The last mile in financial reporting - The next big thing
Guest post by
Anand Balakrishnan, Principal Consultant, Infosys
ERP system have been adopted by over 90% of the global fortune 100 companies and 75% of fortune 500 corporates to handle the various facets of their operations. In the financial accounting space, while these companies have focused on the back office processing of records and generation of preliminary financials (P&L and Balance Sheets) a very small number of companies have any sort of automation in the last mile, namely generating the quarterly and annual financial statements that need to be submitted to varied set of external agencies including regulators, lenders and the street.
The upfront processing of financial records including generation of the consolidated financial statements use a high degree of automation and are tightly integrated with upstream transactional systems. The automation, integration and inherent checks and balances in ERP and financial consolidation systems provide a higher degree of confidence on the accuracy of financial information and helps reduce the time to close.
But on a quarterly and annual basis, the close process entails a number of additional activities not limited to
- reconciling key accounts,
- collaboration on generation of disclosures,
- incorporating commentaries and observations,
- incorporating non-financial indicators,
- repurposing financials based on the needs of the stakeholders, and finally
- generating and delivering information to each of the external agencies
These additional activities that are performed after the consolidated financials are generated but prior to them being reported to the outside world is often termed as "the last mile".
The current challenges in the last mile have resulted in a high cost of compliance to companies with a number of companies employing between 5 to 10 FTEs for 15 to 45 days to complete the various activities associated with generating quarterly and annual reports.
From the early 2000s, two separate but closely related trends have emerged to help make financial reporting more consistent across the globe. The emergence and adoption of IFRS that seeks to bring about consistencies in accounting treatment; and XBRL reporting which has slowly been gaining acceptance as a new standard for digitized reporting incorporates taxonomies that aim to standardize how financial information is reported. The primary benefit that XBRL seeks to bring is to simplify reporting and standardize reading and analyzing of electronic financial information by other systems.
In 2009 the SEC in the US, prescribed a timetable for entities to report financials as per XBRL. While XBRL has been gaining more global adoption, there is still a lot that remains to be done.
The focus on the last mile is the next big thing in financial reporting. The challenges that need to be addressed in the last mile can be broadly categorized into
- Integrating the various last mile activities
- Integrating the activities performed in the last mile with the upstream activities.
The future of external financial reporting entails a number of integration touch points... we are excited to see how this develops.