In this instructional video, CPA Bill Hanna demonstrates how to conduct two distinct types of variance analysis using a compensation section of an income statement for November‑December 2024. He first walks through an accounting variance analysis performed before period close, aimed at controllers and accounting teams to uncover errors, missed accruals, or double‑bookings. He adds change, percentage‑change, and comment columns, sets a materiality threshold ($5,000 in his example), and investigates material variances in salaries and bonuses by consulting a headcount report and a bonus accrual schedule. He then switches to a business variance analysis performed after close for C‑level executives and investors, using the same calculations but crafting commentary that adds departmental, budget, and performance‑attainment context. Throughout, he highlights the differing audiences, purposes, and tone of the two analyses, provides downloadable example files, and promotes his Controller Academy program for deeper learning.
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In this video, I'm going to show you how to perform two different types of variance analyses that as an accounting professional will make you sound and look really good to prospective employers or clients or anyone you speak to. Let me show you what I'm talking about. If you are new to the channel, welcome. My name is Bill Hanna. I'm the financial controller and I've spent a couple of decades working in corporate accounting and analysis, and this channel is all about bringing my my experience to you so that you can use it to grow your own career. I'm going to talk first about the accounting analysis, and then I'm going to flip over and talk about the business variance analysis. The purpose of the accounting analysis is to find accounting errors. The timing of it is going to be before period close. The typical audience is going to be controller, VP of accounting, or accounting teams in general. We'll go ahead and perform this for a part or a section of the income statement, but you can make the same analysis for the entire income statement and the balance sheet as well. Okay, so we have a segment of the income statement for November of 2024 and December of '24, uh, for a section for salaries and compensation. What we're going to do is we're going to add a column here for change and another column for percentage change and the third one for comments. Uh, we'll give the columns header a different color just to make it stand out. And then we go ahead and perform our analysis. We'll say the change equals the current period minus the prior period. We'll drag this down, and then we'll create the percentage change, which is going to be our change amount divided by the base period, which is the prior period. So that's going to give us a percentage. The percentage is just going to help us in defining what is material, material enough for us to investigate. We can go ahead and drag our footers just to make sure that it looks correct. This here is— should be changed to a percentage. Okay, so looking at this, we have a change here that is material enough for salaries. So we have a change of $24,000. The change in Social Security, medical insurance, and commission is probably too small for us to comment on. And it's always a good idea to align with your internal team on what is material, material enough for the financial statements of your particular company for you to comment on. For example, here I'm going to consider $5,000 as material enough, but in your case you can decide it's $1,000, for example, if it's a smaller company. Okay, so given that $5,000 is my threshold for investigation, I'm going to investigate the salaries change and I'm going to investigate the bonus change. Okay, so let's go ahead and investigate why we have this difference. For the salaries difference period over period of $24,000, uh, there are two main reasons that the salaries could fluctuate period over period. Either you hired more employees or you increase the salaries of employees. So I'm gonna look at a headcount report just so I can see if we hired new employees in December of 2024. So I'm gonna open up my headcount report. And by the way, this file here is gonna be available for free download in the description of this video. Go ahead and download it so you can play around with the same data that I have. Uh, looking at the headcount report, I'm gonna look at the hire date, which is this column here. And I'm going to see if we hired employees in December. And I can see that we hired 2 employees, uh, in the month of December, and that is what is causing my salaries to be higher in December over November. So I'm going to go ahead and write my comment, and I'm going to say that we checked the headcount report and confirmed the fluctuation is due to hiring of 2 employees in December of 2024. Moving on to the second line item that requires investigation, which is the bonus line item, which went down from $80,000 to $60,000. $62,000, a difference of $18,000 or 23%, which is big enough for us to investigate. Now, for me to investigate— and again, the purpose of this is to find accounting errors, missed accruals, double bookings, things of that nature— so for me to investigate this, I will need to look at the calculation of the bonus accrual to figure out what happened here, why we have lower bonus in December compared to November. So I'm going to open up my bonus accrual schedule. And as you can see, it's an accrual table that has the employee name, their annual salary, the bonus rate, annual bonus, um, and what would be the accrual at 100% attainment. Okay, so this is the accrual at 100% attainment. It's paid out quarterly. So for example, for John Lee, his bonus for Q4 2024 is $15,000. Okay, so that would be the accrual table, and this is the amount that we would accrue each month in Q4. But now we are closing the books for December of 2024, uh, and what we'll do is we'll look at the actual table. So we'll look at the attainment of the bonus and calculate what would be the actual bonus payout. So for attainment, we have an attainment of 92%, which is based on the bonus target, uh, and the incentive agreement with the employee. It says that the target is revenue reaching 100% of the target will pay out 100% of the bonus. In this case, we attained 92% of revenue, therefore we will pay 90% or 92% of the bonus. So this will be my actual bonus for Q4, and that will mean that my accrual for December is going to be lower than the standard monthly accrual. Why? Because this is a true down of the bonus accrual, right? We accrued for this employee $5,000 in October, $5,000 in November, and we would normally would accrue $5,000 for December, but we're going to accrue only $3,800 in December because we are throwing down the bonus accrual based on the attainment of bonus. So, I'm going to go ahead and write my commentary that I checked the bonus accrual and everything checks out. I will provide my commentary here. Okay. So, now I'm comfortable with my change. I have a change in salaries, and I'm comfortable with it. I have a change in bonus, and I'm also comfortable with it. If you enjoy my teaching method and you feel like you're ready to invest in a comprehensive accounting program, be sure to check out the Controller Academy program where I teach you the entire function of a financial controller. If you're interested, head to the description section of this video. I teach the course using a company example so that you can see all the steps that it takes to create a world-class accounting process. I walk you through the steps, uh, to set up billing, accounts payable, equity accounting, payroll, among many other things. We discuss revenue recognition under ASC 606 using real-life customer agreements. I also show you how to prepare and analyze the financial statements. If you're interested, head over to the website. I'm going to leave a link down below where you can see the entire curriculum of the course. And now back to the video. All right, so we talked about the accounting variance analysis. Now let's head over to the next tab, which is the business variance analysis. The purpose of it is to provide Business Insights. The timing is going to be after the period close, and the audience is going to be C-level executives— CEO, CFO, board of directors, and investors. Okay, so again, we have here a segment of the income statement. We have month-over-month change for the compensation section of the income statement. I'm going to go ahead and create my columns, one for change and one for percentage change and a column for comments. I'm going to give this a different color so it stands out. All right, this creates our change, the current period minus the previous period. I'm going to drag it down. Uh, for the change percentage, it's going to be my change divided by the base month, which is November. Okay, so same thing so far, nothing changed from what we've done before in the previous analysis. I'm going to drag down the footer as well, just that we are— just so that we are consistent. Okay, so looking at this fluctuation, I'm going to be looking at salaries in the same way. I'm going to be saying, well, salaries went up by $24,000 for the month of December. That must be due either to an increased headcount or an increase in salaries. I'll check the account report. I'll find the same information that we hired 2 new employees in the month of December. I'm going to say the comment. However, I'm going to write it a little bit different. Let me show you the business comment and we're going to compare it to the accounting comment that we wrote earlier. We hired 2 new employees in December of 2024 in the sales department as outlined in the budget. Okay, so notice I've done a couple of things here different from my accounting comment. I called out that it's a sales department. Right? So I'm calling out which department it is, and also what I'm saying, this is in accordance with the budget that we set out for the company, right? So this is what the business insight is, is that I'm giving you the department and I'm also telling you that this is in accordance with the budget. So if you're a CEO or if you're the board of directors, uh, you might be wondering, you know, are these two new hires additional to what's in the budget, or this is something that we already have budgeted for? So you give that information up front so that you can avoid the question. Okay, now the next line item is going to be bonus, and as we said before, bonus amount went down month over month from $80,000 to $62,000. I'm going to investigate this in the same way. However, my comment is going to be a little different. So when we look at the bonus accrual schedule, we'll see that we attained at 92%, and we'll see a comment on the attainment here at the bottom that revenue was $9.2 million, compared to target $10 million, which resulted in 92% attainment in the bonus payout. Okay, so that's going to help me as a financial analyst craft the business insight into why the bonus line item declined month over month. So here's my comment for this. Uh, incentive bonus for Q4 '24 was attained at 92% based on the revenue target. Okay, so I'm giving this upfront to whoever is reading this that we're paying, um, The bonus based on the revenue target, and we attained 92% of revenue, therefore we're paying 92% on the bonus. This is a little bit different commentary than the accounting commentary. The accounting commentary was only concerned with whether we booked something incorrectly, we missed an accrual, we added an accrual. So it's more concerned with the integrity of the accounting calculation. Here the concern is to give a business insight. Why do we pay this bonus? We met 92% of the revenue target, and therefore we're paying less bonus amount. All right, show me that you appreciate the video by hitting the like button, share it with someone who might benefit from it, and I'll see you in the next video.
