compiled into a comprehensive report. 
 

Aside from the admin headaches, inaccurate accruals trigger a chain reaction of financial chaos. The old ways of doing things simply won't cut it anymore. 

To help you do it better, this article looks at the importance of automating accurate accruals and how to improve your processes.  

Let's get to work.👇

The importance of accurate legal accruals 

Inaccurate accruals create a domino effect that can derail your legal department's credibility and your company's legal finances. It starts with the bookkeeping hit. Accrual accounting principles require expenses to be recorded in the period the work occurred, rather than when the invoice is received.

 
If your accrual estimates are off, finance has to "true-up" the numbers later with adjustments. Small true-ups are manageable, but major ones are a red flag that your reports don't align with accounting standards.🚩

Those inaccuracies then flow directly into your company's financial reporting and projections that investors, shareholders, and regulators closely monitor.
If accruals are under or overestimated, it can distort key metrics and projections, opening up your company to unwanted scrutiny.

Inaccurate accruals can also impact employee compensation calculations tied to corporate performance. Plus, they can influence decisions on investments, acquisitions, and business strategies. 

In short, they can cast doubt on leadership's ability to properly steer the company based on reliable data.

But perhaps most crucially, accrual mishaps undermine legal's standing as a strategic business partner. If you can't accurately forecast and track legal spend, it raises red flags about your ability to serve as a trusted advisor. Finance will view you as just another cost center rather than revenue enablers.
 

Maintaining credibility, enabling smart business decisions, and preserving your department's reputation all hinge on accrual accuracy. But without the right approach, it isn’t easy to get right. 

Side note: This is something a tool like Apperio does incredibly well. You can learn more about how it works here.

Common challenges in collecting accurate accruals 

While the premise seems simple—collect estimates from law firms and report them—the execution is a bit of a minefield.

#1. Manual effort

Traditional approaches rely on manual, labor-intensive processes bogging legal and finance teams down. Tracking down accrual spreadsheets from every law firm is already an email-laden slog. But then you have to effectively transform into a data analyst—consolidating the details, checking for anomalies, adjusting estimates as needed, and prepping reports that align with finance's requirements. It's mind-numbing work ripe for human error.

#2. Misaligned priorities

The next hurdle is the widespread problem of misaligned priorities. For many law firms, accrual reporting is an afterthought. They operate under cash-basis accounting, so work-in-progress tracking isn't ingrained in their processes. Firms also vary in how they calculate accruals and what information they provide. These inconsistent approaches create instant headaches.

#3. Tight turnaround times

Another challenge is the extremely tight turnaround times. Law firms often have just a week or two to provide accruals each period. For legal ops, that's barely enough time to receive the data, let alone thoroughly vet it. Inaccuracies tend to slip through the cracks as more time gets spent simply collecting the details.

#4. Communication challenges

Perhaps most insidiously, the variability of legal work makes accruals a moving target. Unlike predictable business costs, litigation and deal work ebbs and flows unexpectedly. One month a high-stakes case may be in overdrive, and the next it's practically stagnant. Without constant communication, accruals fail to keep pace.

Key takeaway: With obstacles like these, it's easy to see why so many legal departments struggle with accurate accrual reporting. But make no mistake—glossing over inaccuracies is untenable, both ethically and financially. Your legal ops team is on the front lines of governance, tasked with bringing transparency to one of the largest corporate expenses.

So, if these are the challenges, what’s the solution?

Achieving accrual accuracy: Best practices

While accrual reporting may seem like an unavoidable nightmare, there is a path to restoring order and accuracy. By implementing some key best practices, legal departments can overhaul their accruals process into a well-oiled machine.

1: Automate accrual processes

Put simply, there is no way to have accurate and up-to-date accruals based on manual collection. Legal ops leaders need to rip the band-aid off and ditch manual accrual processes completely. The deep spreadsheet dives and endless email chains just don't cut it anymore. You need robust technology designed specifically for accruals management.

Take it from Bill Priestley, Chief Investment Partner at Epiris; “Rather than having to say, ‘please send me reams and reams of information’, you can see it in Apperio almost immediately. And not just when the money’s already been spent. I think that really helps.”
 

Solutions like Apperio’s legal spend management platform automate the entire accruals workflow. Automated data collection ensures accrual data is available in real-time. 

2: Shared objectives

Working in partnership with your Law Firm advisors in a collaborative fashion is key to success in improving the accruals process. Creating an environment where each party understands the objectives helps build stronger relationships and better outcomes. Bringing finance into the visualizations and giving access to automated real-time accruals can break down barriers and boost relationships with new levels of real-time data.

Here’s what it looks like in practice:

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[With Apperio you can monitor the real-time total spend, including accruals of all your legal matters, across all of your law firms, funds, LPs and investments, broken down by fees and disbursements.]

With the right tools, legal teams can streamline their responsibilities to three key areas: setting clear guidelines upfront and reporting the finalized estimates to finance—all in a standardized, auditable format.

You can even benchmark spend across fee earners to monitor year-on-year trends, identify actionable insights, and help set KPIs to improve your decision-making.

3: Commit to ongoing collaboration

It also helps to get commitment to make the new processes work. Finance teams must collaborate with legal to understand their accrual requirements. Legal ops champions have to drive adoption of the new tool and processes across firms. There's a cultural shift required to position legal as a key partner in accurate corporate finance reporting.

From there, legal departments can take accruals management to the next level by implementing continuous improvement practices. For instance, you could conduct monthly accruals audits comparing estimates to actual invoice amounts. 

You could analyze your in-house and portfolio legal spend to identify anomalies and accrual trends, like in this example below.

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You’ll then be able to build institutional knowledge around spending patterns for certain practices or phases, for example in litigation. While accruals can never be perfect projections, the goals are minimizing uncertain estimates and confidently answering any variance questions from auditors. There is no better way than to see the exact time your Law Firms have booked from a real-time view of their time and billing systems.

💡Bottom line: It's a holistic approach rooted in clear communication, robust technology, and a commitment to continuous improvement. Following these best practices means accurate reporting becomes the standard, not the unlikely exception.

The benefits of fully automated accurate accruals

Implementing best practices and automating accruals processes won't just alleviate headaches—it unlocks tremendous strategic value for both legal operations and the broader organization. 

At its core, achieving automated accrual accuracy is about promoting transparency and trust between legal and finance teams. No more crossing fingers that the numbers add up.

This was key for Paul Dali, Managing Director at EQT who said; “Apperio facilitates a lot of our financial reporting, and as a listed company we need to report every month on areas such as accrued fees. We’ve now managed to remove a lot of emails for around 90% of these tasks - and that’s far more efficient."

With automated and reliable accrual data, legal enhances finance's ability to confidently close the books, forecast spend, and develop budgets aligned with company priorities.

This level of clarity helps reframe the narrative around legal from an unavoidable cost center to a strategic investment. 

• Finance gains a precise window into anticipated legal spend, which can be benchmarked against historical trends and industry data. 
• Legal ops leaders can pinpoint runaway expenses and take proactive steps to course correct. 
• Efforts can be focused on the highest-impact workstreams and external resources optimized.

But the benefits aren't just felt within the legal's sphere of influence. 

Accurate accrual projections enable savvier business decisions across the entire organization. Leadership teams can develop more dependable financial forecasts to guide high-stakes decisions around strategies, investments, capital allocation, and more. 

There's less risk of surprises derailing carefully calculated plans.

On the corporate governance front, proactively managing accruals promotes an ethical culture of responsibility and compliance too. Public companies can ensure disclosures meet all reporting standards. There's an auditable paper trail spanning law firm estimates to finance's final published reports.
 

From an investor relations perspective, accurate legal accruals help uphold share value by instilling confidence. Companies don't have to wrestle with correcting misstated financials. Analysts and shareholders can depend on transparent, reliable legal spend data.

As Paul Dali at EQT puts it; “Our transparency requirements are driven by stock exchange requirements as well as our investors. With digital transformation, there is a requirement for more speedy, more detailed updates. Compared to what legal can report on now, 10 or 20 years ago this would not have been possible.

“Maybe on a semi-annual basis you could pull certain figures with around 80% confidence, but using these and other finance tools, such reports can be completed monthly with 95% or higher accuracy. This is now what the market, and therefore our internal finance team, requires.”

Perhaps most impactfully, by taking ownership of accrual accuracy, legal positions itself as a respected business partner and advisor. Legal ops leaders cement their standing as progressive thinkers driving scale, efficiency and competitive advantage.

Achieve automated accurate accruals with Apperio

The time to evolve is now. For those ready to leave accrual nightmares in the past, the opportunity has never been clearer. Seize it, and watch as legal's reputation—and impact—is redefined forever.

If you’re ready to take full control of your legal spend, get in touch. We’d love to show you how easy it can be.