FSN White Paper

Cadency
Restoring the Rhythm of Finance to
Balance Sheet Reconciliations through
Certification

FSN Publishing Limited 2013. All rights reserved.

CONTENTS
INTRODUCTION ....................................................................................................................................... 2
TRADITIONAL APPROACHES HAVE NOT SOLVED THE DIFFICULTIES....................................................... 5
Spreadsheets....................................................................................................................................... 5
Specialist reconciliation software ....................................................................................................... 6
HOW CERTIFICATION OVERCOMES THE HISTORIC LIMITATIONS ........................................................... 6
A risk-based approach......................................................................................................................... 6
Automation ......................................................................................................................................... 7
Knowledge management .................................................................................................................... 8
Collaboration....................................................................................................................................... 8
Quality assurance ................................................................................................................................ 8
HOW CERTIFICATION CONTRIBUTES TO SOLVING THE CHALLENGE OF FINANCIAL GOVERNANCE....... 8
Process visibility .................................................................................................................................. 9
Better management of risk and compliance..................................................................................... 10
Quality assurance .............................................................................................................................. 10
SUMMARY ............................................................................................................................................. 10

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INTRODUCTION
The Record to Report (R2R) process is the bedrock of financial reporting, financial risk
management, strategic reporting and decision making. Weaving its way through the entire
organization, the R2R process enables the collection and delivery of trusted information and
is relied upon by internal and external stakeholders to give a true and fair position of the
business. It is the de facto foundation of financial governance.
Nestling within the thousands of tasks and activities comprising the R2R process is the
reconciliation process. It is an unglamorous, highly labour intensive and risk laden
component of the financial close, yet the completeness and accuracy of reconciliations can
have a profound effect on the quality and speed of the entire R2R process. On average, it
takes a company 21 man-days to reconcile and update the chart of accounts, and the
average figure is much higher for companies with international offices (26.8 man-days),
compared to those with just national offices (13.5 man-days)1.
88 percent of companies have experienced delays in their financial close, financial reporting
and filings in the last 12 months and account reconciliation is implicated in 29 percent of the
instances of delay1. Among the companies that have experienced delays, 62 percent say
that the Boards trust in the finance department has been reduced as a result. So it is not
surprising that reconciliations management solutions are a top 3 priority in the finance
function, well ahead of other trends such as cloud computing, mobile technology and social
networking2.
But at the same time, the cost of closing the books has been increasing substantially.
Around a third of companies say that the cost of the R2R cycle has risen over the last 3 years
with an average increase of around 17 percent.
Yet paradoxically, this picture of rising delays and costs comes against the backcloth of
steadily increasing investment in the financial close, reporting and filing. So what is going
wrong?
It is clear that existing approaches to financial governance based on loosely coupled suites
of ERP/CPM applications, spreadsheets and collections of niche applications sourced from
multiple vendors are not delivering the goods.
In this white paper we explain how Certification, a key element of the Cadency financial
governance solution, addresses reconciliation issues in the context of a unified environment
designed to deliver process visibility, control and adaptability to the entire R2R process.

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Dissonance and discord

Reconciliations fall into two main categories, namely, high transaction volume
reconciliations such as local bank reconciliations, and secondly, the more specialised and
intricate reconciliation of balance sheet movements.
Generally speaking, high volume reconciliations are a pre-requisite for an effective period
close in reporting entities, and are not the subject of this white paper. By contrast, general
ledger reconciliations have applicability to both group accounts and reporting entities, and
have a direct bearing on the speed and accuracy of the R2R process.

THE CHALLENGES OF BALANCE SHEET RECONCILIATIONS

With Charts of Accounts running to several

thousand individual lines, many companies find it
challenging to ensure that material errors do not
slip through the net either because accounts are
not reconciled promptly, or, because nobody has
been assigned the responsibility of performing the
reconciliation.
Ask an auditor where one is likely to find problems
during the course of an internal or external audit,
and the answer is likely to be "un-reconciled
accounts". It is quite common for unresolved
balances to be carried from year to year in even
the most well run companies, with only sparse
explanations being recorded to explain away the
differences.

When a global consumer packaged

goods organisation wanted to reduce
its overall cost of finance, record-toreport process efficiency was a key
area of focus. Any deployed solution
had to interface directly with the
companys 4 instances of SAP, and
support more than 2,500 users posting
over 31,000 journal entries during the
close process. The company
implemented a solution that managed
its R2R cycle, allowing it to achieve a
single global Close process that
automates and manages most of the
reconciliation effort. By doing so, the
organisation ensures 100% of Account
Reconciliations are processed
consistently, while reducing risk to the
business.

Leaving general ledger accounts un-reconciled for

a lengthy period of time is generally a bad idea peoples' memories fade over time and tracing errant transactions that make up
reconciliation differences can be onerous and unrewarding. The danger is that un-reconciled
items simply get carried forward from one review period to another, with the detail
becoming more difficult to resolve with the passage of time. This lack of oversight and
balance integrity can lead to significant exposure. Yet few companies have a documented
policy and programme of review, leaving them exposed to risk of error and nasty surprises
at the year end.

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The issue is even more critical for those organisations caught by Sarbanes-Oxley (SOX)
legislation or in heavily regulated industries, such as financial services. Nowadays, noncompliance can lead to hefty fines and reputational damage.
So what are the key challenges with reconciliation?
Scale - for many organisations the sheer scale of the task is off-putting and there is no clear
strategy for deciding which accounts should be reviewed. As a result, experience shows
that many companies review a mere one in fifty active balance sheet accounts.
Administrative burden - Identifying the accounts for review and setting up a rolling
programme of reconciliation in a matrix-based organisation is time consuming.
Lack of automation (workflow and status reporting) - Keeping an eye on reconciliation
progress usually relies on manually intensive processes. For example, an individual can only
reconcile a handful of accounts an hour. The result is that many organisations simply
neglect important reconciliations hoping that other management controls will compensate.
Lack of prioritisation Most companies employ a blanket approach in which all accounts in
the balance sheet are placed on an equal footing and are reviewed on a periodic basis,
leading to misdirected effort and lack of productivity.
Idiosyncrasy - Balance sheet reconciliations are almost by definition idiosyncratic. Bank
account reconciliations are the exception because they lend themselves to a routine
approach, but the position for other general ledger accounts is less obvious. The manner in
which more unusual accounts are reconciled can be highly specific, and often rely on the
knowledge of key individuals within the organisation. The methods used often go
undocumented, making it very difficult to move staff from the reconciliation of one account
to another. For many, it is a question of trying to 'make do' based on previous period's
working papers.
The above challenges relating to the reconciliation process are certainly significant, but it is
important that companies not lose sight of the fact that reconciliation is not an end in itself.
For many organizations, the reconciliation process is tackled in a vacuum, i.e. outside of the
R2R process itself, of which it is simply a part. It is this myopic view that lends itself to the
principal failure to date, which is that very few businesses have visibility into the status and
condition of the reconciliation process and therefore cannot foresee its effect on the
progress of the reporting process overall.

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TRADITIONAL APPROACHES HAVE NOT SOLVED THE DIFFICULTIES

Benefits remain elusive everything is working to a different beat
Spreadsheets
The ease with which spreadsheets can be configured to meet the specific characteristics of
each balance sheet reconciliation have made them a popular tool in the finance function.
But they suffer from significant limitations. Designed first and foremost as a personal
productivity tool, spreadsheets are of limited value in a process which depends on
collaboration and shared knowledge. In this environment, a spreadsheet is a blunt
instrument with serious shortcomings, for example;

Individually designed
spreadsheets, which are
manually maintained and rolled
forward each period may
contain input errors or formula
errors which undermine the
integrity of the reconciliation.

Poor documentation standards

may make it difficult for
someone other than the original
spreadsheet author to work on a
reconciliation severely
impeding productivity and the
ability to move personnel between reconciliations to meet changing patterns in
staffing and workload.

Spreadsheets stored on personal hard drives or even shared network drives may be
difficult to find and retrieve. Their contents are likely to be duplicated in weighty
ring binders of hard copy spreadsheets and supporting documentation, making
maintenance of reconciliations between one period and the next tedious and time
consuming.

No visibility at the centre of the status of reconciliations, for instance when the
reconciliation was started, what problems have arisen, which accounts are affected.

When the worlds largest designer and

manufacturer of essential technologies,
including microprocessors and chipsets
implemented a solution to eliminate the burden
of manual spreadsheets from their Record-toReport process, it eliminated redundant data
input work, and leveraged reconciliation
automation whilst maintaining the desired level
of control and increasing process transparency
across their shared service centres. By doing so,
the organisation achieved an immediate return
on investment (ROI) with the solution through a
10 percent savings in the first year alone!

In most instances, a spreadsheet-bound process needs to be supported with manual

methods of communication, emails, ad-hoc telephone calls and meetings to keep tabs
on progress. As a result, it is easy to overlook reconciliations, lose documentation, leave
critical accounts un-reconciled, or fail to trap accounts adjusted again, after they have
been reconciled, reviewed and approved.

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Specialist reconciliation software

The deep functionality of specialist reconciliation software, remedies many of the
limitations of the spreadsheet-based approach, but these applications, which are usually
configured as point solutions outside of the regular R2R process, have limited impact and
usefulness. The inability to share in the workflows of the R2R process and its status
reporting prevents reconciliation software making a full contribution to the productivity and
efficiency of the financial reporting process.
When the worlds leading search
engine provider implemented a
solution for Balance Sheet
Reconciliation, they immediately had
visibility and complete transparency
into their global reconciliations and
close activities. This resulted in
increased quality control with
efficient, automated reconciliation
and certification processes, enabling
the company to reduce its periodend close from 10 to 5 days.

This is well supported by research which shows that

despite the use of specialist software, spreadsheets
(72 percent) and e-mails (68 percent) are used
predominantly by finance teams to track and manage
daily progress during the R2R process, and 86
percent of organisations use one or both of these
methods. In addition, 52 percent use the telephone,
while 54 percent schedule face-to-face meetings. 40
percent attempt to control the process using simple,
manual task lists hardly a sound basis for tight
financial governance1.

HOW CERTIFICATION OVERCOMES THE HISTORIC LIMITATIONS

Putting the rhythm back into the reconciliation process
Cadencys Certification capabilities transform balance sheet reconciliations from a
standalone spreadsheet-bound activity that habitually causes delays in reporting, into a
streamlined process that improves control, reduces financial risk, enhances productivity and
assists management to accelerate the R2R process.
It achieves this through a dynamic, risk-based approach to the identification of high risk
accounts, sophisticated automation of reconciliation activities, knowledge sharing and
collaboration all within the context of a single overall environment (Cadency) for
financial governance.
A risk-based approach
Naturally, not all general ledger accounts need reconciling on a regular basis, and clearly any
regular programme of review should ideally be risk-based in order to optimise the use of
scarce accounting resources. But certain accounts are more prone to error and can give rise
to material accounting adjustments if left un-reviewed for any length of time. The problem
is not just confined to general ledger accounts with high transaction volumes such as bank
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accounts and other forms of control account. Inter-company accounts and depreciation
accounts can be just as risky, particularly when magnified on a divisional, regional or groupwide basis.

Fig 1. Cadencys Certification capabilities encourages a risk-based approach to the

prioritisation of reconciliations
Certification enables management to take a risk-based approach to the review of balance
sheet accounts. This can be achieved by manually allocating accounts to user-definable risk
categories (e.g. High, Medium, Low) or by taking advantage of automated facilities
dynamic risk management that identifies the risk profile of accounts according to criteria
(business rules) established in the system. For example, an account with no movements in
the period or with a balances that falls within a predefined credit or debit threshold may be
considered low risk, whereas a particular class of account, say a control account, or one
where there is a unexpected swing in the period from debit to credit may be considered
high risk.
The dynamic and automatic surveillance of all accounts ensures that the risk profile is
constantly reviewed and that resources are committed to the highest area of risk which
can differ from period to period.
Automation
The ability to sort rapidly the wheat from the chaff is a critical aspect of reducing the
burden of balance sheet reconciliations. For example, low risk accounts identified as above
can be ignored; accounts where the balance in the general ledger agrees with the
underlying sub-ledger can be passed as reconciled, and account balances that fall within
acceptable ranges can be left for another time.

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Of course automation also extends to bringing in sub ledger and general ledger data from
source systems in the first instance as well as rolling forward open (unreconciled items)
items from one period to the next. But automation also means that unreconciled items can
be aged to give a qualitative feel of risk and users can be prompted to review accounts
according to pre-set intervals regardless of risk profile.
The reconciliations themselves can be partially automated so that items that meet matching
criteria can be eliminated automatically to reveal the transactions that are less
straightforward to reconcile. Also, where reconciling items give rise to accounting
adjustments, the journal entries can be raised and posted automatically, if desired, to
underlying ERP systems. Every aspect of automation helps to eliminate error, reduce risk
and improve productivity.
Knowledge management
Certification encourages the consistent application of best practice by exposing the
methodology and rationale behind every reconciliation and guiding users through each step
of the reconciliation. Easy to follow user configurable templates are supported by
documents and guidance which enable reconciliations and knowledge to be shared across
the finance team. Prior period reconciliations and commentary are available on demand,
along with any supporting documentation, allowing mangers to move reconciliation work
between finance professionals as required to smooth peaks and troughs in workload and to
enhance finance function productivity.
Collaboration
Workflow allows completed reconciliations to be circularised for review and approval, as
well as for the escalation of exceptions and unresolved issues. As a result, more experienced
resources can be deployed as required and difficulties can be addressed before they
adversely impact on overall R2R timescales.
Quality assurance
If required, personnel can be required to sign off on their specific reconciliations once they
are complete. As an additional precaution, programmes filters allow reconciled accounts to
be selected for review by supervisory staff and internal auditors. Additional tasks can be set
for any reconciliation, for example, to satisfy regulatory compliance or audit requirements
and the progress of these can be tracked and managed through automated workflows and
alerts.

HOW CERTIFICATION CONTRIBUTES TO SOLVING THE CHALLENGE OF

FINANCIAL GOVERNANCE
All parts of the orchestra working together

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Unlike historic approaches, the Certification functions within Cadency are deeply embedded
within the R2R process and forms an indispensable part of Trintechs overall solution for
financial governance. Positioned within this unique solution, it supports visibility and
transparency of reconciliations and enables management to better manage risk and
compliance. In addition, through the high quality of reconciliations and accompanying
documentation it provides assurance of compliance to all stakeholders in the reporting
process.
Process visibility
The uniform design of Cadency allows the entire spectrum of financial governance
(Certification, Compliance and Completion) to be viewed from a single console-based
vantage point. This means that at any point in the R2R cycle, management can not only
view the status of the process, for example, the tasks, issues and reconciliations outstanding
and the percent complete, but also view the financial materiality of the balances affected by
delays and issues.
A strong feature of Cadencys console design is that it tracks the organisational hierarchy, so
that individuals at every level of the enterprise have shared visibility of financial governance
issues through the same user interface. This means that at any point in the R2R cycle
management can view the status of tasks, issues and reconciliations within Certification.

Fig 2. Cadency provides a window on the status of the reconciliations in the R2R process
For example, authorised individuals can see percentages of reconciliations started,
completed or overdue, allowing individuals and their managers to take remedial action to
bring reconciliations back on course. Comprehensive statistics of, for example, the number
of accounts reconciled or reviewed on time can be derived at management's option, for a
segment of the general ledger or for a single company, division or geographical segment.

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The enhanced visibility rendered in a single seamless environment, not only gives real-time
visibility of bottlenecks in the process, but also allows management to immediately take
action, such as reallocating personnel from one part of the R2R process to another and
reassign tasks from one individual to another to maximise user productivity.
Better management of risk and compliance
By encouraging a risk-driven approach to balance sheet reconciliations, Certification ensures
that resources are channelled towards reconciliations that pose a higher degree of financial
risk while at the same time contributing to the overall management of risk within the R2R
process. The ability to force the sign-off of completed reconciliations (following review and
approval), ensures a culture of shared responsibility for risk management and provides a
higher degree of comfort to auditors and audit committees that the organisation is
compliant.
Quality assurance
The ability to prescribe the precise steps in the reconciliation and to enforce rigorous
standards of documentation, independent checks and quality assurance provides comfort to
stakeholders that the work has been carried out thoroughly and that a high degree of
reliance can be placed on the integrity of completed reconciliations. The comfort gained at
this early stage through the use of Certification adds more broadly to confidence in the
numbers and financial governance as a whole.

SUMMARY
Balance sheet reconciliations form an essential, yet under-invested part of the periodic close
process, giving rise to the risk of accounting error and misstatements. Difficulties with
reconciliations are frequently blamed for delays and missed deadlines.
The majority of companies use a vast battery of spreadsheets to tackle reconciliations but
many find the sheer scale of the undertaking and the administrative burden that goes along
with it, overwhelming. Lack of process support and a clearly directed risk-based strategy for
tackling the problem leaves many companies with un-reconciled accounts exposing them to
uncomfortable levels of financial risk.
Specialised reconciliation software has provided a partial remedy, allowing businesses to
standardise on an approach to reconciliations and to document what they have done. But
these solutions tend to work in a vacuum and completely detached from the broader R2R
process. As a result companies that have deployed these solutions continue to suffer from a
lack of process visibility and control.
At its core, Cadency, with its Certification capabilities, is a very advanced reconciliation
product, combining the latest thinking in risk-based management of reconciliations, with

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advanced levels of automation, knowledge management, collaboration and quality

assurance.
But more significantly, Cadency represents a new breed of solution which fuses specialist
reconciliation functionality with the management of the overall R2R process so that the
progress and impact of reconciliations, issues, tasks and controls is visible to the CFO and
the finance function within the context of the disclosure management, governance, controls
and compliance. This elevates reconciliations from a mere side-show and positions it clearly
as a central theme of a comprehensive approach (Cadency) to financial governance.
The ability to streamline and manage the entire R2R process from the very beginning in a
single financial governance environment, maximises process visibility, minimises the
chances that risks are overlooked - giving the CFO peace of mind and confidence in the
integrity of any reports and disclosures.

Bibliography
Note1 Oracle /Accenture study: The Challenges of Corporate Financial Reporting, May 2012.
Note2 Gartner: Top 10 Findings from Gartners Financial Executives International CFO Technology Study, 16 May 2012.

About Cadency
Cadency, is the first of a new class of financial governance applications - a paradigm shift in
Record-to-Report solutions designed from the outset to enable comprehensive stewardship of the
process, regardless of the underlying ERP/CPM suite.
There are three broad elements to the Cadency solution, namely; Certification, Compliance, and
Completion.

Certification
This covers task and issues monitoring the ability to set tasks, for example the
reconciliation of high-risk balance sheet accounts (providing policy, instructions,
explanations and supporting documentation), allocate them to responsible individuals, and
certify whether the tasks are complete or whether there are issues arising that need to be
resolved.
Compliance
This covers controls monitoring the ability at any point during the process for
management to assess risk, set relevant controls and monitor whether the control has been
applied effectively, as well as if the organisation is compliant or whether follow-up action or
escalation is required.
Completion

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This is the complete management of narrative the ability to synchronize commentary with
numbers, author multiple document types for multiple stakeholders, and manage content in
a variety of published formats such as XBRL and e-filings.

Fig 3. Diagram of the Cadency Conceptual Model

For further information please see the Cadency white paper which can be downloaded
from http://go.trintech.com/restoring-the-rhythm-of-finance-to-the-record-to-reportprocess.

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About Trintech
Trintech is the leading provider of solutions for the Record-to-Report process. Nearly 700 clients across 100
countries including half of the Fortune 50 and the FTSE 100 rely on our solutions to optimize resources,
reduce costs, manage risk and monitor activities across the entire finance organization worldwide. Trintechs
Cadency platform automates the entire R2R cycle including account reconciliation, close management,
compliance, and financial reporting including XBRL tagging and regulatory filings. Trintechs offices are located
in the United States, United Kingdom, Netherlands, France, Ireland and Hong Kong, with partners in South
Africa, Latin America and across the Asia Pacific region. www.trintech.com.

About FSN
FSN Publishing Limited is an independent research, news and publishing organization catering for the needs of
the finance function. This white paper is written by Gary Simon, Group Publisher of FSN (Financial Systems
News) and Managing Editor of FSN Newswire. He is a graduate of London University, a Fellow of the Institute
of Chartered Accountants in England and Wales and a Fellow of the British Computer Society with more than
27 years experience of implementing management and financial reporting systems. Formerly a partner in
Deloitte for more than 16 years, he has led some of the most complex information management assignments
for global enterprises in the private and public sector.
Gary.simon@fsn.co,.uk
www.fsn.co.uk
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