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• Local close. Preparation is key for coordinating a Interviewees stress the value of
smooth close across widely dispersed reporting entities. “knowing where we are,” in addition to
Standardizing formats and processes, even if different
financial reporting systems are still in use, helps get
lowering costs and meeting deadlines.
“everyone on the same page.” The goal is to reduce the
level of manual intervention needed for reconciliation In addition, letting the finance staff focus more of its time on
while still allowing the local organization to meet local what it does best enhances the quality of the finance function
statutory requirements. itself. V. Balakrishnan, the CFO of Indian software multinational
Infosys, says, “A high-quality workforce, which focuses more
• Group consolidation and close. Having a “common on the high-end aspects and does not do traditional transac-
language” for reporting across the enterprise provides tion work, helps to build a good finance team that can last for
greater control over the data, ensures data quality, and a long time.” Similarly, Neil Freshwater, CFO at the UK finan-
improves responsiveness. Automating closing activities cial services firm Catlin, says he believes that his company
and standardizing financial systems provide substantial will get better value out of “freeing up more [finance] time in
advantages in terms of implementing a high-quality the process, so that the balance between production, analysis,
close. Multinational companies can also benefit by and understanding the numbers shifts and we have more time
actively monitoring regulatory discussions so that they to really get into the numbers.”
can be prepared to respond with the least
amount of disruption to data collection, preparation, Simply installing the technology is not enough, however—
and reporting processes. just as critical is changing the company culture and people’s
mindsets so different groups work together better and take
• The “last mile”: Post-close activities. Keeping in close ownership of financial results. In the end, it is the people
communication with both auditors and regulators is who will make the system work better, as well as the system
important for reducing the time spent resolving unan- that allows the people to work better. In describing how they
ticipated issues or unclear interpretations of reporting moved from a spreadsheet culture to a fast and efficient
requirements. automated process, several of the interviewees stress the
importance of getting everyone on board with the need to
The interviewees also cite the value-added benefits their change and the intensive training at all levels that allowed
companies derive from accelerating the close cycle, beyond them to be successful.
simply lowering costs and complying with reporting and
filing deadlines. Interviewees stress the value of “knowing
where we are.”
1
Data cited from Close Cycle Rankings 2009: Top 30 Country and Industry
Rankings, BPM International, 2009, http://www.bpm-international.com/
close2009.html. Averages calculated and analysis provided by CFO Research.
Financial disruption 20 20 26 17 63 19
Organizational disruption 7 10 3 5 3 1
Errors 16 13 8 17 5 4
Financial disruption: Bankruptcy, litigation, contingency, non-compliance of credit agreement; going concern or
financial difficulty matters; funding/re-financing, administer/extend/amend credit agreement, capital restructuring, obtain waiver
Organizational disruption: Reorganizations, restructurings and/or disposals, change or dissolution of business
Errors: Discrepancies or errors discovered
Source: Audit Analytics, www.auditanalytics.com
In fact, the number of U.S. companies that failed to meet the and information systems across their reporting units, and
year-end filing deadline has always been relatively small, and have revised their close processes to reduce manual inter-
has been decreasing substantially since 2004. (See Table 1.) vention, eliminate redundancy and rework, and streamline
The general reason cited most often for late filings is simply and standardize reporting. These CFOs also stress that their
“insufficient time.” A look at specific reasons cited in Table 1 companies are proactive in anticipating and planning for
shows a spike in 2008 in the number of companies missing changes in reporting standards and requirements.
the deadline due to financial disruption (bankruptcy, funding
issues, etc.)—most likely a legacy of the global recession. The Other interviewees come from companies at different stages
number of companies citing outright errors as the cause of a of automating and streamlining their close processes to
late filing has persistently been very small. reduce cycle time and improve data quality. They include a
company that has completed a successful “fast close” initia-
Sources interviewed for this report are at different stages tive (Roche in Switzerland) and companies that are in the
in their financial close process optimization, ranging from process of transitioning from a spreadsheet culture to enter-
best-practice levels of two to three days to consolidate their prise systems (Catlin in the UK and IDT Telecom in the
numbers for quarterly and year-end financial close, to more United States). Two power companies in Brazil—Cemig and
than three weeks. Interviewees provided these estimates for AES Brazil (the subsidiary of a large U.S. power company)—
their internal closes in which they collect and consolidate data are at similar stages of standardizing their financial processes
from local financial reporting. Post-close activities—manage- and optimizing automation in their closing cycles. We also
ment review and sign-off of the consolidated figures, annota- interviewed the CFO of a private company that still relies
tion, audit, and report preparation—can add two weeks to a exclusively on the manipulation of hundreds of spreadsheets
month or more until financial results are published, the inter- to consolidate its numbers each month and generate manage-
viewees say. ment reports, but which is starting to look ahead to the time
when it can fund its automation initiative.
The companies represented in the interviews we conducted
for this report also represent different types of business
models (see “Different directions, the same destination:
Faster, higher-quality closes”), and are at different levels of
close cycle automation. Some of these companies already
have years of experience working with a fully automated
enterprise system in rapidly fluctuating markets, both at the
group level (Rossi Residencial in Brazil, Infosys in India) and
at the local level, with reporting responsibility to a distant
parent (Tesco Property in China). The sources from these
companies describe how they have integrated their financial
The CFO brings up the challenges to an efficient and Integrating the different units’ financial systems
accurate close that are posed by the company’s reli- would also let finance “get back to actually doing
ance on spreadsheets to record and report financial some of the things a world-class finance organiza-
information. “Everything comes together using tion should do,” says our source. “That means a lot
Excel spreadsheets,” he says, “even though we use less of accessing data, manipulating data, and do-
the accounting software for accepting journal entries ing journal entries, and a lot more of being the plan-
and keeping track of everything by account—all the ner, the thinker, the business partner for the general
details. But even though the Canadians can close managers in the locations that they serve.”
quickly and are on our calendar, they’re not on our
financial system. So they send us an Excel file using “My team wants to be users of the data, not just
standardized formats, and that gets combined with generators of the data,” he concludes.
the U.S. file. The European operation and the South
American operation all send in Excel files as well. We
then take that information and dump it into an Excel
file, which is used by our consolidation guys to marry
up all the domestic detail. We do our elimination
entries, currency conversion, and everything in Excel.”
Mr. Schneider explains how automating the rollups from the Standardizing data collection
local closes as part of Roche’s Fast Close initiative allowed processes and accounting standards
the company to shorten its cycle: “All the affiliates have to
report on workday three, at 6 p.m. local time. So everybody
among different companies is central
has the same amount of time available to do the local close. to efficiency gains, according to the
This means, of course, that the companies in Asia are already
CFO of a Brazilian utility.
starting to report here in Switzerland on the morning of
workday three. The European companies report basically at 6
p.m. our time, and then the Latin American companies, U.S. Due to legacy issues, AES Brazil still employs a separate
and Canada, and so on—they’re reporting during the night. ERP system at each of its three Brazilian reporting enti-
With our automatic consolidation, once all the companies ties, which increases the work required for consolidation.
are in we can start our work on the morning of workday four Mr. Pecchio notes that the consolidation and close process
with the full consolidation available.” could be improved by integrating the systems, but, he warns,
“just installing a different version of the system with the
At IDT, Mr. Fischer believes that having everybody on the same processes doesn’t help you much. You have to take the
same system is key to improving the close process. “Any opportunity to revise the process.”
multinational or complex corporation that wants to work
on improving the closing processes should select an appro- Standardizing data collection processes and accounting stan-
priate ERP system,” he says. “Then they will have to make the dards among the different companies is central to efficiency
investment in both resources and capital to roll out that ERP gains, believes Mr. Rolla at Cemig. “We are optimizing this
system across their various entities within their consolidated process in order to reduce the time spent preparing the
group. This usually is time-consuming because, for example, information, in each company,” he says. “We are reviewing
different countries may require specialized customizations the process of cutting certain activities that can be done in
of the basic ERP system to accommodate the local statutory parallel and so reducing the total [time].”
and/or regulatory requirements.”
Mr. Fischer at IDT talks about the importance of taking a
“We have an ongoing rollout of our large system integra- holistic view across the enterprise, not just concentrating on
tion, with the goal of moving all of our foreign divisions and the individual pieces: “The key is not to look at any specific
subsidiaries into one consolidated ERP system,” Mr. Fischer location implementation on an isolated basis. We look at
says. “As part of that, we have to customize our ERP software each entity within our consolidated group as an individual
for certain countries—for example, France, Spain, Italy, and organ, part of the bigger body that shares information and
Mr. Fischer acknowledges the effort that is required to make Automating interfaces, adopting a
these kinds of changes. “The local units will have to get “common language,” and anticipating
adjusted to using the new financial package, which currently
they are not familiar with,” he explains. “The local divisions
change are important for optimizing
will also need to adjust to the fact that the new system is group consolidation and close
often more time-consuming or the user interface often not
processes, say interviewees.
as friendly, simply because it’s more robust, so it requires
more-detailed data inputs or more-detailed process steps
to be done at the local level, before it can automatically roll
up and facilitate the work at the group level.” Consequently, Although the early close allows Catlin to report results from its
employee acceptance and training are significant require- “hard” close at year-end faster than its peers, the company plans
ments in successfully implementing an ERP system rollout, to eliminate the duplication of effort required by this practice
he notes. (which is effectively a dual close). The company is investing
heavily in implementing a leading consolidation software
Integrating local entities into the enterprise system is a package, which Mr. Freshwater says will replace the need to
continuous process, adds Mr. Schneider of Roche: “At the produce the spreadsheet packs they currently prepare manually
local level I would say about 99% of the monthly data that for their group consolidation and CFO sign-off.
we need can be extracted automatically from the underlying
ERP systems, but in the future we see even better integration Underlying the software package are a standard chart of
of our consolidation system. There are still a few data points, accounts and a data model that are consistent across all of the
like headcount, that you do not find in your general ledger, entities. The integrated software being implemented by Catlin
which need to be added.” includes a full forecasting and planning system that will enable
Catlin to improve its ability to manage a rolling forecast and
Group consolidation and close. Automating interfaces ultimately replace the early close process with a robust, well-
with reporting entities and adopting a “common language” controlled hard close, with no surprises. “These initiatives in
enhances control, data quality, and responsiveness, note the progress will create more time for value-added analysis through
interviewees. Just as important is actively anticipating and process improvements and automation,” says Mr. Freshwater.
preparing for change by building flexibility into data collec-
tion, preparation, and reporting processes. Establishing common and flexible standards across all entities,
to the extent possible, also enhances control and adaptability at
Like IDT, Catlin is in the midst of integrating financial the group level. In some cases, companies need make only minor
systems across its units to optimize its closing cycle. Catlin manipulations to conform local closes to the group close. Mr.
operates four underwriting platforms—the Catlin Syndicate Ho at Tesco Property says that the People’s Republic of China
at Lloyd’s, Catlin UK, Catlin Bermuda, and Catlin US—as GAAP is already very close to IFRS, which is the standard used
well as a network of international offices. Currently, Catlin at the group level in Hong Kong. “We just do China ourselves,
runs a monthly close for internal management reporting and then on the Hong Kong level, we do a consolidation,” he
and a full hard close for quarterly external reporting. It runs says. “Then we send it to the UK. Hong Kong probably has to
an early close a month in advance and then “trues up” the do some of adjustment, but not much to fit the UK accounting.”
numbers for the final close, if required.
Mr. Fischer agrees, noting that, even with just partial imple-
mentation of IDT’s integrated financial system rollout, IDT
can more readily form a view of “the entire pie, not just a slice
of the pie.” This gives finance staff a faster and more accurate
understanding of financial and operational performance. “By
accelerating the close process, now we can devote more time
to analyzing the numbers and their implications,” concludes
Mr. Fischer.
For the local close, scheduling tools help you sequence, monitor, and control workflows across your organization, so the entire
closing process progresses efficiently. Solutions from SAP include:
For the group close, solutions help you simplify intercompany reconciliation, perform accurate and timely group consolida-
tions, integrate with source systems, report and analyze, streamline communication with XBRL Reporting, and help ensure
compliance. Solutions from SAP include:
In addition, SAP offers starter kits that help you streamline the installation and exploit the full potential of these applica-
tions. These starter kits help you reduce software implementation times, maximize compliance, and comprehensively address
your company’s business requirements with minimal cost and effort. Starter kits also provide preconfigured IFRS-compliant
content, which can help you speed and smooth the transition process to IFRS.
SAP software has already helped hundreds of customers around the world to accelerate their closing cycles. Like them, you can
use this software—combined with SAP training and consulting services—to achieve the following benefits:
• Speed the closing cycle and reduce the cost of finance and compliance by automating and standardizing workflows
• Remove intercompany reconciliation from the critical path, improving both the speed and accuracy of the closing process
• Maximize productivity, minimize compliance costs, and increase confidence in the results through robust data
collection functionality with integration to source systems
• Minimize closing workload and potential for errors by completing tasks before you start the closing cycle
• Meet new compliance challenges such as IFRS and XBRL
If you would like to know more about how SAP solutions can accelerate your financial close, visit our website at:
http://www.sap.com/solutions/executiveview/finance/accelerate-financial-closes/index.epx
June 2010