Closing Fast Doesn't Have to Come at the Cost of Compliance
Burdened by a tangle of financial reporting regulations, corporations everywhere face a dilemma: How to comply with the growing complexity of accounting rules and still close their books quickly.
According to research sponsored by Business Objects, this is an issue that is very much on the minds of corporate executives and financial professionals. Seventy percent of respondents cited a belief that a monthly close should be complete in four days or less, and a quarterly close in under seven days. The same study also revealed that 93 percent of respondents either wanted to speed up or maintain close times. However, after a brief period in the late 1990s in which companies became more efficient in their financial reporting, compliance regulations such as Sarbanes-Oxley, Basel II and IFRS have placed additional reporting rules on organizations worldwide.
Nowhere has regulation proven to be more cumbersome than in the United States, where many companies have become reluctant to close their books quickly for fear of submitting inaccurate financial statements. As a result, close cycles have slowed down by more than a week in the U.S., as many companies have chosen the lesser of two evils, resulting in time-consuming, labor-intensive efforts to ensure the quality of their financial data.
According to a recent Gartner Research report titled "Improving SOX Compliance Sustainability With Financial Consolidation Applications," financial consolidation applications are vital for ensuring confidence and control in financial reporting. However, Business Objects believes the reality in the market is that many financial-consolidation applications perform poorly and can paralyze a corporation in its attempts to close its books quickly. Weak audit trails also disrupt the post-close audit signoff and increase the costs associated with compliance.
Additional rules are forthcoming that will make the close process even more difficult to sustain. In today's compliance-driven environment, the only certain thing is the prospect of yet more uncertainty, and this is making it harder for companies to reduce or even maintain their closing cycles.
The Importance of Closing Fast
Organizations cannot afford to choose between closing fast and compliance – despite the conflicting pressures placed on them by the U.S. regulation. Section 409 of Sarbanes Oxley requires the timely reporting of information while Sections 302 and 404 produce obstacles that slow reporting down.
Those that slam their books shut to meet reporting deadlines, without careful scrutiny of the numbers and adherence to required processes, invite errors, outside audits, shareholder lawsuits and even criminal investigation. Those that methodically and painstakingly address compliance rules at the cost of timely reporting miss out on the competitive advantages that can result, and can suffer in the eyes of shareholders, investors, trade exchanges and regulatory agencies.
This is because the speed in which a company completes its accounting cycles is an indication of how well-managed that company is. It's also a measure of a company's health. Companies that close fast typically succeed as a result of streamlining their processes to become more efficient. This saves them money in terms of man-hours, and enables staff that previously spent too much time completing accounting cycles to concentrate on new, more-strategic business goals, giving these companies a competitive edge.
Performance Management Solutions for Speed, Control, Compliance
The key to navigating this seemingly impassable crossroad lies in performance management software systems, and the efficiency these systems lend to their customers' workflow processes. A recent BusinessObjects-BPM Magazine survey found business performance management (BPM) features crucial in helping companies to close fast – with confidence in the accuracy of their financial reports.
Leading performance management solutions, such as the fully integrated Business Objects EPM suite, enable organizations to address compliance requirements such as financial transparency, standardization and corporate governance while facilitating the timely completion of accounting cycles. They do this by successfully integrating an organization's reporting systems, boosting the speed and overall performance of consolidation, automating time-consuming manual activities and process bottlenecks, and getting the right information to right people at the right time. Companies like Nissan, Roche and Société Générale have all made significant improvements to their closing cycles – in some cases, by as much as 75% – with the help of Business Objects EPM solutions.
The key is integrated systems that unify people, processes and data to give both a complete view of the business and cut time out of the cycles. This allows more time for analysis and better decision-making. Gartner's Nigel Rayner recently highlighted the struggle CFOs face with respect to this when, in a recent report titled "CFO Finance System Priorities Through 2009," he said, "CFOs must continue to focus on improving the efficiency and effectiveness of their finance operations to deliver further productivity gains."1
In the same report, he also highlighted the growing complexity of reporting: "As finance moves to the role of strategic advisor to the business, it needs to look at the business more holistically. This means it must understand and identify the factors that drive financial performance rather than just viewing the business in financial terms. Providing this insight means that financial and non-financial data must be accessed and reported in a consistent manner."1
A good performance management solution offers a mix of control and flexibility. It must give the corporation the mechanism to orchestrate, audit and annotate data (and track changes to that data), yet also allow all divisions and operating units the flexibility to run operations in a way that makes sense to their business and deliver this new depth of financial and non-financial information to which Gartner refers.
New barriers to the fast close now exist, and companies that fail to build highly integrated, automated and sustainable close processes will ultimately spend more time on them and subsequently less time on value-added analysis. The successful implementation of an EPM system provides the foundation on which these sustainable processes can be built.
1Gartner RAS Core Research Note G00142575, Nigel Rayner, 24 August 2006
Source: James Fisher, Director of Product Marketing for EPM, Business Objects
A recent addition to Business Objects, James Fisher formerly ran product marketing for Cartesis' Financial Management and Compliance applications including Cartesis Finance, Cartesis Intercompany and Cartesis Governance. With over 10 years experience in the enterprise group reporting and performance management industry, he held previous EMEA marketing and consulting roles at PricewaterhouseCoopers and KPMG.
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