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How Timely, Trusted Reporting Can Drive Your Company's Value

by Barbara Doerr | SAPinsider

April 1, 2003

by Barbara Doerr, SAP AG, and Karsten Oehler, SAP AG SAPinsider - 2003 (Volume 4), April (Issue 2)

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 auditors:

DART (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.

Audit 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 promptly.

Figure 1 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 ).

Overcoming the 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.

Whatever 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:

Organize 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 Web access.

Figure 2 Consolidation Monitor

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!

Take 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

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 (2001).

4 And yes, some “closing stars” do achieve this!

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 (

Barbara 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, and consolidation.
Dr. Karsten Oehler 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.


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