kpmg article reporting for duty assoc financial professionals march2011

44 I AFP Exchange March 2011

FP&A

Speeding up the close and reporting cycle

ReportingDutyfor

Dee Hlawek, Ted Moriates and Bill Dailey

Despite increased financial reporting complexity and require-ments, companies are closing and consolidating faster, and even more are setting aggressive goals to shorten the Record-To-Report (R2R) process. Companies that do not accelerate their process could be at a strategic disadvantage, but perhaps surprisingly, achieving results can be relatively painless when taking a well-planned, analytical, and comprehensive approach.

The record-to-report processThe R2R process includes the monthly activities for closing the ledgers,

consolidating the financial data, and reporting internally and externally to the public and regulatory entities (see Figure 1 for key elements in the R2R process). According to KPMG research, leading companies typically close in less than five days, consolidate in about two days, and distribute management reports in another three to five days, for a total of 10-15 days.

The complex dependencies and large number of inputs often make the R2R process challenging for many organizations. One or two data sources (e.g., SG&A allocation, etc.) can hold up the process or compromise the quality of the outputs. Often, companies do not have adequate time for meaningful analysis during the process, and identifying and correcting root causes during and even after the close and consolidation process can also be challenging. In addition, many companies struggle with tax provision preparation, as this process often has not been automated.

However, companies are making strides in the close and reporting area compared to a few years ago. Moreover, many more companies

Copyright 2011 by the Association for Financial Professionals. All rights reserved in all countries.

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want to achieve these results. According to KPMGs 2010 benchmarking survey on the R2R process, 36 percent of the companies surveyed closed and consolidated in six days or less, compared to 24 percent of companies in 2006 (Figure 2). In addition, 62 percent of the companies in KPMGs 2010 survey have established goals to close and consolidate in six days or less; currently, only 36 percent of companies surveyed close within that timeframe.

Strategic advantages of a fast R2R processThe financial close process is hardly a new issue, so why are

so many companies now making it a priority improvement area? Companies realize that there are tangible benefits to a short close, consolidation, and reporting cycle. The sooner a company closes the books and issues financial reports at month-end, the sooner management can act on the information to change current business directions and adjust short-term and longer-term plans. Information is power. Companies can be at a competitive disadvantage if management does not receive

Figure 1: The R2R Process and Its Key Elements

Time for Processing Cycle

Time for Close Cycle

Time for Consolidation Cycle

Time for Reporting Cycle

Accounts Payable

Accounts Receivable

Payroll

Fixed Assets

G/L Accounting

Expense Processing

General LedgerClose

Non-FinancialInformation

ConsolidationProcess

Close, Consolidate and Report Cycle

Internal Reporting

External Reporting

Regulatory Reporting

Controls

Organization and People (e.g. structure, roles, responibilities)

Process (e.g. policies, procedures, governance)

Information Systems/Technology

Figure 2: Percentage of Companies that Close and Consolidate in 6 Days or Less (Comparisons among 2006 survey, 2010 survey, and 2010 future goals)

Source: 2006 and 2010 KPMG R2R Surveys

70%

60%

50%

40%

30%

20%

10%

0%

24%

36%

62%

2006 Survey 2010 Survey Future Goals (Current State)


46 I AFP Exchange March 2011

FP&A

complete, accurate, and timely reporting data to act upon.

In addition, as soon as the finance department is done with the close, the same resources can be deployed for deeper analysis to support the business units. By issuing monthly reports in less time, finance will have the capacity to partner with operations in making strategic business decisions in areas such as mergers and acquisitions, product line upgrades, investments, and process reengineering. Thus, the finance department can be elevated from numbers cruncher to strategic business partner.

Also, a faster close does not mean sacrificing quality. Management often has many ah-ha moments after they take the time to review the close, consolidation, and reporting processes. Indeed, the R2R process touches almost all internal departments, and a close examination of the process could uncover opportunities to be more effective and efficient across the

entire organization. Moreover, the R2R comprehensive review is an opportunity to ensure that a single version of truth is used to analyze and evaluate company performance by all departments.

The R2R transformation journey

Although transforming the R2R process may seem daunting, there are proven techniques companies have employed to drive effectiveness and efficiency outcomes in the process. However, before improvements can be made, the first step is to evaluate the companys current process to understand where the shortfalls exist and where improvements can be made. Some of the most common ways to start the transformation include: Conductingall-handsworkshops

to identify close and reporting opportunities;

Launchingassessmentprojectsled by small core teams, involving process and dependency analysis,

Source: 2010 KPMG R2R Survey

Figure 3: R2R Current State vs. Future Goals Comparison

100%

80%

60%

40%

20%

0% Close and Close and Close within Management report consolidate in consolidate in 10 days completion in 6 days or less 3 days or less less than 5 additional days

36%

62%

4%

21%

76%

94%

60%

74%

Current state

Future state

A Corporates R2R PerspectiveSteven StellatoController, Energy Transfer Partners

When I joined Energy Transfer Part-ners, a publicly traded partnership owning and operating a diversified portfolio of energy assets, almost two years ago, one priority was to assess the process of getting data to manage-ment. The company has been growing rapidly, through both construction of assets and through acquisitions, and as part of the expansion and integra-tions we wanted to eliminate redundan-cies and speed the close process.

Our organization focuses on continu-ous improvements. After performing an assessment, we realized that there were opportunities to streamline and improve the close process. Based on the assessment, we set a goal to improve the accuracy, timeliness and relevancy of information so business owners can make smarter and timelier business decisions, with the focus of this project on timeliness.

We are now about halfway through the improvement process, and are cur-rently implementing a finance gover-nance tool to better manage the close process. We have already changed the way we report internally, moving from a traditional management book to a scorecard. Moving to a scorecard has resulted in a significant time saving and also provides business owners more relevant information. We have also reduced time in the process sim-ply by enforcing an earlier close date, and changing inefficient behaviors.

The changes we have made and are seeking to make will impact both internal and external users of our finan-cial data. In addition to providing data to internal users in a timelier manner, our ultimate goal is to file our financial reports with the SEC faster.

Steven Stellato is Controller for Energy Transfer Partners.


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Figure 4: R2R Leading Practices

Structured process for pre and post close Commonchartofaccountswithalimited

number of departments and accounts Eliminatemanualintervention,where

possible Financialarchitectureintegratedacross

the business Visibilityandtransparencytopto bottom Focusonanalysisvs.transaction processing

Management and control of key account processes

- Automate key activities such as account reconciliation, variance analysis, journal approval, transaction mapping, etc. - Streamline and automate close task management

Effective linking business and accounting operations Clearrolesandresponsibilities Businesssharesresponsibilityfordata

integrity Centralizedcontroloftheconsolidation

environment Continualskillsassessmentand development Earliestpossibleinvolvementofsenior

management

Reporting governance - One version of truth as a goal - Centralized reporting packages pulled from agreed upon data sources by a centralized reporting

group - Report rationalization and formal process to add/delete/change reports

Information when and where needed Seamlessflowofdata Maximizetheuseofautomated approvals Integratedsystems,standardchart of accounts Optimumuseofexistingtechnology (e.g., consolidation tools, account reconciliation tools, etc.) IntegratedfinanceandITvision

Master data governance - Standardize definitions and control changes - Start with chart of accounts and include other areas such as customers, vendors and product items

R2R Leading PracticesProcess Organization Technology

Governance

technology evaluation, and leading practice comparison;

Participatinginexternalsurveystobenchmark a companys own close and consolidation performance with other organizations;

Conductingsurveyswithcompanyleadership and internal customers to identify an organizations crit-ical issues around the close and reporting process and unmet reporting needs, and start discus-sions to address these issues; and

Understandingkeyissuesintheclose, consolidation, and reporting process and determine solutions to address these issues and leveraging finance transformation experts if necessary.

Figure 4 summarizes R2R leading practices in process, organization, and technology. Critical components to successfully transforming the process include having strong senior management support, establishing

and clearly communicating goals, and allocating adequate resources.

Next stepsA key to a successful transformation is identifying and meeting critical milestones. First, companies should try to objectively measure their R2R performance against peers and leading practices. Second, once a company understands how its R2R process compares to peers and leading practices, it should set effectiveness and efficiency goals. It is critical to involve all partiesincluding financial reporting process owners at corporate and divisions, budgeting and forecasting teams, operations, information technology, sales, etc.in the R2R goal-setting process through interviews, focus groups, and workshops.

Without buy-in from all groups into the improvement goals, the transformation program is likely to fail. Teams should also be formed to take

responsibility for individual initiatives designed to achieve the improvement goals. Detailed plans, clear ownership, allocated resources, and a monthly tracking mechanism should be in place to help achieve the desired outcome.

Finally, and very importantly, executive-level sponsorship of this effort should be visible throughout the transformation process.

Dee Hlawek, Manager, Ted Moriates, Manager, and Bill Dailey, Managing Director, are in KPMGs Performance and Technology Group, focusing on financial management issues. They can be reached at [email protected], [email protected], and [email protected],respectively.

The views and opinions are those of the au-thor and do not necessarily represent the views and opinions of KPMG LLP. All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity.


kpmg article reporting for duty assoc financial professionals march2011

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