Thursday Aug 30, 2012

Drinking Our Own Champagne: Fusion Accounting Hub at Oracle

A guest post by Corey West, Senior Vice President, Oracle's Corporate Controller and Chief Accounting Officer

There's no better story to tell than one about Oracle using its own products with blowout success. Here's how this one goes.

As you know, Oracle has increased its share of the software market through a number of high-profile acquisitions. Legally combining companies is a very complicated process -- it can take months to complete, especially for the acquisitions with offices in several countries, each with its own unique laws and regulations. It's a mission critical and time sensitive process to roll an acquired company's legacy systems (running vital operations, such as accounts receivable and general ledger (GL)) into the existing systems at Oracle.

To date, we've run our primary financial ledgers in E-Business Suite R12 -- and we've successfully met the requirements of the business and closed the books on time every single quarter. But there's always room for improvement and that comes in the form of Fusion Applications. We are now live on Fusion Accounting Hub (FAH), which is the first critical step in moving to a full Fusion Financials instance.

We started with FAH so that we could design a global chart of accounts. Eventually, every transaction in every country will originate from this global chart of accounts -- it becomes the structure for managing our business more uniformly. In conjunction, we're using Oracle Hyperion Data Relationship Management (DRM) to centralize and automate governance of our global chart of accounts and related hierarchies, which will help us lower our costs and greatly reduce risk.

Each month, we have to consolidate data from our primary general ledgers. We have been able to simplify this process considerably using FAH. We can now submit our primary ledgers running in E-Business Suite (EBS) R12 directly to FAH, eliminating the need for more than 90 redundant consolidation ledgers. Also we can submit incrementally, so if we need to book an adjustment in a primary ledger after close, we can do so without re-opening it and re-submitting. As a result, we have earlier visibility to period-end actuals during the close.

A goal of this implementation, and one that we successfully achieved, is that we are able to use FAH globally with no customization. This means we have the ability to fully deploy ledger sets at the consolidation level, plus we can use standard functionality for currency translation and mass allocations. We're able to use account monitoring and drill down functionality from the consolidation level all the way through to EBS primary ledgers and sub-ledgers, which allows someone to click through a transaction appearing at the consolidation level clear through to its original source, a significant productivity enhancement when doing research. We also see a significant improvement in reporting using Essbase cube and Hyperion Smart View. Specifically, "the addition of an Essbase cube on top of the GL gives us tremendous versatility to automate and speed our elimination process," says Claire Sebti, Senior Director of Corporate Accounting at Oracle.

A highlight of this story is that FAH is running in a co-existence environment. Our plan is to move to Fusion Financials in steps, starting with FAH. Next, our Oracle Financial Services Software subsidiary will move to a full Fusion Financials instance. Then we'll replace our EBS instance with Fusion Financials. This approach allows us to plan in steps, learn as we go, and not overwhelm our teams. It also reduces the risk that comes with moving the entire instance at once. Maria Smith, Vice President of Global Controller Operations, is confident about how they've positioned themselves to uptake more Fusion functionality and is eager to "continue to drive additional efficiency and cost savings."

In this story, the happy customers are Oracle controllers, financial analysts, accounting specialists, and our management team that get earlier access to more flexible reporting. "Fusion Accounting Hub simplifies our processes and gives us more transparency into account activity," raves Alex SanJuan, Senior Director, Record to Report Strategic Process Owner. Overall, the team has been very impressed with the usability and functionality of FAH and are pleased with the quantifiable improvements. Claire Sebti states, "Our WD5 close activities have been reduced by at least four hours of system processing time, just for the consolidation group."

Fusion Accounting Hub is an inspiring beginning to our Fusion Financials implementation story. There's no doubt it's going to be an international bestseller!

Corey West, Senior Vice President
Oracle's Corporate Controller and Chief Accounting Officer

Tuesday Aug 21, 2012

What’s Next from the Standard Setters?

I met up with Seamus Moran, our resident accounting expert, to get an update on the things we can expect to come down the pike in the ever changing world of standard settings.  Several things have derailed recently; the SEC has been dithering; their staff is negative on the adoption of IFRS, and FASB made a decision to proceed with asset impairment differently than IASB.

However, we’ve still got two of the biggest accounting changes coming full steam for arrival next year: Revenue Recognition and Lease Accounting.

  • Revenue Recognition replaces the notion of deferred revenue liability – sales invoices you can’t book to the P&L until contingencies are lifted – with performance obligation liabilities – the items you owe to customers valued at estimated selling prices.  It also replaces the notion of revenue as items billed without any contingencies with the notion of revenue as items for which you have satisfied your customers valued at what you are entitled to receive.  It’s difficult to fathom the implications of these definition changes in terms of bookkeeping, process, and substantiation.  For some, it may not be a major difference, for most, it will be difficult.
Revenue will be finalized in the spring of 2013.  The changes will hopefully simplify the most recent Exposure Drafts in the area of transition reporting, disclosure, and the cell phone example.  But the new standard will impact all US registrants under US GAAP.  And it impacts all non-US registrants under IFRS.
  • Lease Accounting abolishes operating leases and adjusts the math and the way in which leases are expensed.  Real Estate professionals are already anxious about the change, anticipating the complexity it brings to landlords, developers and tenants.  Equipment renters, although not nearly as tuned-in, will also be highly impacted. It will affect equipment rentals from jet aircraft through photocopiers, panel vans, etc. that are currently treated as operational leases but will soon be accounted as capital leases--complete with the right of use assets and complex liabilities, hitting the P&L in a new way with amortization expense above the line and interest expense below. 
Lease Accounting is slated to be finalized in the fall of 2013.  A new exposure draft (ED) will be published this winter with a 120 day review and comment period. This ED is expected to meet the General Acceptance criteria with changes impacting all US registrants under US GAAP and non-US registrants under IFRS.


When will the Revenue Recognition and Lease Accounting Changes be Effective?

It is difficult to say.  Originally, the Boards had announced that the standards would not be effective before June 2015. Although they have not publicly revised the date, practically speaking, that date can no longer be achieved.

It is important that the SEC, FASB, IASB, and registrants and users have time to gather, aggregate and report the necessary data. Software vendors, such as Oracle, need appropriate time to discuss the changes with their customers across various industries, along with the Big 4. And then software vendors need time to design and revise their software, and customers need to implement the changes to their accounting software. The SEC, FASB and IASB are aware of this, and they have discussed it with vendors in the software industry; they intend to reflect the industry’s input in their scheduling. Currently, it is anticipated that the standards will be effective for new transactions in 2016 and/or 2017.  As usual, both standards will require reporting of the several years prior to the effective date under the new standard, although companies will have already reported it under the old standard.  Details of this requirement are among the issues being re-deliberated and are not finalized.

Financial Reporting of the Banking Industry

The Boards are also working on how best to report the activities and status of banks.  These issues are complicated by the fact that the FASB & IASB are concerned with how Banks report to their owners (the stock holders) while bank regulators are concerned with evaluating safety in terms of both the economy and the individual depositor.  With the many recent crisis’, apparently safe bankers’ assets (financial instruments), such as national debt (government bonds) or secured real estate loans (mortgages) have in fact turned out to be not so safe. The standard bankers’ interest margin is measured in part-percentage points, and defining a financial report that accurately defines a bank’s equity is proving difficult.  This difficulty is compounded by the fact that the banking regulators in different countries have very different philosophies about what is safe and for whom that matters, and the philosophy within a country varies depending on the elected government.

Our Plates Are Full
So I think our hands are full with US GAAP and IFRS at the system level, the accounting level, and at the regulators level.  We don’t need to be dealing with asset componentization this year, next year or the year after: changes to Lease Accounting and Revenue Recognition will be plenty, thank you.

After all of us around the world adopt the changes to Lease Accounting and Revenue Recognition, we’ll be in a better position to work with whatever the SEC decides is an appropriate time and way for the US to join the rest of the world in adopting IFRS.  This means establishing what is truly “Generally Accepted” in both the US and non-US countries.  The SEC staff has proposed a process of “condorsement,” where the FASB would publish IFRS standards as Exposure Drafts of Accounting Standard Updates to the FASB codification.  Other countries have already adopted IFRS using this path, although none had as dense a statement of their existing GAAP as the US does.  Such a process will also expose the IASB to addressing issues addressed under existing US GAAP that are not addressed under IFRS. The SEC have not endorsed nor adopted this proposal; we must wait to see what their considerations might reveal.

In a nut shell, we have our hands full dealing with changes to Lease Accounting, Revenue Recognition, as well as the issues with the financial houses.  We have an unequal system of enforcing compliance, and we don’t have a way to ensure uniform interpretation.  For the time being, our plates are full, so not having a definitive date as to when the US will adopt IFRS or how asset impairment will be dealt with is not a big deal. We can wait and not try to bite off more than we can chew.

Thursday Aug 16, 2012

Financial Management in the Cloud: Is It Right for Your Business?

A guest post by Terrance Wampler, Vice President, Financials Product Strategy, Oracle

In a previous post, we explored the pros and cons of SaaS as compared to the traditional software delivery model. Now, here are some proof points to help you make the decision about moving to the cloud. Start by asking your IT department what they’ve done with cloud services. What worked, and, more importantly, what didn't work? If there was a problem, was it about service levels? Cost negotiation? Or was the provider not good? What they learned can help the success of future projects.

The second thing to consider is your governance model around acquisitions. Will you have to change your policies and your governance of IT procurement if you move to the cloud? Do you have to bring in other players besides IT, maybe a line of business, or is the governance model actually in the acquisition? Is there already a service provider you can leverage?

Here’s a piece that customers don't always think about: Do you have a company asset that you might be able to monetize with cloud services? Not only are you looking at how you acquire cloud services, but you might see cloud services as an opportunity to monetize some intellectual property that you have. You can work with the cloud services provider to make that available and give yourself a better negotiation edge and partnership.

Who will be measuring and monitoring your service level agreements? Do you need a revised process? Different technology? Will another organization do it? How will the results be communicated? How do you audit the process? A cloud service supplier needs to do more than say his service level is great ─ he needs to prove it to you.

Interestingly, the one question that most people tend to save to the end is: Does the product functionally do what I need it to do? Does it actually have good feature sets? It sounds obvious, but we see people missing that one.

When it comes to Fusion Applications, everyone knows that it can be deployed on premise, on demand, and in the cloud — whatever way you want it. The SaaS solution also can be part of a co-existence scenario. You can keep your on premise software, and then over time, move select components to a SaaS model.

As a cloud service provider, Oracle is very well known in the industry. We've been doing this for many years. We have large data centers running our services. We are very good about meeting our service level agreements and have excellent service renewal contracts for our SaaS business. Plus, the financial component of Fusion is a fully functional solution with all the capabilities you would expect it to have and competes well against the biggest ERPs.

At the end of the day, I believe that your evaluation of total cost of ownership is primarily an internal one. We’ve taken the need for comparing different products out of the mix. So think Fusion Applications when you have a strong business case for moving to the cloud.

Related Article: Five Ideas: Finance - What CFOs need to know about cloud and other technology solutions

Friday Aug 03, 2012

What CFOs Should Know About the Cloud

Some enterprise finance functions have been slower to adopt cloud-based computing than other business functions. Is this caution justified?  The cloud is now firmly established in our business vocabulary, yet its appeal is not universal. In broad terms, the finance function has been slower to adopt cloud-based processing than other business functions. But is this unwillingness to take the plunge—or, in some cases, even to dip a toe in the water—fully justified?

Recent research indicates that as the cloud market begins to mature, the primary motive for a move to the cloud is no longer cost (as it was in the early days), but rather the potential for process improvement, often triggered by an impending upgrade or withdrawal of support for a legacy system. However, there is no denying that the transition is challenging as organizations seek to integrate processes that straddle the cloud and on-premise worlds.

So CFOs were probably right to be cautious about the cloud, but now that the market is maturing and larger vendors are offering cloud-based applications, the opportunities for enhanced competitiveness, productivity, and organizational responsiveness are likely to become too tempting to resist. 

Learn more about "What CFOs should know about the Cloud" and other CFO solutions at our C-Central, Information for Executives website.

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Focusing on solutions for the Office of Finance, this blog will highlight key financial management market trends, events and other news of interest.

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