When market conditions get tougher most companies seek to reduce their cost base and improve efficiency, but regulation, compliance and statutory reporting are business costs that cannot be shed easily in a downturn. A compliance ‘industry’ around the globe has mushroomed over the last decade increasing the breadth and complexity of statutory reporting as well as the frequency with which listed companies have to make public disclosures to shareholders, investors and other readers of financial statements. Gary Simon, FSN’s managing editor, reports on a ground-breaking development from Clarity Systems that is designed to ease the burden.
These concerns about velocity of reporting, document production and compliance have spawned a new industry concerned with processing around the so called, “last mile” of finance – the post-consolidation phase of the reporting supply chain which deals with the presentation of financial information in internal Board Packs, published ‘glossy' Annual Reports and Accounts, or in PDF documents on the internet and more recently statutory filings in XBRL.
Clarity Systems breaks the financial reporting mould
A Deloitte study following the UK 's introduction of the EU's Transparency Obligations Directive (TOD), found that the average length of the half yearly financial report had increased by 27% in just one year. If this experience were extrapolated to the Annual Reports and Accounts (that in most cases already run to more than 100 pages) then it does not take much imagination to appreciate the scale of the reporting burden.
Furthermore, anxiety about compliance appears to go hand-in-hand with the growth in reporting. For example, it appears that Sarbanes-Oxley (SOX) has lengthened the time it takes for many US companies to make their preliminary earnings announcements or release their audited results as cautious CFOs trade-off speed of reporting for compliance. The overriding concern for CFOs is whether the statutory reports are dependable and accurate rather than the efficiency of the group reporting process.
Over the years the “last mile” has grown more burdensome as the variety of disclosures, reports and formats has grown. Part of the difficulty is the number of parties involved in the final throes of the group consolidation process. The finance department clearly has primary responsibility for marshalling the final numbers, but the presentation is altogether a different matter. Investor relations, external PR bodies, internal auditors, the company secretary, external auditors, the Board, CFO and even printers have a stake in the final look of a document. The fact that statutory reporting these days has partly transformed into a marketing exercise and a means of delivering a corporate message has added to the pressures.
Yet in systems terms, high quality document production sits uneasily with group reporting applications. The scope for error as structured and unstructured information is transcribed from reporting system to Excel, PowerPoint or Word or from the group system to a file format acceptable to external printers is significant. Furthermore, the risk of error is even greater these days as information is expected to be disseminated more widely and in a variety of different report formats and media for different stakeholders, for example, a CSR report produced on the web or an environmental report produced as an addendum to the Final Report and Accounts in hard copy.
The problem with group consolidation systems is that historically the focus of information delivery has been driven in the first instance by the need to satisfy internal information needs rather than the rapidly growing demands of external stakeholders. As a result, information delivery tools integrated to group reporting systems are skewed towards rapid analysis and flexibility of reporting rather than the production of high quality output to the web or hard copy. Excel add-ins, for example, are typical of the tools employed to generate ‘quick and dirty' reports destined purely for internal consumption.
It is a situation very familiar to Clarity Systems, a provider of performance management applications and the developer of a pioneering solution called Clarity FSR (Financial Statement Reporting) which provides the capability to manage the preparation of internal and external reports (Annual Reports & Accounts, prelims, interims, quarterly management reviews, SEC Forms 10K, 10Q & 20F, LSE RNS Submit templates, prospectuses, industry submissions, board books, management reports) in a single controlled environment directly from a consolidation system - either Clarity’s own offering (Clarity 6) or any of the alternatives in the market.
A combination or workflow and version control coupled with audit trail and compliance checklists (if required) allows last minute changes to be tracked through to final document production in a variety of common formats such as Word, PDF and even XBRL. The ability to ‘roll-over' documents in the same way that financial systems are rolled over from one period to another means that the work involved in preparing disclosures from one period to another is greatly reduced.
It is perhaps unsurprising then that Clarity Systems’ strategic briefing event in London last month at which it set out its strategy for growth attracted significant interest from a range of household names in the FTSE 100. Clarity FSR is filling rapidly the vacuum in capability left by IBM, SAP and Oracle following the acquisitions of Cognos, Business Objects and Hyperion. As a result, Clarity Systems, which is a privately owned company, is experiencing growth rates of 100 percent per annum and last year opened a new Singapore office to service Asia-Pacific on top of its existing international distribution network.
The success of Clarity FSR is notable for two reasons. Firstly, there is a clear gap in the market around the management of document production in group finance and Clarity is demonstrating leadership in this area. Secondly, it highlights the strategic advantage of the smaller vendors which are able to develop and bring to market highly relevant products more rapidly than their larger competitors some of which are still mired in post-acquisition re-organisations.
The “last mile” of finance remains a significant impediment in most listed companies and even in a downturn, most companies will seek to improve the efficiency of the process. For the time being it seems that Clarity’s strategy is spot on.
Related FSN articles:
