Our opening article in the ESEF Quality series sets the context around what quality means in the world of financial reporting, and why it is important. In this article, we will discuss how you could wield technology to help you achieve quality in your financial reporting.
A recent article in the Strategic Finance magazine talked about how some years ago The Coca-Cola Company found that more than 800 of its employees were spending 14,000 hours every month on its balance sheet reconciliation process. Coca-Cola soon had the process automated and was able to reallocate 40% of the staff, putting them to tasks such as metrics, reporting, IT controls, and change governance. The company saved millions of dollars from the shift.
The trouble with a manual process is not just the cost associated, but also the quality. The process of manually sorting through transactions and recording them is prone to errors. Information could be scattered over multiple terminals, and there is a chance of multiple versions of the same document being created and worked upon.
When an employee quits, it becomes quite a task to track the work accomplished by that employee. And changes made in a document cannot easily be traced back down the quarters or a financial year.
Moreover, lengthy processes make tasks stressful for accounting teams and can result in subpar performance. Monitoring and securing sensitive information is also harder, not to mention the cost to a company’s reputation in case of a data or security breach.
While these problems hold true for just about any manual process, they are more significant in the process of preparing financial reports where approvals from department heads, controllers, CFOs, and auditors are needed.
Just streamlining the financial report creation process by using software available in the marketplace can automatically increase quality miraculously. And the good thing is, such solutions don’t need firms to set aside large budgets.
Trying to maintain a 100% error-free report while navigating through all of this is the equivalent of racing through a giant obstacle course and vaulting over every obstacle with the precision and grace of an Olympic gymnast. No wonder CFOs are a harried, grim lot.
Here’s where businesses must leverage the power of technology to hold the process together and achieve ‘financial close’. Software solutions that claim to have an answer are a dime a dozen, but the ones that hold out the most promise are cloud-based because they allow easy collaboration across geographies.
The collaborative feature brings together different teams that are responsible for different parts of a large document and helps orchestrate the process. Workflows can be decided on and the report preparation process can be monitored at every point.
Software solutions also have version control, comparison, and commenting features – all of which are centralized so that everyone is on the same page as to the progress. There are connectors to source systems or an easy way to tie in the numbers part of a financial report with the text.
A common error that was found across many annual reports, as IRIS’ Research study showed, was that the same number was reported differently at different places in the annual report. This kind of error is what is called a ‘careless mistake’, and is often because of a rushed manual process, where one forgets to update a number in all its occurrences in a document. Solutions that help with financial close allow numbers to be interlinked across the document – so when one number is updated, it cascades through and reflects everywhere in the document.
While bells and whistles can keep getting added, just streamlining the financial report creation process by using solutions available in the marketplace can automatically increase quality miraculously. And the good thing is, such solutions don’t need firms to set aside large budgets.
In summary, the first and simplest step in your quality journey is to embrace technology to streamline and simplify the process of financial reporting. Not only does this result in overall cost savings, as evidenced by the Coca-Cola example, but the impact on the quality of financial reporting also becomes visible immediately.
Our next piece focuses on an artifact that’s intangible but powerful – the XBRL standard, which lends machine-readability to your financial data.
