January 17th, 2010 | Posted by Finance is about twenty years into the process of creating a production platform for finance operations – starting with transaction processing in ERP. Clearly the road has been rocky, as expectations around ERPs were not met in many cases. But few would turn the clock back to manual 3-way match or consolidation. A renewed interest in technology that can fill gaps in finance operations technology is being driven by a continued demand for transparency in financial information, impending regulations such as IFRS, ongoing movement to shared services, and reduced staff levels due to the recent recession.
To understand the gaps in current finance technology, the record-to-report (R2R) process needs to be analyzed. From a production platform standpoint, R2R can be compartmentalized as follows: transaction processing, technical close, controller’s close, and financial reporting.
Every company invests in technology differently. The analysis below is intended to illustrate a broader truth: where technology currently supports the finance process … and where more automation is needed. For the purposes of this review, desktop automation tools are considered manual processes. This overview is based on observations across many companies, and reflects a macro-view of most major processes.
Transaction Processing:
Currently supported by technology:
- Streamlining basic processes and performing the bookkeeping to arrive at a trial balance
- Validation of clerical entries
- Force balancing debits and credits
- Security around transactions
More automation is needed:
- Intercompany account balancing and controls
- Manual journal entry tracking
- Tracking supporting documentation
Technical Close:
Currently supported by technology:
- Closing sub ledgers
- Consolidating the financial statements
- Delivering the financial statements to controller’s department
- Creating/delivering standardized reports
More automation is needed:
- Managing ERP “job” processing
- Creating/delivering customized inquiries/reports
Controller’s Close:
Currently supported by technology:
- Accessing data required for analysis
- Formatting analytics
- Viewing and reviewing first draft financial statements
- Producing key “flash” information
More automation is needed:
- Administering the global close schedule
- Getting consistent, timely data on collaborative charts (commitments, leases…)
- Obtaining detailed snapshots of progress
- Tracking and documenting key issues
- Managing final adjustments
- Managing account reconciliations
- Creating, documenting manual journal entries
- Managing the external audit process
Financial Reporting:
Currently supported by technology:
- Timely, accurate, and completed financial statements
- Outsourced/automated Edgarization of filings
- Attaching selected XBRL tags
More automation is needed:
- Roll-forward of financial statements
- Gathering and collating of notes to the financial statements
- Gathering and collation of appendices and MD&A
- Distribution and receipt of draft financial statements
- Editing “master” financial statements
- Determining and selecting XBRL tags
- Creating and storing support for final filed financial statements
Given the above, R2R moves initially from automated production activities to manual, offline efforts in two places: 1. In the subjective application of accounting judgment, and 2. In the administration and review of the process itself. The processes that require people to make decisions and interact with systems – such as reserve calculations, complex reconciliations, or footnote preparation – are often taken offline into manual and office automation tools, such as spreadsheets and e-mails. The administration and tracking of these processes, including supporting documentation, are often managed most effectively using office automation tools, or occasionally document management solutions.
Finance departments are beginning to use technology to fill gaps in their production processes. Examples of production environments in finance include:
- Job Monitoring: Technical close, managed in tools that monitor and report job processing issues, including proactive rescheduling to move processing times. Optimizes capacity and efficiency.
- Financial Close Scheduling: Close task list, fully automated to manage the scheduling and delivery of close tasks to the right person at the right time. Escalates and reminds with appropriate and timely templates.
- Financial Close Monitoring: Close, managed through interactive dashboards, giving status of all compliance, close and reporting details throughout the process.
- SOX Compliance: SOX compliance, managed with automation of required tasks, including: testing, reporting, and certifications.
- Account Reconciliations: Reconciliations performed, tracked and reviewed in a single platform with dashboard visibility.
- PCI Compliance: PCI compliance requirements scheduled, performed, tracked, and reported via automated workflows.
- Financial Reporting: Financial reporting processes supported by workflow, enabling collaborative drafting and management across internal and external constituencies.
- XBRL: XBRL requirements embedded in financial reporting processes, supporting in-house mapping, creation of extensions, tagging, and validation.
Technology solutions offer finance the opportunity to create agility in processes, absorbing externally-driven demands and supporting internally-driven growth. Finance has often relied on people to fill the gaps when technology was unavailable. But making the business case for dramatic increases in staff has been made more difficult by the recession. This much we know: further regulation and change are guaranteed; business is picking up; and the technology is available that can help companies close the automation loop – finally delivering a true production framework for the R2R process, and a strong foundation for success moving forward.
