By Richard Samir, a member of KPMG`s Hyperion team
Financial management has traditionally been viewed as a string of largely disconnected tasks. The advent of the Internet economy has changed this outlook on business management. Organisations are now faced with shorter decision cycles and the need for all sectors of the business to contribute to the achievement of enterprise-wide goals and objectives.
But this is easier said than done. In addition to the need for unified financial management, regulations such as the Sarbanes-Oxley Act and the IAS 2005 (International Accounting Standard) regulatory framework have placed increased stresses on management. Although the Sarbanes-Oxley Act does not specifically apply to the South African context, finance minister Trevor Manuel has hinted that SA will be guided by international best practice in its approach to corporate governance.
In terms of the Sarbanes-Oxley Act, senior management is now required to report on the efficacy of the control environment pertaining to business operations. The Act clearly states in Section 404, that responsibility for "establishing and maintaining an adequate internal control structure and procedures for financial reporting" rests with management.
Auditors also don`t get off lightly, and are required to report on the assessment made by management of the internal control environment.
IAS 2005 has a particular bearing on South African listed organisations. In terms of this new standard, all listed companies in SA will have to comply with IAS from 1 January 2005 onwards. This also means that they will have to show comparative figures for the previous year, and effectively means they will have to run their financial reporting under the new rules from 1 January 2004.
Few accounting and reporting packages offer management the means to conclusively report in terms of Section 404 without some sort of creative thinking.
Per KPMG Information Risk Management partner, Ron Stuart: "The [Sarbanes-Oxley] Act is onerous and we are only in the infancy in terms of what it actually requires of management. Indeed, there are few products out there that can assist with the management reporting criteria as prescribed in the Act." Stuart adds: "In our experience, Hyperion Financial Management goes a long way in this regard."
But does Hyperion meet the needs of the Sarbanes-Oxley Act?
The table below summarises the more stringent requirements of the Act and the related Hyperion functionality.
Requirements of the Sarbanes-Oxley Act
Hyperion Financial Management features
Section 302 - The CEO and CFO must certify:
1. They have reviewed the quarterly or annual report.
2. The report fairly represents the company`s financial position.
3. They are responsible for disclosure controls and procedures.
4. They have evaluated the effectiveness of the controls and procedures within 90 days of the report.
5. They have disclosed any weaknesses or changes in the controls to external auditors.
Hyperion Financial Management has features to ensure that all submissions are completely loaded, reviewed, approved and electronically signed off prior to consolidation and reporting.
All submissions contain an audit trail of the approve/reject process with commentary.
CEOs, CFOs and their management team can see for themselves that all submissions have been reviewed and approved from the lowest level throughout the management hierarchy prior to signing off on the consolidated results.
Section 404 - Internal Control Report and External Auditor Attestation
1. Each annual report must contain an internal control report.
2. The internal control report requires a company`s external auditor to attest to management`s assertions about internal controls and procedures for financial reporting.
Hyperion Financial Management is fully compliant with South African GAAP, international accounting standards and other local statutory requirements for financial consolidation and reporting.
Controls that prevent or detect errors can be added to the system to ensure completeness and accuracy during the financial consolidation reporting cycle.
Improved timeliness, automated detection controls (including e-mail alerts) and mandatory review and approval procedures reduce control risk and increase the likelihood of an unqualified external audit.
Furthermore, Hyperion Financial Management complies with IT standards for mission-critical data, including SSL, embedded Win2K Domain security, LDAP, RDBMS mirroring and more.
Section 401 - Conditions for Use of Non-GAAP (pro forma) Financial Measures
Regulation G requires public companies that release non-GAAP financial measures to include a presentation of the most directly comparable GAAP financial measure and a reconciliation of the disclosed non-GAAP financial measure to the most directly comparable GAAP financial measure.
Hyperion Financial Management is built to handle multiple organisational hierarchies and multiple charts of accounts to make Regulation G reconciliations an automatic process.
Hyperion Financial Management is a Web-based application that unifies actual results, forecasts, budgets and key performance measures into a single, scalable application. The product is supported by Global Business Technologies, Business Intelligence Unit and KPMG.
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