In the globalised business system almost 90 percent of the organizations still generate their financial statements manually, such as balance sheet, income statement, annual reports, quarterly and annual submission reports, bank reports, corporate proceedings and statutory reports.
There are complex challenges faced by businesses to complete their end financial reports such as:
- Factual errors due to manual procedure
- Time Protraction
- Inaccurate data
- Unintegrated systems to manage processes and information
- Unavailability of Audit Trails
Risks faced by Top Management:
The labor intensive structure of financial reporting symbolizes that external reporting system becomes more complex and more endeavor is involved in creating these reports and handle end processes as an outcome there is more involvement of employees who work on for additional hours else additional number of people has to be deployed to complete these tasks which includes handling of complex multiple excel spreadsheets, discover and rectify errors, administer compliance, and synchronize the high level authentication process which cumulatively magnifies cost which ultimately makes the job role of CFO more complicated. There are various other related risks involved which can be classified as:
- Management has to deploy more people for creation of this top level reports
- Complex processes involved at multiple level
- Process extensively linked with use of complex spreadsheets
- Risk of error which can be fatal and lead to reinterpretation
- Vital information might be leaked
- Non compliance with reporting format
- Cost pertaining to external auditor
The best possible solution is to use automated reporting software which can perform functions smoothly and with lower risk factor, this can be performed by the reporting system in following manner:
- The external reporting software can link source data with report data so that every data point in the final report is available without conflict and if source data points are modified then the same is implemented in final report data.
- The external reporting software is user friendly and can easily be integrated with existing system which is more compatible and easier to use since current user is already familiar with the legacy applications which will be integrated with new advance external reporting software.
- Existing reports can easily be used as template for reference purposes
- The new reports generated normally restrain the same segments as previous reports; it salvages the same data sources for e.g. net profit, expenses, etc. and restores the appearance and feel of past reports.
Since the new reporting software has multi tasking ability hence it can gather data from numerous sources at single instance it increases overall efficiency of the entire system and the organization on a whole as compared to the old manual system. The benefits can easily be summarized as follows:
- Lowering the total time duration required to prepare final reports
- Workforce reduction with more efficient system in place
- Employees can focus on other major functional areas
- Expediting the entire cycle, hence increasing evaluation time
- Focus on other key areas of the business
- Lower internal and external cost drivers with automated controls
- Provides a detailed audit trail which can track even minute changes in the document and makes comparability an easy task between two reports or documents
- Lowered risk which can encompass errors like factual error, information leaks and non-compliance circumstances.
- Reduced turnaround time, hence focus can be more towards internal system evaluation
- Finally no manual inputs and re-application of same protocol repeatedly which boosts overall confidence and hence less review time is required.
Thus looking at so many benefits available from the automated financial reporting tool, it should be implemented ASAP within organizations so as to gain a competitive edge in the market and for long successful run.
(Written by Ashwani Chandra, Class of 2008, IBS Hyderabad) Ashwani also shares his expertise on Finacology.com)