Enterprise resource planning (ERP) systems are an indispensable tool in an organisation’s financial strategy by providing a highly transparent way to collect, manage, track, and analyse enterprise-wide business data. ERP systems are crucial for managing numerous accounting processes, ensuring compliance, and reporting to stakeholders. But they come up short in one important respect—automated account reconciliations that ensure a timely and accurate financial close.
Although ERP systems effortlessly attend to the “nuts and bolts” of accounting, verifying the journal entries, subledger tie-outs, and other complex transactional information, they don’t specifically validate this data for the financial close. This task falls to finance and accounting, which typically address the need manually, often using complicated, multi-line-item spreadsheets.
In the post-Sarbanes-Oxley Act (SOX) era, the importance of an accurate and fully validated close can’t be understated. For example, ERP systems are great at verifying if the accounts payables (AP) subledger agrees with the AP general ledger (GL) balance or the inventory subledger agrees with the inventory GL balance.
Since the ERP system can’t complete the “last mile” of the financial close process, many accountants must still step back to the last century and crunch numbers in a paper-intensive process. And since humans are imperfect beings, these manual processes often produce errors—such as keying in the wrong balance. Spreadsheets are cumbersome documents, so they create the risk of version control and data integrity issues. Tracking the workflows across a global business via streams of e-mails and printed documents is a nightmare. Worst of all, the specific goal of the manual processes—validating the accuracy of the ERP-verified subledger data—is often impossible to achieve because of inefficiency and inaccuracy.
It doesn’t have to be this way. Technology is available to pick up where ERP systems leave off.
All finance and accounting organisations seek assurance and comfort that their account reconciliation and financial close processes are accurate for both business performance and regulatory compliance reasons. More and more organisations are switching to an accounting solution to handle their financials; hence, there must be a good amount of beneficial reasons why. Handling business’ finances with clumps of expenses, boxes of receipts, and spreadsheets of income and expenses expose information to potential lapses and deductions. However, this can be resolved with the right accounting solution which provides an up-to-date, computerised accounting file which is crucial especially during the tax season.
Accounting plays a key role in the functioning of any business. With global financial crisis in the recent past and a number of businesses expanding on a daily basis, the presence of a strong accounting system is the need for any business. Many accounting and bookkeeping firms are embracing the trends in accounting in order to reshape their business and simplify their work to a great extent.
Many companies have built homegrown software systems that provide greater visibility and control around the reconciliation process. But these systems involve a substantial amount of up-front and ongoing work and resources. They often fall short of third-party financial close suites, which have more functionality and integrate smoothly with ERP systems.
With third-party systems, content is drawn from the ERP system to ensure that all balances and other business information relating to the financial close are located in one central place on a dashboard. For large enterprises with far-flung operations dotting the globe, this centralisation is critical. As Big Data gets bigger and more and more economic, market, and performance data flood modern companies, a systematic approach to overseeing account reconciliations is necessary to close the books with confidence.
In their everyday work, management accountants – and especially CFOs and controllers – can find great benefits in using state-of-the-art financial software. During the typical month-long account reconciliation process, for instance, accountants and controllers can leverage the software to evaluate, approve, and complete the reconciliations. Just from an evaluation standpoint, the value is considerable – with an automated system they no longer have to thumb through thousands of accounts and paper documents. Both speed and efficiency increase exponentially, particularly for global organizations where access to needed documents can be elusive. By liberating these time-consuming tasks, accountants, controllers, and CFOs can focus on the critical accounts that need to be reconciled such as high-risk accounts, accounts with large balances or accounts with a high volume of transactions.
There is even greater value when such automated systems are provided via a cloud-based Software-as-a-Service (SaaS) delivery model with real-time monitoring and built-in workflows. Companies are better able to manage workflow, staff tasks, and scheduling. Without real-time reporting, CFOs are waiting for finance and accounting staff to update tracking spreadsheets or e-mail them hard copies—obviously not the best use of their time.
A SaaS model provides anytime, anywhere information delivery of account reconciliations, journal entries, and all supporting documentation. The workflow is time-stamped to ensure everything moves forward through the approval process with the greatest degree of accuracy – that is, no version control issues. The bane of many CFOs is line-item reporting out of the account reconciliations, where errors reside but someone can’t discern if there’s a mistake, much less who made it and when it occurred.
An automated solution should include a task management module — the steps that organisations need to take over time to ensure an accurate close from a validation standpoint. Right now, many companies chart these steps manually with Excel spreadsheets, such as when they should expect a particular report from someone in a different country. No CFO or controller is completely comfortable with this practice —he or she wants to know which steps have been accomplished, which remain, and when they will be addressed.
Terry Smagh is Senior Vice President for Asia Pacific & Japan at BlackLine