Part 14 in the Continuous Accounting Series
In the last part of our series on the consolidated corporate close, we touch on financial and management reporting. It’s hard to believe – or perhaps all too easy to believe, but the last mile of the consolidated financial close typically ends in spreadsheets. A study earlier this year by FSN found that nearly half of CFOs still worry about a spreadsheet error being found in their report packages, even though at least three-quarters are reliant on them. This is why we’re sharing four tactics to take control of consolidated reporting.
You’re not alone if monthly reporting involves repeatedly copying and pasting across worksheets, refreshing pivot tables, and looking to trace results. All told, financial reporting typically consumes around 10% of a typical finance and accounting team’s resources, and for consolidated financial reporting, often more.
Despite advancements in reporting technology, the reporting process has grown significantly more complex over the years. The effort to get reports out externally has risen. More complexity, such as BEPS, has increased the need for country-level transparency around tax, while new rules like IFRS 15 require comparative reporting. With departments finally using data to make decisions, it places increased pressure on finance to package up the financials faster for management reporting.
Consolidated financial statements typically present a larger challenge; ideally, you want to easily break out the financials at both the consolidated and entity level. One of the larger issues around conducting consolidated reporting in spreadsheets, separate from the consolidation system, is ensuring there is confidence in the processes, visibility into the consolidation rules, and an audit trail behind the numbers. When you extract data out of your consolidation system and massage it separately, you lose that connection, thus increasing your chances of running into trouble with auditors.
By resisting the temptation to build reporting around spreadsheets, unifying the reporting process tightly to the consolidation system, and shifting copy-and-pasting to a more automated process, organizations can achieve:
- Reduced risk through better governance and controls around external reporting
- More time to reallocate resources to other activities, like management reporting or what-if analysis
- Collapsed cycle time to create consolidated internal and external reports
So, with that in mind, here are four tips to create a better consolidated financial reporting process:
Reduce consolidation logic leakage
Spreadsheets are great for formatting and layouts. But consolidation rules, currency conversion logic, and other calculations should all remain firmly centralized in your financial consolidation system. It’s easy for it to gradually migrate into spreadsheets over time, which requires spreadsheet maintenance, duplicate results, manual adjustments, and the risk of material weakness. Modern consolidation applications provide spreadsheet integration that enables you to refresh spreadsheet reports and formatting without having to worry about updating formulae. If you’re not able to get the consolidated reports out from your consolidation system without substantial spreadsheet wrangling, then it’s time to start the search for something better.
Reduce effort to disaggregate results
One of the biggest challenges with consolidated reporting is the need to easily drill down, disaggregate the results by drilling down the entity structure, and ideally return to individual entity detail if need be – without having to deal with multiple error-prone spreadsheets and extracts. The solution is to center financial reporting in the financial consolidation system so it can provide the data for each drill-down level. The more complex the logic you add to spreadsheets, the easier it is for formulas to break with each drill down and pivot, which can produce different results across reporting views.
Centralize entity structures to flex reporting with change
With mergers and acquisitions continuing at pace and new business units emerging in the face of globalization, it’s a fact of life that entity and account structures change. If your financial reports have entities and accounts hard-coded in them, then the burden on your financial reporting team will increase over the long run. By centralizing your entity structure in your financial consolidation system and ensuring that your downstream financial statement reporting is dynamic by referencing those structures, you won’t face a financial reporting overhaul when change happens over time.
Consider streamlining XBRL processes
Some organizations use XBRL filings and service providers, others ensure that financial reporting systems are XBRL-enabled for their EDGAR filings. XBRL-enabled financial reporting software enables accounting teams to apply the tags to their consolidated accounts to derive XBRL-based balance sheets and income statements. A benefit to the latter approach of managing XBRL tagging in-house is, once again, centralizing and change management. Simply, with fewer points of integration and maintenance, there’s less risk.
In our next post in the Continuous Accounting Series, we’ll cover moving beyond financial statements and cover how to apply analytics to financial results for management reporting, reduce time to create them, and apply the latest technology such as in-memory processing, real-time reporting, and predictive modeling to management reporting processes.
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