Financial reports are the central cogs that keep the business machine running. Preparation is required for everything, from financial statements filed with the U.S. Securities and Exchange Commission (SEC) to everyday ledgers. This can be time consuming and expensive if done manually, but by automating the financial reporting process, companies can save time and money while still complying with financial regulations.
By submitting your personal information, you agree that TechTarget and its partners may contact you regarding relevant content, products and special offers.
A common misconception about automating the financial reporting process is that the reports themselves are automated. “You don't automate the report; you automate the process of financial reporting,” said Mary C. Driscoll, Senior Research Fellow at APQC. Companies have a number of options when it comes to the processes they automate. These include basic financial statements such as balance sheets, profit and loss statements, accounts receivables and accounts payables, as well as annual reports such as 10-K statements and 10-Q reports.
For more on the financial reporting process
Get tips for improving the speed of SAP financial reporting
See how companies are using XBRL for financial analytics
Look at the current SEC public reporting requirements
According to Robert Kugel, Senior Vice President and Research Director at Ventana Research, the most common tool for automating the financial reporting process is consolidation software, which automates the process of creating consolidated financial statements. “This is especially important if the company is running more than one ERP system,” he said. Consolidation software combines data from different systems and creates reports that follow the rules of the relevant accounting authorities -- for example, generally accepted accounting principles (GAAP) in the U.S.
The other set of tools for automating the financial reporting process are aimed at public companies and include support for extensible business reporting language (XBRL), which is required by the SEC. Companies use XBRL to organize the numbers in financial statements into identity tags to allow investors to extract and work with the data provided. Manually coding financial reports with XBRL adds a considerable amount of work, which is why XBRL lends itself to automation, Kugel said.
Another set of automation tools fall into the budgeting and forecasting realm, according to Driscoll. “[APQC has] done research that shows that companies that automate that process are able to go significantly faster,” she said. This includes gathering data about current sales and product costs, then using that data to forecast sales for the next quarter. “If Wall Street is clamoring and wants to know what your sales look like for the next quarter, it’s very important to have that info reliably, quickly and comprehensively,” Driscoll said.
Review business requirements, existing software Getting started with automating the financial reporting process requires a careful review of business requirements, said Michael Rhodes, partner in charge of the corporate governance practice at Citrin Cooperman, a New York area accounting, tax and consulting firm. “The key is to define the business requirements on the front end -- really look at financial statements, financial reports and how they’re being used,” he said. “Match [those] requirements to different software packages and make sure that you’re making an informed decision as to what would be the most cost-effective solution for your environment.”
Whether or not companies need to buy a new system for automating the financial reporting process depends on what they already have. “Our research suggests that many companies don't use the full capabilities of their enterprise systems and that they could be getting better value [by] simply using what's already available,” Kugel said.
However, some activities may require more specialize software. “If a finance department is going through the trouble of [moving] to a maturity curve and [using] advanced tools, planning and analysis capabilities, [the company] probably wants software that’s built to do that,” Driscoll said.
If the enterprise is buying a completely new software program, it should take into account what level of customization it will need to automate the financial reporting process. Some programs require heavy customization, according to Chris Arndt, partner at Chicago-based Red Granite LLC. “Just buying the license won’t get you anything… [Some] software has to be run on a database program like Microsoft SQL Server, so you have to buy the server and host in house or [host the software] elsewhere,” he said. Often, companies need to hire a consultant to implement the software.
Automating the financial reporting process can prevent compliance woes
Companies may worry about compliance issues, but automating the financial reporting process may actually increase regulatory compliance. “The more automated your reporting, the more controllable it is, just inherently,” Kugel said. Automation means a well-controlled IT environment with strict change protocols, resulting in fewer errors and a lower probability of fraud in those automated statements, he added.
To stay in financial compliance, companies must clearly define access rights, said Rhodes. “What's also going to be critical is version control – making sure … that the versions being distributed are the final reports that should be reviewed,” he said. Some companies set review access to managers or senior-level employees, for example.
Driscoll points to the richer paper trails that automating the financial reporting process affords. “The software can keep track of who … recorded a certain transaction, such as a purchase, paying an invoice or generating a receipt, and that can help prevent fraud,” she said.
The bottom line is that automating the financial reporting process can solve a host of problems. “Our research shows that if companies … automate, [they’re] going to save money,” Driscoll said. “That's the holy grail of automation, because you boost staff productivity [and] do more things with less people.”
ABOUT THE AUTHOR
Christine Parizo is a freelance writer specializing in business and technology. She's based in West Springfield, Mass. Contact her at email@example.com.