The CFO Playbook on Accounting: Gauging the Pros and...
Transcript of The CFO Playbook on Accounting: Gauging the Pros and...
The CFO Playbook on Accounting:
Gauging the Pros and Cons of
Automating Financial Reporting
Richard Beacham
Principal, Management Consulting Practice, KPMG
Andrew Hickey
Partner, Deloitte & Touche LLP
Moderated by: Russ Banham, Senior Writer, CFO magazine
Monday, November 18, 2013
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Close, Consolidation and Reporting Processes What finance challenges impact today's CFO?
Financial
Close
Consolidation
Reporting
• Multiple source systems with varying close cycle
dates;
• Close process is circular with several iterations;
• Increased time spent on data collection, data transfer,
data reconciliations, manual journal entry accruals
and reversals; and inconsistent data elements
residing in multiple source systems;
• Lack of an integrated transaction processing
architecture.
• Manual effort spent on manual journal entries and
use of spreadsheets;
• Inconsistent set up of the consolidation architecture
(i.e., incorrect segment reporting set up);
• Lack of an integrated consolidation system that is not
interfaced with the sub-ledger;
• Significant top sides adjustments that are not pushed
down to the business unit or documented
appropriately.
• Untimely management reports, limiting decision
making;
• Inconsistent Corporate and Business unit reports;
• Sets of disconnected tools are used to report
performance measures;
• Challenges meeting regulatory reporting requirements
given the length of the close process.
Impact on the CFO’s time
• Increased time spend determining that
the operations are running efficiently in a
controlled environment (Steward,
Operator roles);
• Less time spent being a driver for change
and focusing on business growth
(Catalyst, Strategist roles);
• Finance function perceived as data and
number collectors/crunchers rather than
as partners to the business;
• Lack of repeatable and efficient business
processes to support the business.
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All
rights reserved. NDPPS 228053
Increased
Efficiency
Reduced
Risk
Enhanced
Capabilities
Support
Future
Growth
Benefits of Automating Financial Reporting Processes Beyond Efficiency lies Value in Enhanced Capability…
Efficiency:
Shorter time to close
Reduced manual effort
More timely and therefore relevant management information for decision making
Lower cost or more time for analysis and quality review vs data gathering
Capabilities:
Enhanced analytic capabilities
Multi dimensional views
Drill down
Ad –hoc reporting
Internal comparability and benchmarking capability
Business Intelligence
Informational consistency between internal management reporting and external information provided to investors
Future:
Sustainable as business grows
Analytic “what-if” platform
Easier to integrate acquisitions
Supports reorganizations
Risk:
Reduced risk of manual error
Lower likelihood of missing filing / regulatory deadlines
Reduced risk of internal control failures
Increased
Efficiency
Reduced
Risk
Enhanced
Capabilities
Support
Future
Growth
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All
rights reserved. NDPPS 228053
Potential Risks and Challenges of Automation Scoping and Buy-in, Implementation, Acceptance…
Clarifying Scope
Aligning with IT strategy
Quantifying Business Case
Aligning business stakeholders
Obtaining Executive Support
Securing Budget
Availability of people
Lack of implementation experience
Conflicting reporting requirements
Unwillingness of business to
standardize reporting
Data gaps and inconsistencies in
underlying systems
Identification of additional process
changes and requirements during
build
Resistance to change
Underestimated training
requirements
Unrealized business case elements
Expectation gaps
Insufficient user support post
implementation
Errors not caught during testing
cycles
Delayed or inaccurate reporting
Continuous
Improvement
• Understand IT strategy
• Engage right group of stakeholders
• Develop vision and roadmap
• Build robust business case
Prioritize project portfolio
Assign dedicated resources
Address reporting requirements and
“paper standardization” first
Assess data quality and underlying
processes
Implement core functionality first
Communications and Change
Management
Involve end users in testing and
training development
Manage expectations through
communications
Establish user support structure prior
to final testing
Build in sufficient time for thorough
testing
Go live on non quarter month
Acceptance Risks Implementation Risks
Ways to Address Ways to Address Ways to Address
Scoping / Buy In Challenges
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Many organizations are cutting down the time it takes to close the books:
1. Leveraging Technology Solutions to improve business processes
• Staging data through use of data marts/warehouses ;
• Using accounting rules engines (or calculation engines) to replace spreadsheets and manual processes;
• Implementing broad reporting platforms to minimize use of ad hoc reporting;
• Sub-ledger implementations that are interfaced with many core financial systems.
2. Continuously Improving Business Processes
• Optimizing manual business processes by leveraging technology to shorten close process
• Standardizing business process design and documentation including controls;
• Use of shared services for core transaction processing;
• Use of a well-defined common closing calendar that is centrally managed, documented and understood by many.
3. Establishing a Close Automation
• Integration of automated dashboard reporting solutions;
• Performing close calendar assessments to determine areas of improvement and/or areas to leverage technology capabilities.
4. Enforcing Balance Sheet Integrity
• Performing reconciliations on defined materiality and timing standards using consistent templates;
• Implementing broad reconciliation and automation tools that are utilized for matching and reporting;
• Establishment of a well defined reconciliation policy and procedure that is well defined, enforced, managed and governed.
5. Improving Data Quality
• Implementation of standardized data definitions across the organization;
• Existence of a common data model across the enterprise, with uniform data definitions and standard processes for information
capture.
Close, Consolidation and Reporting Processes Market place activity
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Close, Consolidation and Reporting Processes Emerging trends in consolidation and reporting
Emerging trends around consolidation and processes are applicable to many companies that rely on a highly
intensive manual process. Some companies are taking the following steps in automating their consolidation and
reporting processes:
Consolidation
• Implementing a single enterprise-wide;
consolidation system that supports multi-currency;
• Centralizing GAAP consolidation activity at the
corporate level;
• Establishing standardized policies, processes, and
procedures that are monitored and enforced;
• Automating interfaces that collect and report data
elements as well as process intercompany
eliminations
• Automating a multi-tier reporting for management
and legal/financial structures;
• Automating consolidation process with
integrations with general ledger data;
• Implementation of an automated workflow to
organize, manage inquiries, decisions, and
approvals; associated with reclassifications and
top-side adjustments.
High-quality information
Transactional Data
Decision Support
Analysis
Reporting
Consolidate
Close
Policies, Processes,
Protocols, Procedures
Data
Transformation
Data
Transformation
Copyright © 2013 Deloitte Development LLC. All rights reserved. 7
Close, Consolidation and Reporting Processes Achieving a more integrated reporting and consolidation process
• Disparate stand alone systems;
• Increased manual processes and manual journal
entries;
• Lack of understanding of various data definition;
• Lack of understanding and ownership of close
calendar;
• Unclear reporting requirements that are sourced
from various systems
• Top side journals that are not pushed down
• Source systems with varying close cycle.
• Reduction in man-hours spent on the close and
reporting process;
• Use of existing technology to meet reporting
requirements;
• Scalable framework to address other reporting
requirements
• Reduced risk with enhanced internal controls
over the external reporting process
• Standardizing reporting systems, tools, and
master data ;
• Integrating reporting tools;
• Implementing broad reporting platforms with drill
down capabilities.
Automating External Reporting
Manually Intensive External Reporting
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All
rights reserved. NDPPS 228053
4.1
Trial Balance
Review (legal
entity based for
tax)
What about components that can’t be automated? Governance as path to quick standardization,
risk reduction & ROI…
ERP/Feeder Systems
Consolidation Application
Close Governance Technologies
Tax Systems
8.0
Continuous
Improvement
7.0
GL Close
Calendar
6.0
Reporting
5.0
Financial Data
Consolidation
3.0
General Ledger
Accounting
2.0
Allocations
5.3
Financial
Statements
Review
5.2
Consolidated
Financial
Statements
5.1
Business Unit
Financial
Statements
4.3
Management
Adjustments
3.3
GL Account
Reconciliations
3.1
Process Journal
Entries
2.2
Process
Allocations
2.1
Allocations
Set-up
1.3
Sub-ledger to GL
Reconciliation
1.2
Sub-ledger
Data Transfer
to GL
1.1
Transaction
Posting to
Sub-ledgers
(inc. tax stat info)
8.1
Policies &
Procedures
Updates
7.3
Consolidated
Calendar
Development &
Communication
7.2
GL and Tax
Close Calendar
Developments &
Communication
7.1
Pre-close
Meeting
6.4
Quarterly/Annual
Filings and
Shareholders
Reports
6.3
Notes to the
Financial
Statements
6.2
Prepare
Statements for
the Board
8.2
Accounting
Research
8.4
Post Close
Review
8.3
Regular
Communication
among Groups
Data Recording/Accounting Period Close Consolidation Reporting Communication and Governance
Process
8.5
Issue Tracking
& Resolution
4.4
Tax Calculations
3.2
Intercompany
Transactions
4.2
Preliminary
Financial
Statements
Review
6.1
Management
Reporting
Adjustments
5.5
Consolidated
Tax
Adjustments
& Tax
Allocations
6.5
Regulatory &
Tax Reports
5.4
Financial
Statements
Adjustments
9.1
Chart of
Accounts
Maintenance
9.2
Roll
Forward
Procedures
9.3
Interface
Maintenance
9.4
Other GL
Accounting
Rules
Maintenance
9.5
Security and
Work flow
Maintenanc
e
4.0
Preliminary
Financial
Statements
1.0
Feeder System/
Sub-ledger
Accounting
9.0
Accounting
System
Maintenance
Sub-Process
Common Application of Technology
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Close, Consolidation and Reporting Processes Determining when to automate
Execution challenges
Stimulate behaviors across
the organization to achieve
strategic and financial
objectives
Performance challenges
Provide financial leadership in
determining strategic business
direction and align financial
strategies
Efficiency challenges
Balance capabilities, costs and
service levels to fulfill the
Finance and wider organization’s
responsibilities
Control challenges
Protect and preserve the
assets of the organization,
enable compliance, and
exercise good judgment
Today’s finance environment is more complex and challenging than ever. As a result, finance is facing significant
pressure from:
• Mergers and acquisitions
• Growing complexity in legal and operating models
• The increased demand for data analytics across the organization
• The need to playing an active role in corporate initiatives
• Increasing compliance and external reporting expectations
• Reducing or maintaining the current cost of finance
Each of these pressures demand a need for a more automated reporting processes that is enabled by an
integrated technology solution.
A CFO’s aspiration to be the driver of change and the strategist also influences the decision to automate accounting
and reporting processes.
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All
rights reserved. NDPPS 228053
Is automation right for your organization? What’s our Finance Function Maturity Level?
People Scorekeeper Business
partner Diligent caretaking
Reactive ad hoc
analysis
Business acumen
and financial
knowledge
Insightful analysis
people and comment
Driver of hypothesis
based Investigation
and change agent
Process Locally specific Standardized
and optimized
Disaggregated
processes and
responsibilities,
multiple G/Ls
Low degree of
standardization and
automation (divisions/
geographies)
Recommendation
for common
methods, processes
Standardized
processes globally
for low value high
volume transactions
Standardized
processes globally
for financial
management
Technology Incompatible
systems Global systems
Multiple systems,
tools and manual
interfaces
Unified consolidation
framework, multitude of
systems with interfaces
Standard systems,
interface layer and
data repositories
Standard
tools/applications, on
multiple occurrences
Standard tools and
applications, fully
integrated
according to a road map
Governance/
controls Informal
Centralized,
automated and
preventive
Reactive. Reliance
on manual detective
controls; no formal
governance
Regular reviews of
controls, some
analysis;
limited governance
Risk-based, near
real-time control
execution with some
automated testing
Use of systems-
automated controls and
analytic tools; global
governance standards
Automated, risk-based
preventive controls
integrated into existing
systems
Service
delivery
model
In-country,
decentralized
Global finance
function with
strategic
sourcing
Local finance
reporting into local
management; some
offshoring for low value,
high volume transactions
Strong alignment
with group finance
(hard dotted);
regional SSCs
Central guidance,
local implementation;
majority of finance
processing in SSCs
Global finance
community;
all financial
processes in
optimal locations
Autonomous finance
function, e.g.,
objective setting at
BU or local CFO
Data/
Reporting
Inconsistent and
decentralized data
& analytics
Information platform
supports actionable
analytics
Lack of analytics
capability and
standardized
KPIs/Metrics/
Measure
Data and reporting are
still spreadsheet driven,
not value driven, and do
not support decision
making
BU/Geographic/
Segment-specific data
analytics and reporting
Global standards/
guidelines for data and
reports; reports are
rationalized
Harmonized data
supports fully integrated
reporting across
organization
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All
rights reserved. NDPPS 228053
Where should I start? Building an overall vision / roadmap and business case
STRATEGY EXECUTION
STRATEGY ROADMAP DESIGN IMPLEMENT MONITOR
Clie
nt
Issu
es a
nd
Bre
akth
rou
gh
Id
ea
s
Business and
IT Strategy
Rapid Value
Assessment
Vision
Target
Operating
Model
Roadmap
Service Delivery
Model
People
Governance, Risk and
Compliance
Process
Technology
Data/Reporting
Re
qu
ire
me
nts
Ma
na
ge
me
nt
Business
Change
Implementation
Technology
Change
Implementation
Inte
gra
te a
nd
prio
ritize
in
itia
tive
port
folio
La
un
ch
, G
o L
ive
Re
lea
se
Ma
na
ge
me
nt
Transition to
Steady State
Ongoing
Maintenance
Continuous
Improvement
Business Case and Value Gateways
Program Design and Governance
Behavioral Change Management
Program and Project Management
Performance
and
Stakeholder
Value Analytics
De
sig
n A
rch
ite
ctu
re / S
olu
tion
De
taile
d I
mp
lem
en
tatio
n P
lan
1 2 4 3
Copyright © 2013 Deloitte Development LLC. All rights reserved.
Close, Consolidation and Reporting Processes Taking the first step towards automation
High Level Steps Description
Perform a current state
assessment
• Assess the current finance processes, technology and service
delivery model.
Future State Vision • Develop an integrated vision for the future finance function that
meets the information requirements of business leadership, and is
aligned with the systems architecture, future state operating model
and guiding principles.
Initiatives Portfolio • Identify, define and prioritize the initiatives required to close the gaps
between current state and required finance capabilities and
supporting infrastructure.
Finance Transformation
Roadmap
• Sequence and prioritize initiatives into a phased implementation
roadmap that is supported by a high level business case.
Finance Transformation
Business Case
• Develop a business case that is supported by leadership and key
stakeholders
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