Why Finance and Accounting Must Transform
In many organizations, the office of finance is increasingly entrusted with managing business performance. The focus is on high-quality data to develop more accurate forecasts, quickly seize opportunities and/or reduce business risks. Being able to draw on fast-changing internal sales and financial information gives companies with strategic, modern finance organizations a digital edge over the competition.
To act as stewards of business information and decision support, modern finance organizations need to liberate their professionals from performing manual, spreadsheet-based processes. Enterprise resource planning (ERP) software provides a step along this path, but has its limits. Most organizations must still rely on spreadsheets and hours and hours of manual labor to plug the information gaps left by ERP systems.
Meanwhile businesses shackled with inefficient finance processes will struggle to recruit and retain the skilled it needs to achieve a fast accurate financial close. Automation can address all of these issues.
Tying Up the Loose Ends for Modern Finance
ERP systems allow finance staff to collect, manage and track business and financial data. The underlying problem, however, is that ERP systems verify journal entries, sub-ledger tie outs and other complex transactional information; they do not validate this data for the financial close.
There is a significant difference between data verification and validation. In the post-Sarbanes-Oxley era, an accurate and fully validated close is of paramount importance. ERP systems are terrific at verifying if, for example, the accounts payables sub-ledger agrees with the accounts payables general ledger (GL) balance, or the inventory sub-ledger agrees with the inventory GL balance.
Unfortunately, they come up short when it comes to the most crucial needâvalidating the balances for compliance purposes. To do this, businesses have to manually access, measure and reproduce numerous multi-line-item spreadsheetsâan exhausting and frustrating undertaking prone to error. Spreadsheets in use by multiple peopleâall adding and deleting details as time progressesâalso create version control and data integrity risks.
The Status Quo is Untenable
Preparing the balance sheet as part of the organization's financial reports is one of the most pressing responsibilities of finance and accounting, but also one of the most labor-intensive. It is just one of the data collection and reconciliation challenges that prevent accountants from doing more purposeful work. Here are a few more:
1. Account reconciliations. To produce general ledgers that can contain thousands of balance sheet accounts, finance teams often have to evaluate an endless amount of spreadsheets, many of which are complex and contain multiple tabs and calculations. Particularly in growing companies, the task becomes even more difficult to track as accounts are added or deleted over time.
2. Journal entries. With multiple ERP systems in use among larger organizations, the documentation to support journal entries are often scanned and saved in different formats, while others might be printed out. There is often no visibility into this information for tracking and verification purposes. Errors are common, requiring time to correct the mistakes and creating inefficiencies.
3. Task management. Corporate and departmental checklists are a mainstay of the finance function. Accountants physically compile these lists using spreadsheets to manage different responsibilities such as managing the month-end close, internal controls and reporting. Inconsistent manual processes increase the risk of human error and can affect the timeliness of the financial statements and the accuracy of the balance sheet and profit and loss statement.
4. Transaction matching. To ensure the balance sheet is correct, accountants must compare general ledger account balances with myriad data sources such as bank statements and high-volume transactional data from a credit card processor. In many multinational businesses, dozens of accountants must manually sift through thousands of balance sheet accounts across multiple entities' charts of accounts.
5. Intercompany transactions. Few manual finance processes are as demanding as the need to account for, reconcile and settle intercompany transactionsâdealings between two or more associated entities within an enterprise filing a consolidated tax return or financial statement. Various entities may produce hundreds of thousands of transactions in a wide range of currencies in different ways, using diverse systems that entail dissimilar processes. Since these entities are located across the world, the transactions often are subject to myriad tax treatments. If a company has multiple ERP systems, the risk of disconnected transaction settlements and out-of-balance positions material to organization's financial statements is significant. From a reporting standpoint, intercompany transactions are prone to human error, especially for businesses challenged by immense data volumes, non-standard procedures and/or inferior automation.
By automating these manual accounting processes, accountants will be liberated from the rote, manual tasks that consume most of their days, affording them the opportunity to be more strategic partners; gain greater control around compliance and reporting; and acquire immediate visibility into performance, informing strategic and tactical decision-making to improve competitive standing.
This is the âmodern financeâ movement. Freed from manually handling routine transactions, accountants can provide forward-looking guidance to generate innovation, achieve market differentiation and accelerate business growth.
In an era of all-too-frequent accounting scandals and financial reporting restatementsâparticularly those caused by human mistakesâautomated finance systems can minimize such risks by delivering unparalleled visibility into transactional and performance data can minimize such risks.
In short, the modern finance movement is increasingly becoming a competitive differentiator.
Susan Parcells, CPA, is the director of finance transformation for finance controls and automation software company BlackLine.