Wednesday Feb 13, 2013

Tax Provisioning: Simplify, Standardize then Automate

Tax provisioning is a process that has become increasingly more complex to perform, but increasingly more important to do well. I recently interviewed Andy Oliver, a PWC Director in their Tax Practice and an expert in Tax Provisioning, in a Podcast which I feel sheds some light on this increasingly complex matter. To listen to the Podcast, click here.


Tax provisioning is the process of reporting current and deferred income taxes in a company’s financial statements – tax on current profits and estimated future tax on future profits. There are a myriad of rules and requirements for calculations and disclosure that apply to different companies and countries and they are changing all the time. It is extremely important to have accurate, transparent calculations as when and what to pay and defer can make a huge difference to a company’s bottom line.


How do most tax accountants and departments manage this process? Andy indicated that a majority of companies pull this information together through numerous and large spreadsheets with complex and convoluted calculations. And although these spreadsheets offer flexibility – to keep up with the ever changing rules – they do not provide consistency in calculations, standardization of the process, or data security. This means that the calculations and resulting reports are error prone and can cause countless hours of work to find and correct the errors.


Ideally, the tax provisioning process should be performed early in the financial close process to get a really good picture of the end result. However, inevitably being early in the process means the financial results will change and the provision or estimation will have to be recalculated. Having the tax provisioning process integrated with the financial close process and systems makes a lot of sense, from an efficiency standpoint, to reduce the amount of work required each time there is a change to the financial results. We also discussed how important it is to SIMPLIFY the tax provisioning process and then standardize and automate the process before integrating with the financial close process to be truly effective and world-class.


Oracle’s Hyperion Tax Provision solution was designed to provide this integration with the financial close process and drive efficiency into the tax provisioning and disclosure process.


Finally, Andy had this advice for the listeners, “If you can align the tax reporting process with the financial close process – eliminating much of the manual, spreadsheet-based calculations, you will get the job done quicker, experience fewer mistakes, and be able to spend more time doing the important part of your job as a tax accountant; analyzing the numbers, and providing insight on the results such as WHY the numbers are different from forecast or from last year.


For more information on the Oracle Hyperion Tax Provision solution, click here.


To listen to the podcast, click here.


 

Friday Jul 13, 2012

Account Reconcilations - Making this Less of a Headache

The finance department in most organizations is coming under increasing pressure to transform and streamline the financial close and reporting function while continuing to maintain the integrity of the financial statements and close process. A key part of this close process includes the completion of detailed account reconciliations, which can be a major bottleneck and headache in the close process. The necessity for understanding and certifying an account balance and its transactions is prompted by regulatory and audit control requirements. In addition to the statutory pressure for account reconciliations, the current economic situation makes it imperative for Finance executives to understand the details and transactions behind every account. They need to be able to easily identify fraudulent, improper and excessively aged transactions. In most organizations, the account reconciliation process is a very time consuming and manual process. A robust and integrated account reconciliation software application   will allow Finance to more effectively manage their business.


Account Reconciliations Can Extend the Financial Close and Introduce Risk


Medium to large organizations often have the need to perform thousands of account reconciliations during the quarter-end or month-end close.  Examples of the typical reconciliations include tying general ledger balances to sub-ledger balances, general ledger balances to bank account balances, general ledger balances to data warehouse balances, and consolidation application account balances to general ledger account balances.  Most organizations also maintain reconciliations of general ledger balance sheet accounts such as prepaid expenses or accrued liabilities.


This tedious process is typically performed in Microsoft Excel, where Finance staff manually tie out the list of items in a spreadsheet to those in the general ledger and other systems.  Managers usually send emails or make phone calls to track progress and follow up on delinquencies.  Due to the challenges in tracking account reconciliations, companies typically prepare and review most reconciliations on the same schedule and are often not factoring in risk when determining frequency and due dates.  Common failure points include:


- Missing or lost reconciliations


- Unreconciled accounts


- Improper use of roll-forwards


- Reconciliation of the wrong balance (balance changed after certification)


- Insufficient justification or documentation


When these failures occur, audit findings can result in a significant deficiency or a material weakness in internal control, and costs can reach the hundreds of thousands, or even millions of dollars.


Integrated Account Reconciliation Management Applications Meet the Challenge


Leading edge Finance organizations are now looking to eliminate spreadsheets and manual processes used to support account reconciliations, and adopt packaged software applications designed to automate and streamline the process.  But it’s not enough to have a packaged software application to support account reconciliations, this application should also be integrated with financial close workflow, and the various systems in which account balances and transaction detail reside, such as financial consolidation applications and specific general ledgers.  Key features in account reconciliation software packages include:


- Currency translation


- Audit controls for all activities


- Reporting and Monitoring


- Pushback of reconciliation adjustments to source systems


- Rule based thresholds for automatic certification and risk assessments


- Workflow support for reconciliation process


- Tasks and task assignments


The key benefits of integrated and packaged account reconciliation software packages include efficiency gains as well as reduction in risk to Finance organizations.  Efficiency gains can be measured by the value in labor savings achieved by making the administration, preparation, and review of account reconciliations more efficient.  Reduction in risk can be measured by the avoidance of costs associated with a failure in internal controls around account reconciliations.  If material weaknesses are found and announced in external audits, the consequences can be costly.  Companies incur expenses for additional legal and audit fees and there can be an impact on the stock price for publicly-held entities.


In summary, with increasing pressure to reduce close times and improve the integrity of financial reporting, Finance departments need to eliminate spreadsheets and manual processes and adopt technologies that can help automate and streamline the financial close process and eliminate the chances for errors, omissions and fraud.  Integrated and packaged account reconciliation software applications can help alleviate a major bottleneck in the financial close process, increase accuracy and reduce risk, and can complement existing investments in financial consolidation, financial reporting, financial close workflow and transaction processing systems.


Here’s a link where you can find information about how the new Account Reconciliation Manager feature in Oracle Hyperion Financial Close Management can help make account reconciliations less of a headache:


http://www.oracle.com/us/solutions/ent-performance-bi/financial-close-065894.html


Also, here’s a link to a recent webcast replay on this topic:


https://oraclemeetings.webex.com/ec0605lc/eventcenter/recording/recordAction.do;jsessionid=gLMyQNcpqmQSGGf8h2YNZYT2gcwpdQNyTjvlxMj2hP0rXFJSSDTz!-866538466?theAction=poprecord&actname=%2Feventcenter%2Fframe%2Fg.do&actappname=ec0605lc&renewticket=0&renewticket=0&apiname=lsr.php&entappname=url0107lc&needFilter=false&&isurlact=true&rID=69582487&entactname=%2FnbrRecordingURL.do&rKey=168b45687e963894&recordID=69582487&siteurl=oraclemeetings&rnd=0489765029&SP=EC&AT=pb&format=short


Please contact me if you have any questions or need more information:  john.orourke@oracle.com

Tuesday Jul 10, 2012

Challenges in Corporate Reporting - New Independent Research

Earlier this year, Oracle and Accenture sponsored a global study on trends in financial close and reporting. We surveyed 1,123 finance professionals in large organizations in 12 countries around the world during February and March.


Financial Consolidation and Reporting is the most mature aspect of Enterprise Performance Management with mainstream solutions having been around for over 30 years. But of course over this time there have been many changes and very significant increases in regulation. So just what is the current state is Financial Consolidation and Reporting in our major corporations across the world? We commissioned this independent research to find out. Highlights of the result are:


          Seeking change: Businesses recognize they need to invest in financial reporting to address the challenges they currently face. 47 percent of companies have made substantial investments over the last year to the financial close, filing, and reporting processes.


          Ineffective investments: Despite these investments, spreadsheets (72 percent) and e-mails (68 percent) are still being used daily to track and manage reporting, suggesting that new investments are falling short of expectations.


          Increased costs and uncertainty: The situation is so opaque that managers across the finance function are unable to fully understand the financial impact or cost implications of reporting, with 60 percent of respondents admitting they did not know the total cost of managing and publicizing their financial results.


          Persistent challenges: 68 percent of respondents admitted that they have inadequate visibility into reporting processes, while 84 percent of finance managers surveyed said they find it difficult to control the quality of financial data across the entire reporting process.


          Decreased effectiveness: 71 percent of finance managers feel their effectiveness is limited in some way by data-analysis–related issues, while 39 percent of C-level or VP-level respondents say their effectiveness is impaired by limited visibility.


          Missed deadlines: Due to late changes to the chart of accounts, 15 percent of global businesses have missed statutory filings, putting their companies at risk of financial penalties and potentially impacting share value.


The report makes it clear that investments made to date by these large organizations around the world have been uneven across the close, reporting, and filing processes, which has led to the challenges these organizations currently face in the overall process. Regardless of whether companies are using a variety of solutions or a single solution, the report shows they continue to witness increased costs, ineffectual data management, and missed reporting, which—in extreme circumstances—can impact a company’s corporate image and share value.


The good news is that businesses realize that these problems persist and 86 percent of companies are likely to make a significant investment during the next five years to address these issues. While they should invest, it is critical that they direct investments correctly to address the key issues this research identified:


          Improving data integrity


          Optimizing processes


          Integrating the extended financial close process


By addressing these issues and with clear guidance on how to implement the correct business processes, infrastructure, and software solutions, finance teams will find that their reporting processes are much more effective, cost-efficient, and aligned with their performance expectations.


To get a copy of the full report:


http://www.oracle.com/webapps/dialogue/ns/dlgwelcome.jsp?p_ext=Y&p_dlg_id=11747758&src=7300117&Act=92


To replay a webcast discussing the findings:


http://www.cfo.com/webcast.cfm?webcast=14639438&pcode=ORA061912_ORA

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This blog will highlight key EPM market trends, recent events and other news of interest to our field, customers and partners.

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