FINANCE

Home > Finance > Why faster compliance means higher performance

---

Why faster compliance means higher performance

June 5, 2007

Sarbanes-Oxley has been with us since 2002. Yet the pressure for renewed financial consolidation systems continues to build.

A recent article in CFO magazine, citing research by Glass, Lewis & Co., said that "U.S. public companies made a record 1,420 restatements overall last year...The 2006 total – more than 12 times higher than in 1997 – now represents 1 of every 10 public companies."¹

In Europe, the EU Transparency Obligations Directive came into force in January 2007 and requires all listed companies to produce additional management statements twice a year, on top of existing annual and semi-annual reports.

In the UK, these new reporting requirements will force nearly nine out of 10 listed companies to produce extra reports, according to a survey by Deloitte. Indeed, 86% of listed companies will need to increase their performance reporting to comply with the new rules.²

Consolidation is a core process

To meet these demanding requirements, more effective financial consolidation processes are essential. Consolidation creates an enterprise-level view of financial information for an external community of regulators, shareholders, and financial analysts.

Consolidation is also at the core of effective performance management, offering insights to management about how the business is performing.

Consolidation is the one process that is designed to deliver a single financial view of the company.

It must meet auditable standards and provide a clear trail back to data sources. Yet in the current global business environment, consolidation and reporting are extremely challenging.

Complexity, spreadsheets make consolidation a difficult task

Business models are increasingly complex. Mergers and acquisitions result in disparate systems and multiple business models to report against. Tax strategies and globalization create multiple statutory and regulatory requirements, adding to the complexity.

For many companies, consolidation is made difficult by the use of inadequate manual processes, or multiple systems that cannot communicate with each other.

And yet surprisingly, the majority of organizations still use spreadsheets to perform the bulk of the work in closing and consolidation.

While spreadsheets are useful for many tasks, they are no longer adequate for large-scale data management and processing.

As a result, finance executives are unable to structure and control the process for internal and external reporting, or gain a single, accurate view of financial results.

With the help of the right technology, however, finance officials could perform many of their traditional duties significantly faster.

And they could free themselves to spend more time on value-adding activities such as analysis and decision support, instead of on the mechanics of collecting and manipulating data.

Automation the first step to a better process

IBM Cognos 8 Controller 8.2 enables finance teams to automate the entire close process, from data collection to financial consolidation to output.

The system follows an application approach, delivered through menus, parameters and checklists, requiring neither extensive development nor costly programming.

IBM Cognos 8 Controller 8.2 consolidates multiple, diverse ledgers representing thousands of operating units and accounts into a common chart-of-accounts structure.

It reduces close cycle times and provides a single, accurate view of corporate information, significantly reducing the risk of financial reporting errors.

As organizations seek to introduce greater efficiency and quality control into the consolidation process, internal controls are critical to guaranteeing accuracy and confidence in the numbers.

Data lineage is of paramount concern

Knowing the "data lineage" – the who, what, when, where, and why – of data is of paramount concern to Finance. In this respect, IBM Cognos 8 Controller 8.2 marks a distinct improvement over its predecessor.

"Data lineage is very important," explains Delbert Krause, Director of Performance Management – Product Marketing with Cognos.

"So we built in the ability to track data – the origin, the date and time, who was responsible for accessing and processing it."

"We can track the original data source value as well as any changes. For audit and control purposes, it's necessary to be able to prove what the old structure was like, when it changed, who changed it and why."

Three guiding principles

Krause also emphasized the importance of three underlying principles that have guided the development of IBM Cognos 8 Controller 8.2: 1) Finance managed 2) Built-in best practices, and 3) Linked to a world-class performance management system.

• Managed by Finance:Controller 8.2. can be managed directly by Finance. There is no coding, scripting, or complex language to create and test. Finance users can make their own amendments to entities, account details, or organizational structures.
• Best practices functionality: All financial consolidation and regulatory functionality needed to support local, regional, or global requirements are built directly into the product. Plus, it includes more than 200 pre-configured reports, which are available automatically at key stages of the close process.
• Linked to a performance management system: IBM Cognos 8 Controller 8.2 is seamlessly integrated with IBM Cognos 8 Planning and IBM Cognos 8 Business Intelligence, enabling performance processes to be integrated at the data, security and process level.

Summary

Regulatory compliance and effective performance management are both essential for business success.

And with the right tools, these two missions can be mutually supportive. Accurate financials can bring clarity to operational issues. Streamlined processes can speed decision making, even as they provide greater financial transparency.

IBM Cognos 8 Controller 8.2 is a solution that helps companies comply with emerging regulatory requirements even as it supports stronger performance management through better integration with enterprise BI and planning.

Find Out More Tell me more about IBM Cognos 8 Controller 8.2

---

Sources

¹ Roy Harris, Say Again?, CFO, April, 2007.

² Philip Smith, EU interim rules add to report burden – Nine out of 10 plcs require extra statements, Accountancy, February 16, 2007