IBM Cognos Financial Statement Reporting (FSR)™ - “Satisfying the multi-stakeholder challenges of the Last Mile of Finance”

9th May 2011

In recent years the growing demands of statutory and regulatory reporting has heaped pressure on an already stretched corporate finance function tasked with completing the so called, ‘Last Mile’ of finance, i.e. the process loosely defined as the stage between the final group consolidation and the presentation of the fully adjusted results and disclosures to internal and external stakeholders.  In this product review, Gary Simon, FSN’s managing editor takes a look at the ‘core’ functionality and XBRL capabilities of IBM Cognos Financial Statement Reporting (FSR) – a solution specifically designed to address the multi-stakeholder environment of the Last Mile of finance.

CONTENTS

INTRODUCTION

Multiple Stakeholders

Variety of end-user tools

Lack of integration and process support

COGNOS FSR – RESPONDING TO THE CHALLENGE

Integration with data

Workflow

Document management

XBRL

Choice of output

‘CORE’ COGNOS FSR FUNCTIONALITY IN DETAIL

Link source data to report data

Variables in text

Embedded Microsoft Objects

Business rules and validation

Data rounding

Collaboration and workflow

XBRL FUNCTIONALITY IN COGNOS FSR

Cognos FSR’s XBRL engine

Tag Once

Cascading reporting

iXBRL

SUMMARY

 

INTRODUCTION

Financial reporting and regulatory disclosure has been in continuous state of flux for almost a decade as politicians, regulators and accounting standard setters around the world respond to the public clamor for more transparency and accountability in publicly quoted companies and large public sector organizations.

Successive initiatives have expanded the breadth of reporting, accelerated reporting deadlines and increased the complexity of disclosures for corporate finance functions. Most recently, the adoption of XBRL as the de facto global reporting standard has ushered in a new era in which statutory reports and filings are delivered as packets of digital information, directly into the hands of regulators such as the SEC and HMRC in the UK.

All of these developments have heaped pressure on an already stretched corporate finance function tasked with completing the so called, ‘Last Mile’ of finance, i.e. the process loosely defined as the stage between the final group consolidation and the presentation of the fully adjusted results and disclosures to internal and external stakeholders.  .

In recent years, most of the attention in financial reporting has been lavished on the earlier stages of the process, such as efficiently harvesting data from subsidiaries and improving the speed and accuracy of data collection, validation, consolidation and reporting. By comparison the ‘Last mile’ has been neglected and remains mired in inefficient processes and poor controls, amplified by a patchwork quilt of technologies, stakeholder needs and inconsistent technical remedies. So there has been a serious mismatch between the burden of additional disclosure requirements (including XBRL) on the one hand and the availability of ‘Last Mile’ solutions on the other, leaving organizations exposed to the risk of error and mounting costs of compliance.

The original concept of Cognos FSR was to deliver a single, secure and collaborative environment in which the corporate finance function could safely manage and deliver a variety of documents to stakeholders in the ‘Last Mile’ process in whatever published format they desired.  But with the passage of time, these ‘core’ capabilities have been extended to meet market needs and bolstered with the addition of XBRL capability designed to meet the pressing demands of regulators around the world. As a result, Cognos FSR has become one of the most comprehensive and popular ‘Last Mile’ solutions.

This product review considers how the ‘core’ functionality and XBRL capabilities of IBM Cognos FSR seeks to solve the challenges of the ‘Last Mile’ of finance.

THE CHALLENGES OF THE LAST MILE

The ‘Last Mile’ represents the final hurdle of financial reporting and regulatory disclosure, covering all of the tasks post-consolidation leading up to the delivery of internally or externally published results in whatever presentation format they are required.  Whereas the earlier (pre-consolidation) phase of the financial reporting supply chain is concerned primarily with the flow of transactions (more usually balances) the post-consolidation phase is mostly about the flow of documents. But effortless document production sits uneasily with the corporate finance function because of the variety of stakeholders that need to be satisfied, the diversity of end-user tools deployed in document creation, as well as the lack of process support and poor integration.

Multiple Stakeholders

For many organizations this represents a serious challenge as information is passed from one functional area (corporate finance, investor relations, public relations, internal audit, external audit, compliance, legal counsel, printers, design house) to another with little or no process support or visibility.

Statutory, regulatory and federal reporting is particularly problematic because of the prescribed nature of the documents and filings required to satisfy legal requirements, the need to re-purpose the same core financial information several times for different stakeholders and the potentially sensitive nature of the disclosures.  Take for instance the reporting of something as simple as ‘total revenue’. This amount could appear as a line in the annual accounts, in segmental analysis in the notes, as a highlighted figure in a CSR report, as a statistic in an environmental report, a fancy diagram in an employee report and a tagged item in an XBRL filing. But how does the organization ensure that the figure is consistent between these different outputs? Or that late changes in a consolidation system are reflected accurately in all of them? That only authorized individuals can make changes and that information is not disclosed before the appropriate time?

Variety of end-user tools

The table below shows the diversity of end user tools typically deployed in constructing internal and external reports.

Report object

Illustrative use

File format

Financial Tables & Schedules

Financial results and comparatives

Word, .doc; Excel, .xls

XBRL

Regulatory filings

XBRL and iXBRL

Bar chart and pie charts

Turnover, profit, volumes, segmental analysis, market share

Excel®, .xls

Diagrams

Production processes, product descriptions

PowerPoint®, .ppt

Photographs

Employees, management, buildings

Bit map or jpeg

 

For most enterprises the variety of file types represents a significant hurdle to efficiency as different preparers of financial statements work in isolation from each other, ‘cutting and pasting’ from one file format to another, or one document to another increasing the risk of error at every stage. The absence of version control gives rise to the need for painstaking proof reading and can raise serious doubts about the integrity of documents especially in an environment which is prone to last minute changes.

Lack of integration and process support

In stark contrast to the well developed processes of the pre-consolidation phase, the ‘Last Mile’ is seriously under-served, with no workflow between stakeholders and no integration between underlying source systems and their outputs (financial statements or other outputs). Given the fractured nature of the underlying systems and processes the passage of documents and spreadsheets between one stakeholder and another is haphazard, time consuming and prone to delay with no visibility of the status of documents or assurance that required checks and authorizations have been issued at every stage.  More worryingly, in the absence of an explicit link (integration) between financial statements and a consolidation system (or other source system) it is difficult to ensure that changes in the underlying system are correctly reflected in the financial statements and vice versa without extensive and costly manual checking by qualified staff.

COGNOS FSR – RESPONDING TO THE CHALLENGE

Cognos FSR’s architecture is game-changing. Essentially it provides a single, secure platform in which to manage the organizational, process and technology demands of the ‘Last Mile’.  So what are the key components of this architecture?

  • Integration with data sources - Cognos FSR’s architecture recognizes that data needs to be drawn from a variety of data sources.  In most cases this is likely to be a consolidation system such IBM Cognos Controller, or Oracle Hyperion HFM but it could be a multi-dimensional OLAP cube such as Essbase or even a relational store.  Cognos FSR is able to establish tight links to a variety of data sources.  Business rules ensure that financial data is validated and embedded variables ensure that key pieces of information are automatically updated when changed in the underlying database. All of this is vital to promoting the integrity of corporate reporting.
  • Workflow - Workflow enables documents to be passed from one functional area to the next in a prescribed and efficient process which ensures that that the status of the document is known, the process is visible to all authorized stakeholders and that permitted changes are made completely and accurately.
  • Document management - A central theme of the ‘core’ architecture is that it provides for the controlled assembly of different document types and file formats into a target document. The architecture leverages Microsoft Word and Excel so that users can continue to work with familiar authoring tools from within the Cognos FSR environment. Additionally, the ability to hold compliance documents, such as audit checklists, alongside report documents adds to the richness of the control environment, allowing CFOs to view reports and confirm compliance at the same time.
  • XBRL - XBRL processing (taxonomies, extended taxonomies, XBRL tagging) is deeply embedded within the Cognos FSR application, allowing users to link regulatory filings directly to financial applications, mark up financial data with XBRL tags and submit SEC and other statutory filings in XBRL format as required. Once accounts or notes have been tagged there is no need to repeat the process from one period to the next.  Cognos FSR ensures that tags are retained when rolling over the period at say, quarter end, the half year and year end. Tight integration reduces complexity, allowing the tagging of financial data to take place without leaving the reporting environment and empowering the finance function to manage the process in-house rather than outsource this sensitive process to third party printers and providers.
  • Choice of output - Cognos FSR is able to generate final reports in a variety of output file formats needed to produce either internal presentations, or external filings and electronic submissions in the correct format. This covers all of the popular Microsoft Office formats but also takes into account  Adobe InDesign format commonly used by the print industry as well as XBRL and the UK specific iXBRL standard.

Fig 1.0 Cognos FSR can generate output directly into Adobe InDesign for high quality document design

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‘CORE’ COGNOS FSR FUNCTIONALITY IN DETAIL

Document management is at the heart of Cognos FSR’s ‘Last Mile’ solution. The application allows multiple preparers of a document, say an annual report and accounts, to collaborate in its production, yet work independently using their preferred authoring tool. For example, the creator of the segmental analysis can work in Excel while the author of a detailed passage of the Chairman’s statement is working in MS Word. 

Fig 2.0 The application allows multiple preparers of a document, to collaborate in its production, yet work independently using their preferred authoring tool such as MS Word and Excel

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Each segment within a report is governed by separate workflow streams, if desired. On completion, each element of a report can be brought together in a single view so that the document owner can view the whole document in one place and assess the progress (workflow status) of each segment together with the percentage completed.

An important feature of the architecture is that all documents are stored within the Cognos FSR environment rather than separately in a shared directory.  This allows the document owner to maintain control over individual segments of a document from within the application as well as to maintain a version history and audit trail of changes and who made them.  At any point in time authorized users can re-visit an earlier saved version of the document and by comparing two stored versions can isolate any adjustments and textural changes that have been made.

Link source data to report data

Financial (and non-financial) values displayed within Cognos FSR are tightly integrated to the underlying data source and, if desired, can share the same data structures i.e. dimensions. This means that any database item referenced in a Cognos FSR report is updated with the latest value in the database. 

This elegant solution ensures that it is easy to establish the provenance of any values; reports are always up-to-date and that any numbers which are referenced in different sections of a report, or indeed in completely different documents managed within the Cognos FSR environment are consistent with each other – ensuring ‘one version of the truth’.

But it is also possible to extend the data structures within FSR independently of the structures residing in the underlying database.  This wider capability has proven to be invaluable to companies who are not able to readily add new reporting dimensions to their consolidation (or other source system) when transitioning from local GAAP to IFRS. By leveraging new data structures in tandem with the journal capabilities of Cognos FSR, IFRS adjustments can be captured in Cognos FSR and multi-GAAP financial statements prepared without implementing changes in the underlying source systems.

Variables in text

A vital function within Cognos FSR is the ability to embed a value from the underlying source data directly into a passage of text, such as a note to the accounts, using plain English syntax to identify the relevant cell reference. Once the variable is applied it behaves just like any other value held in Cognos FSR, so that any changes in the source data automatically refreshes the document with the up-to-date value of the variable.

Embedded Microsoft Objects

Cognos FSR powerfully embeds Excel and MS Word objects directly in the application allowing document preparers to author their documents using familiar Microsoft Office tools yet still work with the full panoply of Cognos FSR functionality. All of the features of MS Word and Excel are accessible from within Cognos FSR so that the user has complete control over the layout of documents and tables as well as data, such as text variables and XBRL tags (see later) that reference the underlying database or XBRL taxonomy.  For more professional or ‘pixel perfect’ document layouts, Cognos FSR is able to generate Adobe InDesign files for further working by design professionals, either in-house or with a design agency.

Business rules and validation

The integrity of Cognos FSR documents is managed by business rules and validation logic which check that data conforms to expected values. In this way Cognos FSR provides an additional layer of control, complementing the validation logic commonly found in consolidation systems as data is migrated from source systems to its destination in a report or disclosure.

Validation logic can also be used in a very specific way to replicate validation tests imposed on reports by external regulators, for example, XBRL validation required for SEC and HMRC filings (see later). In this way, problems can be identified and rectified before submitting statutory filings to regulators that have laid down precise standards.

Data rounding

Rounding differences between summary and detailed sections of a report can be very time consuming to resolve, especially in lengthy statutory documents with complex cross-referencing.  Cognos FSR helpfully provides a choice of automatic rounding routines saving considerable time in the preparation of complex disclosures.

Collaboration and workflow

Workflow is the ‘glue’ which allows document preparers to collaborate in the process of creating, approving and distributing multipart documents.  User-defined workflow describes the sequence of steps necessary to manage the progress of the document from initiation to completion.  A unique workflow routing can be defined separately for the preparer of each segment of a multipart document.  Typical process steps in the workflow could include formatting, spell checking, reconciling, submission for review, approving and so on. The precise route the document takes, i.e. which users are required to perform each step, is defined by the workflow and a document summary screen shows a summary of the workflow status, i.e. which stage or status has been reached for each document segment at any point in time.

Fig 3.0 Typical process steps in the workflow could include formatting, spell checking, reconciling, submission for review, approving and so on.

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So the document owner can see the overall document status at a glance and which document segments and preparers are causing a delay.  A further advantage of this collaborative platform is that document creators are in a position to understand how their actions or inactions contribute to the overall preparation of the document.  More importantly, the system captures the time taken for each workflow step and this information provides a rich seam of information from which to identify process bottlenecks and set internal performance benchmarks for continuous process improvement.

XBRL FUNCTIONALITY IN COGNOS FSR

Despite the lengthy time it has taken for mandatory XBRL (and iXBRL) to come into force, many companies and their software suppliers have been caught unprepared, resulting in variety of inferior remedies reliant on outsourced services, bolt-on applications and standalone conversion tools. Tagging outside of a unified environment, say a bolt-on conversion tool, encourages the possibility that differences will arise between the underlying financial results and what is reported in XBRL filings to regulators.

Yet Cognos FSR demonstrates that the management of XBRL need not be an afterthought or add-on. The key to dependable XBRL reporting is to embed the functionality deeply in the ‘Last Mile’ so that XBRL management and document production are handled in a unified process.

Cognos FSR’s Integrated XBRL engine

In Cognos FSR the XBRL ‘engine’ is inextricably linked to the financial reporting process.  For example, relevant user taxonomies and taxonomy extensions are loaded directly into the application ready to be mapped to report lines.  The mapping process is simply a matter of scrolling through the taxonomy to identify the relevant tagging line and clicking on the report item to confirm a match. But vitally Cognos FSR does not make a distinction between reports used for XBRL and other reporting purposes.

In essence, XBRL is treated as a tag in the same way that text variables (see earlier) are tagged, except that the former references the underlying database and the latter references an XBRL taxonomy.  Additionally, XBRL tags can be ‘nested’ within database references and text variable references so that to the human eye, there is little difference between the preparation of say, the annual report and accounts and a report required for XBRL purposes. This approach means that XBRL disclosures and financial reporting are kept in step, removing the concern that output issued in XBRL says something different from reports generated in other file formats.

Tag Once

A major time saving in the preparation of XBRL instance documents is the concept of “Tag Once” – literally one-time tagging.  Once a periodic report is tagged, those tags are automatically refreshed with the current period’s financial data when the system is rolled over to the next period. This ability to reuse reports avoids the need to re-tag each period and compares very favourably with third party tagging solutions that require tags to be recreated each year.

Where a taxonomy such as US-GAAP has been reissued by an accounting regulator, Cognos FSR references the latest available version, preserving the integrity of the tags previously allocated to financial statements wherever feasible.  In order to aid the review of large taxonomies and the subsequent tagging process Cognos FSR provides search and filtering options which can ‘narrow the field’ when searching for particular segments or account lines in the Taxonomy. 

Text blocks, such as detailed notes to the accounts formatted in MS Word and Excel can also be tagged - so called “Block Tagging”.  Multiple blocks of text associated with the same tag are automatically brought together into the final XBRL instance document reducing the amount of collation and formatting required to generate final disclosures.

Cascading reporting

A strongly differentiating feature of Cognos FSR is that it allows statutory, regulatory, management and XBRL reports which are common to the group to be shared across the enterprise. Cascaded reports allow management at the centre to very readily produce a consolidated view and in an XBRL context, taxonomy expertise can be concentrated in one place - limiting the XBRL training burden in the short term and reduces the risk of errors arising from incorrect tagging at a local level.

Validation

In common with validation rules for traditional reports (described earlier). Cognos FSR allow validation rules to be set to ensure that the XBRL generated is valid for the purposes of filing to regulators. As before, this reduces the likelihood of submissions being rejected or partially rejected at a later stage.

iXBRL

A slight twist in the implementation of XBRL in the UK is that it requires the adoption of a specific enhancement of XBRL called iXBRL or in-line XBRL which allows the same submission to be viewed in machine readable or human readable format in the same document - rather like electronic ‘skins’. By toggling between the two formats an experienced user can view and verify that a set of accounts in HTML format is correctly underpinned by an appropriate (relevant) set of XBRL tags. In Cognos FSR a built-in iXBRL viewer allows the user to view the underlying XBRL tags by selecting the “Highlight XBRL” option from the menu bar and hovering over the relevant part of the financial statements with a mouse.

 Fig 4.0 Cognos FSR’s built-in iXBRL viewer allows the user to view the underlying XBRL tags by hovering over the relevant part of the financial statements with a mouse.

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SUMMARY

Rapid changes in the landscape for statutory reporting across the globe have broadened disclosure requirements, increased complexity and accelerated reporting deadlines.  This has increased the pressure on the closing stages of the financial reporting supply chain, the so called ‘Last Mile’ of finance.

While companies have invested in process improvement around the pre-consolidation phase of group reporting this has not been matched by investment in the ‘Last Mile’.  As a result many corporate finance functions and their equivalents in government agencies find it challenging to satisfy the diverse reporting requirements of multiple stakeholders and ensure that reporting is consistent and accurate. The advent of mandatory XBRL in many jurisdictions and most recently iXBRL in the UK is adding to their reporting woes.

Fractured systems, a variety of file formats, software tools and limited integration with source systems expose corporate and federal finance functions to significant risk of error. A pressing concern is the difficulty of ensuring that accounting disclosures and XBRL filings are completely in agreement with the underlying financial records.

The software market generally has responded with hastily configured options and loosely coupled remedies, many of which sit outside of the ‘Last Mile’ process.  By contrast, Cognos FSR provides a completely integrated solution, with deeply embedded XBRL capability, which merges document production and XBRL capability in a single, controlled environment.  Furthermore, it employs popular Microsoft Office tools, reducing the learning curve and allowing companies to leverage their existing investment in documents. Workflow threaded through the application supports a collaborative approach to document production, enhances productivity and re-establishes process visibility.

Innovative functionality such as “Tag Once”, embedded “Text Variables” and “Cascading Reports” mark out the Cognos FSR solution as a leader in the field enabling the finance function of companies and large public sector organizations to take charge of the process, improve the control environment and keep compliance costs to a minimum.

 

 

 

 

 

 

 

 

About FSN

FSN Publishing Limited is an independent research, news and publishing organization catering for the needs of the finance function. This white paper is written by Gary Simon, Group Publisher of FSN and Managing Editor of FSN Newswire. He is a graduate of London University, a Fellow of the Institute of Chartered Accountants in England and Wales and a Fellow of the British Computer Society with more than 27 years experience of implementing management and financial reporting systems. Formerly a partner in Deloitte for more than 16 years, he has led some of the most complex information management assignments for global enterprises in the private and public sector.

Gary.simon@fsn.co,.uk

www.fsn.co.uk

Whilst every attempt has been made to ensure that the information in this document is accurate and complete some typographical errors or technical inaccuracies may exist. This report is of a general nature and not intended to be specific to a particular set of circumstances. FSN Publishing Limited and the author do not accept responsibility for any kind of loss resulting from the use of information contained in this document.

 

 

 

 

 

 

 

 

 

 

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