The events that have brought the likes of Enron and WorldCom toppling
down have precipitated a deep change in the way all of us now do corporate
reporting. By law, companies must change the way they communicate their
financial success to stakeholders. For example, the Sarbanes-Oxley Act
dramatically impacts the reporting practices for CEOs. As the most significant
law affecting U.S. accounting practices since the Securities Exchange
Act of 1934, Sarbanes-Oxley requires managers to communicate financial
information more carefully. CEOs and CFOs are now required to affix their
signatures to all reports. Publicly traded companies are facing faster
releases of quarterly and yearly financial reports.
The immediate consequences for finance and IT teams are two-fold:
- Your CEO and CFO require greater transparency across their financial
systems. Consider that most companies close only on a monthly
basis. That means a problem can exist within a company for nearly 40
days — enough time to bleed company resources — before
the accounting team can even pinpoint the problem.
- Your organization must provide more timely and accurate financial
data to stakeholders. According to PricewaterhouseCoopers, investors
are prepared to pay up to 20% more for companies that are perceived
as doing a good job of reporting.1
|Don’t underestimate the effects
of neglecting external reporting, and the negative impact this can
have on a company’s market value.
In combination with a reengineering of
closing processes, mySAP Financials can play an important role in making
more transparent and accurate financial data — “trusted accounting”
— a reality right now. At the same time, mySAP Financials can help
ensure that processes produce the “fast close” required today.
By going beyond simply managing current processes, examining new processes,
and making the best use of available technologies, organizations can go
far toward achieving highly trusted, more timely accounting practices.
mySAP Financials Support for Trusted Accounting
Trusted accounting is closely aligned with the document principle,
a long-proven accounting concept that still holds true, despite the massive
technological changes in modern accounting.2
Unfortunately, this simple principle often breaks down in heterogeneous
systems, particularly in the best-of-breed world of multiple, inter-connected
modules that can undermine a consistent document basis. For instance,
what if invoice cancellations in your transactional supply chain or CRM
systems are not correctly reflected in your accounting system? The result
is poor transparency and an increased risk of irregularities that also
reduces the likelihood of uncovering discrepancies.
To overcome these problems, mySAP Financials
and other accounting-related SAP solutions strictly enforce the document
principle. The real-time integration of SAP solutions makes the accounting
consequences immediately visible in all parts of the information system.
All changes in structures and transactions can be recorded.
But SAP also offers tools for a second
step toward trusted accounting: streamlining the auditing process.
In legacy systems, auditors find they must be experts in each of the various
data processing systems in the organization — which only becomes
more challenging in a heterogeneous environment. No wonder they often
need assistance, or stick to their tried-and-true paper reports.
SAP offers two powerful tools to support
(DAta Retention Tool)
It takes a highly flexible application to extract data from an accounting
system, a requirement of tax authorities in the U.S. and Germany, among
others. For many years, SAP has supported this functionality with its
free DART tool. But beyond extraction support, DART provides auditors
with methods for creating samples and standard interfaces to market-leading
auditing tools like ACL and IDEA.
DART can also extract information from
feeder systems that goes far beyond the limits of general ledger information.
For example, what if you need to include related vendor bank accounts
in an extract? In this case, G/L information alone could barely help uncover
irregularities, so DART includes other ledgers, including cost accounting,
account receivables, account payables, inventory, fixed assets, etc.
Information System (AIS)
Checking the system involves more than just extracting the appropriate
data. System setup, security, and ongoing changes must be checked as well.
Usually this requires lots of system experience on the part of auditors.
To avoid this informational overhead, SAP has included AIS free of charge
as part of SAP R/3 since Release 3.1I. AIS provides auditors with a consistent
interface, including system and process auditing jobs (see Figure
1). The structure of the functions in the form of a report menu
is designed to correspond to the audit process. Each check field contains
preconfigured reports, which allow external and internal auditors to conduct
audits without extensive system knowledge. In addition, freely definable
inquiries can be made using the built-in query function. The auditor has
all of the necessary information on hand and can access all relevant information
||The Audit Information System (AIS)
Timelier, More Accurate Reporting
with mySAP Financials
In fall 2002, the Stock Exchange Commission (SEC) announced that new report
deadlines for U.S. companies will be phased in through 2005. Annual report
deadlines will go from 90 to 60 days, and the quarterly report deadline
from 45 to 35 days. Although the SEC received more than 300 complaints
from auditors and large companies, the situation is not as dire as you
might think. In fact, an Accenture study found that listed companies are
actually able to produce quarterly figures within about 15 days.3
But your internal needs might require
an even faster close of just a few days, or
a “virtual close,”
closing the books at any point during the reporting
period within hours.4
Whatever your organization’s needs, success
requires more than just looking for more efficient
processes. Often it involves new software solutions,
or new ways to use your current technology
(see sidebar below ).
Barriers to a Fast Close
With so many companies striving for a faster close — some
for many years — we can usually assume that most have come
across the “low-hanging fruit” of refining their current
processes. We find many companies languishing on the upper end of
the “fast close” curve (see below).
For a global company that must consider multinational accounting
principles, even simply defined recommendations for technological
and process changes (like establishing a single chart of account)
can mean enormous effort.
Reducing the number of G/L systems is one way to improve the process
significantly. One good example is SAP’s own closing process:
SAP’s corporate accounting closes its books within a remarkably
short time, benefiting from its worldwide, centralized R/3 system.
However, in a world of mergers, acquisitions, and divestures, many
companies rely on a more open strategy.
their organizational challenges, SAP customers that have combined
a restructuring of their processes with a reexamination of mySAP
Financials technology, like the scenarios described in this article,
have seen significant enhancements to their closing times.
mySAP Financials offers strong support
for faster closing processes that you can implement now. Here are just
a few examples:
complex consolidation structures with the SEM-BCS Consolidation Monitor
The consolidation monitor bundles all necessary activities in
one interface, and supports the loading process, validation, currency
calculation, and complex elimination tasks (see Figure 2).
You can view recent status across the consolidation structure in real
time, and subsidiaries can load their data into the central database using
Link SEM Business Planning System to SEM-BCS
Insufficient time for preparing stakeholder communications is often a
culprit behind stock value problems, and waiting for final numbers can
place your CFO under enormous pressure. So it is worth striving for a
group-wide virtual close approach linked to a forecast.
Linking these two systems makes it possible to quickly communicate group-wide
forecasts. This approach also encourages managers to carefully consider
the implications of all of their communications!
advantage of self-service and portals technology
A slow reconciliation process is one of the great hurdles to
timely reporting, but one that can be alleviated by handling the different
treatment of transactions among subsidiaries on a group level. However,
when inter-company transactions are eliminated, differences — different
exchange rates, period assignment, or recognition standards — still
may occur. And even if the reconciliation process can only start after
all local data is a transferred into the central system, if differences
are visible only to the group accountant, you’re in for a long,
painful coordination process.
A self-service approach can help. With an R/3 report in an integrated,
R/3 environment, local accountants reconcile inter-company differences
between local subsidiaries. Consequently, subsidiaries and their counterparts
can begin reconciliation even before the local closing. In a heterogeneous
environment, portal and collaborative technology can enable companies
to do the same.5
Fast Close: Goals and Obstacles
In 2000, KPMG (now BearingPoint) conducted a survey about the
fast close activity of companies with some remarkable results. Note:
Ratings from 1 (lowest) to 7 (highest).
What are the reasons companies engaged in a faster close?
- Faster publication for benefit of shareholders (5.3)
- Board demands faster publication of internal information (5.2)
- Demonstrate professionalism of reporting (5.1)
- Capital market demands earlier publication (4.6)
- Time gained is used for analyses that bring value-add (4.0)
What are the reasons why fast close is so hard to achieve?
- Poor quality of figures (4.6)
- Insufficient integration of data processing systems (4.0)
- “Surprise” during annual close (3.7)
- Large number of reporting levels (3.5)
- Insufficient checks, unclear reporting process (3.4)
A well-designed architecture of local and central components is the key
factor in a distributed environment. It is not a topic of the future —
with mySAP Financials it is possible to start right now.
But fast close and trusted accounting
involve more than just adjusting your system configuration. Only a balanced
combination of efficient processes, trained people, and technology leads
to high-quality, timely reporting.
For more information, visit www.sap.com/financials.
1 See the discussion of value reporting
by Bernd Saitz and Joachim Wolbert, PwC partners, in the German magazine
Controlling (June 2002).
2 The document
principle — the
understanding that there should be a document recorded for every accounting
transaction/event — goes back to bookkeeping
principles defined by the Italian monk Pacioli
back in 1494!
3 See discussion
in Andreas Pfeifer and Andreas Schuler’s
book Efficient eReporting with SAP EC
4 And yes,
some “closing stars” do achieve
5 For more
on portals for your financials systems, see
the article “Introducing Portals Technology to Simplify
Financial Workflows for All Your Users: SAP’s Financial Portal Solution” by
Ariane Skutela in this issue of SAP Insider (www.SAPinsider.com).
Doerr is a member of the product
management team Business Accounting for
mySAP Financials. She currently focuses
on topics such as fast close and consolidation.
She joined SAP AG in 1990 as an instructor
for customer courses in financials in the
area of integration, closing activities,
is Vice President of Global Marketing
for Enterprise Resource Management. Prior
to joining SAP, he spent more than twelve
years at several international companies
as a product manager and consultant for
managerial accounting software. He has
published books on IT systems for financial
applications and OLAP, as well as other
publications on software systems for
managerial accounting. He is a frequent
speaker at conferences and seminars.