FP&A

Reporting for Duty

Speeding up the close and reporting cycle
espite increased nancial reporting complexity and requirements, companies are closing and consolidating faster, and even more are setting aggressive goals to shorten the RecordTo-Report (R2R) process. Companies that do not accelerate their process could be at a strategic disadvantage, but perhaps surprisingly, achieving results can be relatively painless when taking a well-planned, analytical, and comprehensive approach. The record-to-report process The R2R process includes the monthly activities for closing the ledgers, consolidating the nancial data, and reporting internally and externally to the public and regulatory entities (see Figure 1 for key elements in the R2R process). According to KPMG research, leading companies typically close in less than ve days, consolidate in about two days, and distribute management reports in another three to ve days, for a total of 10-15 days. The complex dependencies and large number of inputs often make the R2R process challenging for many organizations. One or two data sources (e.g., SG&A allocation, etc.) can hold up the process or compromise the quality of the outputs. Often, companies do not have adequate time for meaningful analysis during the process, and identifying and correcting root causes during and even after the close and consolidation process can also be challenging. In addition, many companies struggle with tax provision preparation, as this process often has not been automated. However, companies are making strides in the close and reporting area compared to a few years ago. Moreover, many more companies
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Dee Hlawek, Ted Moriates and Bill Dailey

Figure 1: The R2R Process and Its Key Elements Close, Consolidate and Report Cycle Time for Processing Cycle Accounts Payable Accounts Receivable Payroll Fixed Assets G/L Accounting Expense Processing Controls Organization and People (e.g. structure, roles, responibilities) Process (e.g. policies, procedures, governance) Information Systems/Technology Non-Financial Information General Ledger Close Consolidation Process Internal Reporting Time for Close Cycle Time for Consolidation Cycle Time for Reporting Cycle

External Reporting

Regulatory Reporting

want to achieve these results. According to KPMGs 2010 benchmarking survey on the R2R process, 36 percent of the companies surveyed closed and consolidated in six days or less, compared to 24 percent of companies in 2006 (Figure 2). In addition, 62 percent of the companies in KPMGs 2010 survey have established goals to close and consolidate in six days or less; currently, only 36 percent of companies surveyed close within that timeframe.

Figure 2: Percentage of Companies that Close and Consolidate in 6 Days or Less (Comparisons among 2006 survey, 2010 survey, and 2010 future goals)

70% 60% 50%

62%

Strategic advantages of a fast R2R process 40% The nancial close process is hardly a new issue, so why are 36% 30% so many companies now making it a priority improvement area? Companies realize that there are tangible benets to a 24% 20% short close, consolidation, and reporting cycle. The sooner a company closes the books and issues nancial reports at month10% end, the sooner management can act on the information to change current business directions and adjust short-term and 0% 2006 Survey 2010 Survey longer-term plans. Information is power. Companies can be (Current State) at a competitive disadvantage if management does not receive Source: 2006 and 2010 KPMG R2R Surveys

Future Goals

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FP&A

A Corporates R2R Perspective

Steven Stellato Controller, Energy Transfer Partners When I joined Energy Transfer Partners, a publicly traded partnership owning and operating a diversied portfolio of energy assets, almost two years ago, one priority was to assess the process of getting data to management. The company has been growing rapidly, through both construction of assets and through acquisitions, and as part of the expansion and integrations we wanted to eliminate redundancies and speed the close process. Our organization focuses on continuous improvements. After performing an assessment, we realized that there were opportunities to streamline and improve the close process. Based on the assessment, we set a goal to improve the accuracy, timeliness and relevancy of information so business owners can make smarter and timelier business decisions, with the focus of this project on timeliness. We are now about halfway through the improvement process, and are currently implementing a nance governance tool to better manage the close process. We have already changed the way we report internally, moving from a traditional management book to a scorecard. Moving to a scorecard has resulted in a signicant time saving and also provides business owners more relevant information. We have also reduced time in the process simply by enforcing an earlier close date, and changing inefcient behaviors. The changes we have made and are seeking to make will impact both internal and external users of our nancial data. In addition to providing data to internal users in a timelier manner, our ultimate goal is to le our nancial reports with the SEC faster. Steven Stellato is Controller for Energy Transfer Partners.

complete, accurate, and timely reporting data to act upon. In addition, as soon as the nance department is done with the close, the same resources can be deployed for deeper analysis to support the business units. By issuing monthly reports in less time, nance will have the capacity to partner with operations in making strategic business decisions in areas such as mergers and acquisitions, product line upgrades, investments, and process reengineering. Thus, the nance department can be elevated from numbers cruncher to strategic business partner. Also, a faster close does not mean sacricing quality. Management often has many ah-ha moments after they take the time to review the close, consolidation, and reporting processes. Indeed, the R2R process touches almost all internal departments, and a close examination of the process could uncover opportunities to be more effective and efcient across the

entire organization. Moreover, the R2R comprehensive review is an opportunity to ensure that a single version of truth is used to analyze and evaluate company performance by all departments. The R2R transformation journey Although transforming the R2R process may seem daunting, there are proven techniques companies have employed to drive effectiveness and efciency outcomes in the process. However, before improvements can be made, the rst step is to evaluate the companys current process to understand where the shortfalls exist and where improvements can be made. Some of the most common ways to start the transformation include: Conducting all-hands workshops to identify close and reporting opportunities; Launching assessment projects led by small core teams, involving process and dependency analysis,

Figure 3: R2R Current State vs. Future Goals Comparison

100%
94%

Current state Future state

80%
76% 74% 60%

60% 40%
36%

62%

20% 0%
4%

21%

Close and Close and Close within consolidate in consolidate in 10 days 6 days or less 3 days or less

Management report completion in less than 5 additional days

Source: 2010 KPMG R2R Survey

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Figure 4: R2R Leading Practices R2R Leading Practices Process

Structured process for pre and post close Common chart of accounts with a limited number of departments and accounts Eliminate manual intervention, where possible Financial architecture integrated across the business Visibility and transparencytop to bottom Focus on analysis vs. transaction processing Management and control of key account processes - Automate key activities such as account reconciliation, variance analysis, journal approval, transaction mapping, etc. - Streamline and automate close task management

Organization
Effective linking business and accounting operations Clear roles and responsibilities Business shares responsibility for data integrity Centralized control of the consolidation environment Continual skills assessment and development Earliest possible involvement of senior management

Technology
Information when and where needed Seamless flow of data Maximize the use of automated approvals Integrated systems, standard chart of accounts Optimum use of existing technology (e.g., consolidation tools, account reconciliation tools, etc.) Integrated finance and IT vision

Governance
Reporting governance - One version of truth as a goal - Centralized reporting packages pulled from agreed upon data sources by a centralized reporting group - Report rationalization and formal process to add/delete/change reports Master data governance - Standardize denitions and control changes - Start with chart of accounts and include other areas such as customers, vendors and product items

technology evaluation, and leading practice comparison; Participating in external surveys to benchmark a companys own close and consolidation performance with other organizations; Conducting surveys with company leadership and internal customers to identify an organizations critical issues around the close and reporting process and unmet reporting needs, and start discussions to address these issues; and Understanding key issues in the close, consolidation, and reporting process and determine solutions to address these issues and leveraging nance transformation experts if necessary. Figure 4 summarizes R2R leading practices in process, organization, and technology. Critical components to successfully transforming the process include having strong senior management support, establishing

and clearly communicating goals, and allocating adequate resources. Next steps A key to a successful transformation is identifying and meeting critical milestones. First, companies should try to objectively measure their R2R performance against peers and leading practices. Second, once a company understands how its R2R process compares to peers and leading practices, it should set effectiveness and efciency goals. It is critical to involve all parties including nancial reporting process owners at corporate and divisions, budgeting and forecasting teams, operations, information technology, sales, etc.in the R2R goal-setting process through interviews, focus groups, and workshops. Without buy-in from all groups into the improvement goals, the transformation program is likely to fail. Teams should also be formed to take

responsibility for individual initiatives designed to achieve the improvement goals. Detailed plans, clear ownership, allocated resources, and a monthly tracking mechanism should be in place to help achieve the desired outcome. Finally, and very importantly, executive-level sponsorship of this effort should be visible throughout the transformation process. Dee Hlawek, Manager, Ted Moriates, Manager, and Bill Dailey, Managing Director, are in KPMGs Performance and Technology Group, focusing on nancial management issues. They can be reached at dhlawek@kpmg.com, tmoriates@kpmg.com, and wdailey@kpmg.com,respectively. The views and opinions are those of the author and do not necessarily represent the views and opinions of KPMG LLP. All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity.
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