Of all the applications that make up enterprise performance management (EPM), financial consolidation is the one that first grabs corporate attention and acts as the spur for further adoption of the EPM suite.
That's because financial consolidation delivers many benefits:
* It reduces the time taken to report: financial consolidation applications can slash closing cycles, allowing the financial team to deliver results on time to internal and external stakeholders.
* It boosts transparency and compliance: given the tight deadlines laid down by Sarbanes-Oxley, to mention one regulatory framework, financial consolidation is critical as it automates labour-intensive processes, reducing costs and ensuring deadlines are met. It also assists with sustainability reporting.
* Strategic analysis: It allows management to cut the time spent on processing repetitive, manual tasks and focus more on value-added analysis.
* Single version of the truth: having just one, unquestioned view of the truth gives the executive the assurance that all financial management and statutory reporting are being done correctly.
* It eases compliance with the requirements of IFRS reporting: South Africa is one of the countries that has followed the International Financial Reporting Standards; the US is one of the last countries to embrace it, finally jettisoning its own US GAAP reporting standard.
Given that financial consolidation is a critical corporate application, it follows then that any company seeking to deploy such an application should apply extreme rigour and caution when choosing one.
This is partly because all vendors will claim to be able to do the job, without being able to live up to these claims.
Choose carefully
To help cut through the vendor-fuelled hype, here is a list of attributes and features to look for. If they're not present in the application, look elsewhere:
* It must seamlessly do currency conversion, automatically translating base-level data from a number of currencies to the currency in use for management and/or statutory reporting.
* The application must easily do inter-company eliminations: in terms of this, companies eliminate transactions between their business units. Users need to be able to enter a company name along with an amount when entering inter-company transactions, so they do not result in internal revenue recognition. The process can be complex, including purchase order, confirmation of purchase, validation of matching transactions, automatic eliminations, and report of any errors. It also needs to cope with a situation where inter-company transactions take place in different local currencies.
Having just one, unquestioned view of the truth gives the executive the assurance that all financial management and statutory reporting are being done correctly.
Adrian van der Merwe is MD of 8th Man Consulting.
* Roll-ups are vital. Typical examples of roll-ups are partial, date-related and alternate. Examples would be: partial - shared costs based on shared services; date-related - allocating costs and revenue based on date of acquisition or merger; and alternate roll-ups are used for different, but parallel reporting requirements, such as IRFS and GAAP.
* The application needs to revolve around workflow. If all financial consolidation processes are enforced through workflow, it will ensure no one steps outside the structure, such as those who like to run their own spreadsheets rather than abide by the new order. Workflow is also a method for tracking which data has arrived, if it's ready to be consolidated, and its origin - manually entered or directly from an ERP or other transactional system.
* Impacted consolidations grow in importance the larger and more complex the business. Consider the example of a multinational brewery with many thousands of line items and multiple roll-up paths. Any change to base-level data would have a major knock-on effect; now, with impacted consolidations, the financial consolidation process takes care of all the details by division, region, line item and entities.
* Finally, financial consolidation never stands on its own - or it shouldn't. A company might find a good financial consolidation application, only to discover that it is standalone and not part of a comprehensive suite of EPM applications. For financial consolidation to reach its full value, it must form part of a full life cycle suite, which includes budgeting, planning and reporting and analysis.
Depending on the complexity and urgency of the business requirement, acquiring and implementing a financial consolidation application might be the most important business decision made.
* Adrian van der Merwe is MD of 8th Man Consulting.
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