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Consolidating the Financial Statements? Another Vacation Cancelled!

Posted by on Feb 18, 2015 in Uncategorized | Comments Off

I have consistently observed that my friends from Finance are working during the times that most others are on vacation. This is especially true during quarter and year ends. Financial Consolidation can get quite complex, and the process of consolidation could be quite manual, even in many large organizations. The CFO’s goal is undoubtedly to push for faster and accurate close cycles. Many of the issues I am listing below are common to most organizations I have had the opportunity to observe and interact with:

  • The organization has grown through mergers and acquisitions, and the subsidiaries use disparate accounting systems and ERP’s, and thereby have different chart of accounts
  • Massive co-ordination exercise with the various organizational entities to get data on time for consolidation
  • Inter-company transaction reconciliation and elimination is a nightmare
  • Foreign currency translation
  • Multi-level entity hierarchy makes the consolidation complex
  • Minority interests and goodwill calculations
  • Some of the Subsidiaries do not follow Indian GAAP. How to handle the related Multi GAAP reporting (IFRS, US-GAAP, Schedule VI etc) and consolidation challenges?
  • Lack of consistency between internal MIS and statutory reporting
  • Lack of traceability for out-of-book adjustments
  • Compliance is not built into the process, but is a separate overhead activity. This results in going back and doing corrections, rather than getting it right the first time.
  • Using manual or semi-automated processes to do financial consolidation is tedious and potentially error prone. This makes financial reconciliations, share calculations, foreign currency translations, various allocations and other calculations very difficult to be compiled accurately or be wrapped up within the deadlines.

    With Companies Act 2013, the CFO is accountable for certifying internal financial controls. It makes it all the more important to make sure that the processes around financial statement preparation and consolidation are automated.

    Many mid-sized organizations face these challenges, but cannot afford to implement large Enterprise Performance Management (EPM) solutions, as they are prohibitively priced. The industry needs easy to use and efficient software solutions that do not burn the bank. A system that is overly complex or does not function effectively will soon be abandoned by the stakeholders, and they will go back to their old ways of working.

    Once the CFO and senior finance executives get convinced that they have zeroed in on the right software solution for their needs, they need to completely back the program and provide executive sponsorship. Adopting a new software system involves change in internal business processes and change in mindsets. Most people are reluctant to change. Unless the program is driven and monitored by the CFO’s office, it will be one more expensive but failed experiment.

    In general, the expectations from the CFO and Finance Heads have been rising steeply. But what frequently stands out as a hurdle is the time and effort it takes to compile necessary information from multiple operational silos within the organization. Besides blocking your time and preventing your team from focusing on value adding work, such labor intensive transactional processes can create serious inefficiencies and inaccuracies in the output.

    A simple solution that fits your needs and one that can be easily adopted by the team is what you are looking for. So, I wish you smart decision making – and happy holidaying!!

    The Mission to Make the CFO’s life Easier

    Posted by on Dec 19, 2014 in Featured | 0 comments

    In today’s business context, life of a CFO is that of the radar as well as the captain of a moving ship. Today’s CFO is expected to contribute well beyond the traditional role of cost management and operational controls. The CFO needs to play a delicate balancing act across multiple dimensions, some of which include:

  • Impact of globalization: having an effective finance function that can account for the increasing complexities of running a global business
  • Regulatory adherence: Global regulatory requirements are constantly changing and continually increasing, and CFOs have a personal stake in regulatory adherence
  • Risk management: the nature of risks that an organization faces keep changing
  • Reporting requirements: managing the ever broadening and often burdensome reporting requirements
  • The CFO needs to do all this, while also keeping a keen eye on rigorous ongoing cost management and operational efficiencies to fuel profitability and strategic reinvestment.

    All this understandably takes effort, but fortunately technology is evolving very quickly, and has created so many opportunities for automation. The evolution of Enterprise performance management systems has brought in automation in the areas of financial reporting and financial consolidation that can take into account the varying requirements of global regulators. Compliance management platforms have made regulatory adherence easier. Business intelligence tools have made financial performance analytics easier. Preparing financial statements for multiple group companies at one go, generating actionable reports with meaningful business intelligence, automated preparation of financial compliance reports can all be done at fraction of the total time consumed earlier for such tasks. This enables the CFO and his team to spend more and more time on strategic projects.

    The mission to make the CFO’s life easier is INDEED Mission Possible!

    Anytime, Anywhere, Actionable Financial Reports

    Posted by on Dec 17, 2014 in Uncategorized | 0 comments

    Today’s business context and priorities call for CFO’s to have access to their organization’s financial performance reports at all times. An effective CFO will detect financial performance trends early in the cycle, analyze the same in light of the various dynamics involved and initiate necessary course corrections.

    Timely and correct decision making can turn the fortunes of an organization, and in turn that of the CFO. To make this possible, the CFO inevitably needs access to actionable insights anytime, anywhere.

    While what most CFOs track, are somewhat similar, but still each organization has to spend considerable thought and time on designing MIS requirements as per what is important for their business. Almost all CFO’s I have interacted with have put in a lot of thought in arriving at the metrics, KPIs and MIS formats.

    Irrespective of the investments they have made on a variety of Software Solutions, CFOs have often voiced these concerns in my conversations with them:

  • We are used to looking at MIS reports in a particular way. Most software tools are not capable of generating reports exactly the way we want them
  • Microsoft Excel reports are still the most convenient way for analyzing and distributing reports. I want the same MIS reports that my team prepares in excel, to now be generated by the software
  • My company has grown through mergers. There is lack of standardization within group companies. Getting group level reports has become a nightmare
  • My reports have a lot of derived metrics. Most software tools are not capable of creating derived metrics, that are not directly available in my source ERP system
  • Because of these challenges, CFOs are bound to face decision making hurdles, as financial reports continue to come through slow legacy mechanisms – with insights always trailing data.

    Delay in delivery: Manually prepared reports take time and effort before they are generated and circulated to all stake holders. There is also a loss in the currency of data. You do not get access to critical business reports until somebody works manually on unstructured data, generate reports and mails them across to you. Delay in reports lead to delay in decision making.

    Prone to error and non-compliance – Manual processes are prone to error, and such errors with respect to financial data can lead to serious internal and regulatory non-compliance.

    Any automation of the CFO’s MIS and Financial reporting requirements, have to be done taking into account the way the business operates. The Business operates from Mars and Technology from Venus – the twain has to meet to create the required magic.

    Magical Glasses for the CFO

    Posted by on Nov 13, 2014 in Uncategorized | 0 comments

    I am sure it is the aspiration of every CFO to simply wear a pair of magical glasses that immediately gives them a bird’s eye view of the financial health of their company. The needs of each business are different, and it indeed will be a tall order to build the perfect pair of magical glasses. However, it is also not so difficult to abstract the problem and arrive at a reasonably common set of indicators that CFOs need to track irrespective of their business. The process of mining the information and deriving meaningful intelligence from it should not in itself become nightmarish. Similarly, it should be relatively easy to choose the mode of delivering that information – be it a dashboard or a distributable MIS report. With a pair of these magical glasses, strategic decision making process can be easily accelerated.

    Here is my wish-list for my pair of magical glasses:

    • The ability to compare information across various dimensions – periods, entities, divisions, cost-centers, geographies etc.
    • Collection of widgets – each of which will communicate an important piece of information, like margins, ratios, sales, ageing etc.
    • Graphical charts that can drill-down to the lowest level of information
    • Completely customizable MIS reports, so that I get what I want, and not what the software thinks I should get

    As a CFO what would you like to see when you wear your pair of magical glasses?

    Mandatory Consolidated Financial Statements as per Companies Act 2013

    Posted by on Sep 24, 2014 in Featured | 0 comments

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    Under the new provisions of Companies Act 2013, any holding company (private or listed) shall prepare a Consolidated Financial Statement of the company alongwith its subsidiaries, associates and joint ventures and lay before the AGM. The earlier Companies Act only mandated listed companies to publish consolidated accounts.

    The Financial Statement shall be in the form as provided in Schedule III which is in line with Revised Schedule VI.

    In case subsidiaries, associates or JV’s have not been considered for consolidation, the same have to be disclosed alongwith reasons for non consolidation.

    Companies should seriously evaluate the possibility of automating their process for preparing standalone and consolidated financial statements:

    • To ensure data consistency between internal MIS statements and other financial statements
    • For speeding up time consuming manual process in completing statutory audits and preparation of final consolidated reports
    • For correct treatment of complex consolidation related calculations – viz. Minority Interests, Goodwill Calculation, Intercompany eliminations, Foreign Exchange translation etc.
    • For standardisation of multi-geography reporting (e.g. Sch VI, US GAAP, IFRS etc.)
    • For having one unified system for internal and external financial reporting
    • To discover opportunities and improvement areas through flexible analytics and customisable management reporting