Part 4 in the Continuous Accounting Series.
Continuous movement: Imagine the stroke of a tennis player, the movement of a ballerina, and the way a musician moves from one part of the of a composition to the next on the piano, a guitar, a violin. If it were not continuous, the performances would be jarring and incomplete. And since I recently returned home after the SAPPHIRE NOW and ASUG Conference in Orlando (home of Disney World), of course the idea of a certain famous mouse comes to mind. Imagine watching a cartoon if there were pauses in the movement or sudden jumps from one movement to the next. It would be disconcerting and hard to follow.
Now let’s take the same concept to the business arena. From a purely manufacturing standpoint, what if certain products—for example, in the process industries, including oil & gas or pharmaceuticals (which I like to call “things that flow through pipes”)—had such interruptions? There would certainly be degradation in quality.
Why, then, should finance be any different? We don’t want our decisions based on financial decisions to degrade.
Thinking about continuous business and finance, there should not be stops and starts. We should expect the same continuous flow of information to make the appropriate business decisions. We should not have to take a “time-out” to seek out the most up-to-date information to make decisions.
This is where continuous accounting and leveraging technology comes into play.
In the past, finance typically needed to wait until the end of the period – month, quarter, year – to obtain the information to close the books, primarily due to a reliance on period-end processes. Due to the amount of data involved, these period-end processes needed to run overnight over the course of several days. If there was an error in any of these processes, there were further delays. And often data needed to be moved from one system to another. This has an impact not just on the timing of formally closing the books and providing external disclosures. It also impacted the availability of information for making management decisions, such as mergers and acquisitions, or the financial impact of introducing a new product line or taking on a new project.
The diagram below illustrates this concept. With in-memory technology (using SAP S/4HANA as an example), it is now possible to run these period-end processes at any time, without waiting for overnight batch processes. Finance can now run all processes continuously throughout the period and get a snapshot of the financial position of the company at any time.
Let’s look at core processes, and how each affects the financial close.
- Financial planning and analysis: In the past, in order to look at profitability, and for planning and budgeting purposes, finance typically needed to wait for information to be moved into a planning or data warehouse system. Alternatively, finance teams simply downloaded information from various systems and then manually consolidated this information in spreadsheets, which was a time-consuming process. Now it is possible to use the same information from transactional processes for planning. All relevant information is in one place, eliminating the need for time-consuming reconciliations. And finance can also model information to allow for an immediate analysis of the impact of changing particular cost drivers.
- Accounting and financial close: The core finance processes have typically been geared toward external disclosures to meet regulatory requirements. However, to get a sense of where there may be issues, it was difficult to combine the financial general ledger (G/L) information with operational or cost accounting information. Now, by rearchitecting the design of the general ledger, finance can now access such information. In addition to the G/L account balances, costing information including cost centers, profit centers, and projects are now also available, as well as operational information such as customer, vendor, and material information.
- Treasury management: In the majority of legacy systems, treasury capabilities are separated from the transactional information, making it more difficult for cash management processes, for example, to incorporate not just current transactions, but expected receivables and expected payables. Taking treasury to the next level, new technology can now incorporate modeling and predictive capabilities, to allow for sophisticated liquidity planning and management, to better enable the treasury function to plan investments.
- Finance operations: The core transactions processed by finance teams can now be processed in real time, across accounts receivable, accounts payable, travel management, even real estate management. One example of a time-consuming batch process in the past is the goods receipt/invoice receipt (GR/IR) processes, or complex cost center allocations. Even these data-intensive processes can be run at any time, again ensuring continuous processes throughout the period.
- Governance, risk, and compliance for finance: While enterprise risk management is not only a finance function, and should be applied across the board to enterprise processes, it is especially important to ensure that checks and balances are in place for the end-to-end process of the financial close. This should include ensuring segregation of duties across the entire process and controlled access to sensitive information. In addition, new fraud management capabilities also allow finance to identify patterns using predictive analytics, to take immediate action to mitigate such risks even as they process the close. A very simple example is identifying if a vendor is consistently submitting duplicate or erroneous invoices.
In addition to rearchitecting general ledger tables and leveraging in-memory technologies, new user interfaces are now available for finance. Users can now access financial information on any device through a browser.
The additional benefit of a new user experience is that finance can calculate balances and KPIs on the fly, presenting them in either a tabular or graphical format. Finance teams now have the capability to set the fields that they need to see; an accounts receivable team member needs customer information, while an accounts payable team member instead needs vendor data. It is no longer necessary to go through IT. Finance users can select the information and make changes – continuously.
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