The auditing function is mission-critical, so the tools supporting it should also be mission-critical. This is the word from GBI CEO Marc Scheepbouwer.
Companies using integrated business performance management applications with their financial transaction systems are more likely to be given a rapid and clean bill of health from their auditors than those which lack such applications.
They will also be better equipped to answer tough questions from their auditors, and they can be assured: in the world post-Enron, WorldCom and Global Crossing, auditors will ask very tough questions. After all, their credibility is as much on the line as is that of the company they are auditing.
Much financial consolidation and reporting today is conducted using Excel spreadsheets, which, capable though they are, cannot be viewed as mission-critical. In experience, up to 50% of companies still use spreadsheets against their general ledger to fulfil their internal and external reporting requirements.
Auditors are required to prove twice: firstly, that the statements they are signing off are accurate; and secondly, that the internal control systems used to create them were correct and entirely above board. The passage of the Sarbanes-Oxley Bill in the US is a clear indication of how executives of large organisations will be held accountable for the accuracy of their financial statements and systems of internal control.
In addition, Standard & Poor has advised it will grade its S&P 500 in terms of companies` financial disclosure and transparency.
Effectively, regulatory and analyst organisations are saying the lines have blurred between intent and incompetence, and that ignorance is no longer an excuse.
Transaction data augmented by multiple spreadsheets (with inevitable errors, redundancies and duplication of effort) is not an ideal way in which to address this situation.
Business performance management (BPM) solutions when applied to the financial process can yield extraordinary benefits. They can be used for financial consolidation, including budgeting, planning and forecasting; query and analysis; reporting - internal and external, management, shareholder and regulatory; and scorecarding.
Of enormous importance for companies considering such an approach is the fact that it can all run off one integrated business intelligence platform. This has two benefits: on the one hand, it promotes the "single view of the truth" that ensures all managers are working off a common set of figures and assumptions; on the other, it facilitates detailed query and analysis, allowing management to view the business from any angle and to conduct "what-if" scenarios rather than spending all its time preparing budgets which are ignored more often than not.
There`s also the issue of speed. Regulatory requirements - especially for multinationals - are such that companies must report faster than ever before. The US Securities and Exchange Commission, for instance, has passed legislation which will make it mandatory over the next three years for companies to report in 35 days of period closure, rather than the current 45 for quarterly reporting and 60 rather than 90 for annual reporting.
Most CEOs, according to a study conducted by Cap Gemini Ernst & Young (CFOs: Driving Finance Transformation for the 21st Century) want to transform the finance function. However, they find their way blocked by such issues as legacy IT, staff and costs.
Complicating the situation are such issues as the challenge of operating in a sluggish economy; the increased scrutiny of the accounting, reporting and auditing functions; management`s demand for current information that can be acted on immediately; and the relentless need for rapid return on investment.
Of great significance, the Cap Gemini Ernst & Young report cited the Web as a major tool to assist in transformation.
All of this leads to the requirement for proper BPM systems. BPM is the new wave of financial management, which helps bridge the gap between strategy and execution and makes financial reporting a logical and coherent extension of the overall business process.
BPM embraces all aspects of business activity: setting of goals, modelling, planning, monitoring, analysis and reporting, and all from a single view of the truth.
With BPM in place, auditors will not only be able to sign off their audits much faster than before, but also rely on the internal systems of control. As a result, if internal control appears unreliable, then the audit is tougher.
Ultimately, BPM will not be as much about choice as it will be about compulsion: companies which don`t embark on BPM initiatives will struggle to report correctly and accurately, and their auditors will find it more difficult to sign off their audits. And, as the record shows over the last two years, we all know where THAT slippery slope leads.
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