In this new FSN white paper, Gary Simon, FSN’s managing editor explores how a recently launched ground-breaking Disclosure Management product called “Cadency Complete” from Trintech utilises ‘Best in Class’ technology from Microsoft, Adobe and Fujitsu for the three pillars of disclosure management, namely; document authoring, content management and XBRL.
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THE CHALLENGES OF THE LAST MILE
TRADITIONAL ‘SOLUTIONS’ HAVE NOT SOLVED THE DIFFICULTIES
THE BENEFITS OF CADENCY COMPLETE
The ability to close the books, consolidate group results and publish statutory accounts and filings in ever decreasing timescales has become something of a corporate obsession for the last two decades. Announcing results quickly to the stock market after the year end is widely regarded as a proxy for good corporate governance, a ‘tight ship’ and a competent management team.
Indeed a recent analyst report1 went as far as suggesting that one of the most effective ways of measuring a CFO’s effectiveness is the length of time it takes to close the books. Another study2 further underlined the importance of the close with the assertion that 47 percent of companies have made substantial investments over the last year to their financial close, filing and reporting processes.
Although speed of close is clearly important it cannot be the regarded as sole determinant of success. Set against unprecedented market volatility and uncertainty, the robustness, integrity and quality of the close process is equally important to public and private entities alike, both at the level of the reporting entity and at the corporate center.
But there are signs that historic systems and processes are under strain and in some cases reporting timescales have gone into reverse3, apparently buckling under the strain of increasing reporting scope, complexity and compliance. Underlying systems and processes have been unable to keep up and despite higher levels of investment, confidence in data quality is at an all time low, deadlines are frequently missed and CFO’s have insufficient visibility of the process that underpins financial reporting2.
As a result of all of these developments the modern finance function is living in a ‘pressure cooker’ environment, constantly on the ‘back foot’, trying to balance the needs of the business with regulatory directives while never dropping its guard on financial risk and compliance.
So is there a better way? What can be done to restore tranquility and control to the finance function?
THE CHALLENGES OF THE LAST MILE
“Dissonance and discord”
The so called, ‘Last Mile’ of finance is the historical term used to describe the narrative (post-consolidation) phase of the reporting cycle in which a variety of financial data and tables, documents and narrative are assembled into one or more reports and filings for internal consumption and external stakeholders. It is an environment which requires collaboration, communications and control spanning numerous financial reports and disclosures created from across the global finance operation.
But for many companies the Last Mile is characterised by informally defined and inefficient processes which have been developed and added to hastily over time to meet specific regulatory requirements such as Sarbanes Oxley, environmental and sustainability reporting, carbon reporting, management disclosure and analysis (MDA) and XBRL. As a result, the creation, review and validation of reports and filings is often a risk laden set of manual and disjointed processes within the corporate finance function, exacerbated by the number and variety of stakeholders, reporting formats and software tools in play.
The preparation of the Annual Report and Accounts and related periodic filings such as 10- K’s and 10-Q’s vividly illustrates the number and variety of stakeholders involved in corporate reporting. The initial preparation of the document may reside in the corporate finance department but other functions such as internal audit, compliance, external audit, investor relations, public relations, printers and design houses quickly become involved in reviewing the documents from their important, yet narrow perspective.
Each review has the capacity to produce queries, editorial amendments, presentational and accounting changes which have to be rapidly assimilated, checked, reviewed and approved before the document can be finalized. And each of these interventions creates potential challenges for version control and delays as documents shuttle back and forth between stakeholders. At any given point in time the CFO has little or no visibility of the status of the process, any problems being encountered or the expected time to complete.
But the statutory year-end process involves more than the preparation of a single set of accounts. There are likely to be a number of reports being prepared in parallel – very often containing overlapping content, presented in a variety of ways to suit different audiences, for example, environmentalists, employees, customers, investors and suppliers.
This ‘multi-purposing’ of the same information presents several challenges for the corporate finance function, such as;
- maintaining consistency between the same or similar information presented to different stakeholders
- efficiently re-purposing the same report for different digital media or information delivery channels, for example, SEC, HMRC, web, social media and traditional print
- managing the assembly of complex documents across multiple preparers in different functional areas – while maintaining visibility and control of the process
- developing a technical platform capable of providing process support (workflow, version control, task and issue management) in a fluid and dynamic environment
- maintaining cast iron control over disclosures so that internal and external reports and filings are complete, accurate and dependable.
Keeping the words and numbers synchronised
In broad terms the pre-consolidation phase of the financial reporting process is largely concerned with collecting numbers, such as ‘Year-to-Date Actuals’ from reporting entities and summarising them into a management and statutory consolidation. The ‘Last Mile’ or post-consolidation phase is primarily concerned with merging those numbers into meaningful financial reports, disclosures and commentaries.
But the ‘record to report’ cycle (pre-and post consolidation phases taken together) is a dynamic process with both numbers and narrative constantly under review and subject to change. Keeping them in step can become a significant challenge particularly when numbers and narrative originate from different sources, are captured in different file formats, are managed by different people and may end up cross-referenced in complex patterns within the same report and between different reports and disclosures.
Unifying controls and financials
Historically, responsibility for internal financial controls has been blurred, residing outside of the core financial reporting process with heavy reliance being placed on internal and external audit functions to act as a ‘check and balance’ on the integrity of financial reporting.
Sarbanes Oxley fundamentally changed the thinking by drawing responsibility for controls design, testing and monitoring into the heart of financial reporting so that, for example, items in the balance sheet could be matched with the underlying controls on which the CFO places reliance. But for many businesses, the documentation of controls still lies physically outside of the financial reporting process and it is therefore much more difficult to correlate confidently the numbers with the underlying controls which govern their integrity.
Digital data and e-filings
Digital filings or efilings have added complexity and a new dynamic to the reporting process. Now individual items in the accounts are required to be rendered in XBRL in most jurisdictions around the word, giving rise to the need to maintain a tripartite relationship between, a numeric value in the accounts, an explanatory footnote and the equivalent item in XBRL. Maintaining and controlling these complex relationships represents a significant challenge when racing against the clock with limited process support
Last Minute changes
Last minute changes are a quasi permanent feature of the Last Mile. Management and audit reviews often give rise to late changes in the process as new information becomes available and policy decisions are finalised. But the advent of outsourced XBRL tagging services has introduced new tensions as documents are sent outside of the organization to be tagged against XBRL taxonomies. This has given rise to the term, “pencils down period” to reflect the period of inactivity between sending the accounts for tagging to a third party and getting the tagged document back; or simply raising a late adjustment and getting the revised accounts back.
Tensions between companies and outsourced tagging partners have risen because of the inefficiencies in the process, the long turnaround times, inaccurate tagging and high running costs.
Risk of error and misstatements
A combination of informal processes, poor process support, multiple stakeholders, outsourced XBRL, separate controls monitoring, poor process visibility and last minute changes significantly raises the prospects of errors and misstatements in the ‘Last Mile’ of finance.
TRADITIONAL ‘SOLUTIONS’ HAVE NOT SOLVED THE DIFFICULTIES
“Everything working to a different beat”
At the heart of these problems is an over-dependency on fractured manual processes, a variety of personal productivity tools and specialised point solutions that are unsuited to an environment which requires collaboration, communications and control spanning the whole of the reporting cycle. So what are the limitations of historic approaches?
Personal productivity tools
Microsoft Office productivity tools such as Microsoft Excel and Word are the mainstay of both statutory and management reporting. Direct integration between Word, Excel, PowerPoint and group consolidation systems provides a simple means of generating the first ‘cut’ of operational, statutory and regulatory reports but are of limited value in the context of the Last Mile. The lack of process support, version control, task and issue management renders a spreadsheet or Microsoft Word-bound approach vulnerable to errors and delays and requires huge manual intervention to exert control and transform numbers into ‘polished’ documents suitable for external consumption.
First Generation Disclosure Management Tools
First generation Disclosure Management products are designed to tackle the issue of collaborative document preparation by providing a secure, ‘black box’ environment in which participants with different roles and responsibilities can collaborate in the assembly of complex document types and filings while continuing to work independently. So, for example, several members of the finance team can work simultaneously on different parts of the Annual Reports and Accounts, which are eventually merged to form a single document which can be rendered in different formats.
At first sight, such an approach seems to overcome the principal limitations highlighted above. But on closer inspection many of the fundamental concerns remain, as follows;
- these early Disclosure Management products tend to be ‘linear’ in approach, confining contributors to work on one document at a time.
- they fail to recognise the need to work on many documents simultaneously and share content across them.
- workflow is of limited value because the linear approach cannot readily accommodate the preparation of multiple document s
- the design tends to be accounting-led rather than process-led. This often means that document authoring and control is primitive, authentic Microsoft Word and Excel capability is sacrificed in favour of poor emulations, collaborative working is confined to a crude workflow and finally, the scope of version control and integration with underlying systems is limited.
Fig 1.0 First generation Disclosure Management is linear, i.e. multiple contributors collaborating around a single document at a time – a ‘one-to-many’ relationship
In practice these first generation products, designed for a less demanding era, have been able to fulfil the limited requirements around the preparation of statutory accounts (since this was the major driver behind their design) but have not really tackled the multi-faceted needs of the broader reporting environment which now pervade the Last Mile.
ERP-based Corporate Performance Management (CPM) suites
Theoretically, the large ERP-based suites which include Disclosure Management software should be at an advantage. They have the broadest range of functionality (although not necessarily the best-of-breed in all circumstances) and can boast the ability to integrate with their ‘captive’ ERP systems. But all is not as it appears. The applications which make up these large suites have in many cases been added to individually over a period of time through acquisition and assembled into a master suite. In theory this should provide seamless integration, consistent use of metadata and ensure that documents and numbers are always synchronised. But in practice the different design and origins of each part of the suite (although by now greatly re-engineered) often limit the effectiveness of integration and in many cases the Disclosure Management capability suffers from the same limitations as other offerings.
Furthermore, the notion that ERP is the primary source of data for an increasingly diverse set of statutory and regulatory reporting requirements is not born out in practice. Today’s Disclosure Management has to contend with a large number of data sources, many of which reside outside of the ERP environment. Taking into account XBRL taxonomies, narrative disclosures, non-financial information and stretching regulatory reporting needs such as (Solvency 2) some observers consider that far less than 50 percent of the information needed to fulfil the broad range of requirements actually resides in the ERP or consolidation system.
The overwhelming complexity of group financial reporting has spawned a whole raft of niche solutions in the Last Mile, such as ‘pure’ document management, XBRL conversion tools and task management solutions.
The advantage of these ‘Best of Breed’ solutions is that they fulfil a specific need. For example, a pure document management approach in which key documents and associated workflows are managed completely separately from the underlying financial systems brings the benefit of simplicity, better visibility of documents and version control. XBRL conversion tools can provide immediate relief for those companies that need to tag a simple set of statutory accounts held in MS Word or Excel and submit them in iXBRL or XBRL format.
But tactical niche solutions such as these are unhelpful in the long run. The ‘Last Mile’ is an intricate set of closely interwoven processes with complex dependencies that can only be fulfilled by an over-arching solution. Investment in discrete specialised solutions simply paves over the cracks in processes and does very little to promote long term efficiency and productivity in the Last Mile.
So what would a next generation ‘Last Mile’ solution look like?
HOW CADENCY COMPLETE MEETS THE CHALLENGE
“Putting the rhythm back into the Last Mile”
Cadency Complete is the first of a new generation of Disclosure Management products which is neither accounting-led nor document-led. Cadency Complete solves the problem of the Last Mile by putting the process of collaboration at the centre of the solution realistically reflecting the way people work in practice and equipping them with the essential pillars ( Adobe LiveCycle, Microsoft Office and SharePoint, Fujitsu XBRL) to make the Last Mile a more fulfilling and productive experience.
With collaboration at its core Cadency Complete invites a new way of working which represents a significant departure from first generation Disclosure Management solutions. Take for example the following innovations:
Binders of Binders
Cadency Complete brings genuine content management into the Last Mile. It recognises that in practice there is a portfolio of documents that need to be managed in the finance function, some of which share common content, contributors and ownership whilst other are completely independent. This fundamental shift is neatly encapsulated in the concept of ‘binders’, (which takes its nomenclature from the physical binders and files it replaces) i.e. a collection of documents and other content.
‘Binders of binders’ takes this an important stage further by organising content into a hierarchy of binders. This lends itself naturally to an environment in which content needs to be shared collaboratively between different stakeholders and content authors.
Each of these content managers can be working independently but in parallel on different projects, for example, a sustainability report and a balance sheet, yet share and work on common content in a controlled environment. Furthermore, as is likely to be the case, they can be working in different locations and time zones. Cadency Complete helps organizations to manage critical content on an Enterprise Scale and work collaboratively with third parties beyond the fire wall, such as external auditors and design houses, printers and outsourced XBRL tagging providers.
But the principle of collaboration works at a deeper level of granularity as well. Documents can be divided into ‘fragments’ (numbers, narrative or both) which are assigned to different authors.
Fig 2.0 Cadency Complete allows fine tuning and editing of ‘fragments’ of text.
A different challenge is to ensure that any last minute changes such as final accounting adjustments or refinements to wording of statutory notes and narrative are accurately reflected in the final version of the document. When several individuals, in different functional areas are permitted to make changes, version control can quickly become problematic.
By leveraging the Adobe LiveCycle environment, Cadency Complete ensures that access to sensitive year-end documents can be routed between group finance, public or investor relations, designers, legal department and auditors with a considerable amount of control. For example, the system can govern who receives a document, who can open it to read it, who can change the contents and even when the document is no longer available for viewing and amendment. The administrator of the system has a full audit trail of who opened the document, to whom it was forwarded, when and how it has been changed.
But for the most sensitive situations the technology has embedded signatures that, for example, show the recipient who has authorised the document, or perhaps who has changed it since the last time it was authorised. Using ‘digital signatures’ in this way helps to ensure that final authorised versions of the accounts are correctly identified and that the appropriate authorised version is sent to the external printers for production of the final copy.
At the core of the collaborative capability is a workflow engine that allows content to be routed in any user defined way. This caters well for the less codified processes that typify the Last Mile. Users can publish content, create a list of reviewers, (inside or outside the organization), and define approval stages, deadlines, and escalation guidelines.
The content is then automatically converted into PDF, enabled for inline commenting.
A key advantage is that the finance function is empowered to do things for itself. It can monitor and modify the process at any time without involving IT. The process can also be integrated, if desired, with enterprise resource planning ERP, consolidation systems and other data sources as desired, cutting the cost of automating cross-functional processes and preserving investments in existing systems.
The Adobe environment provides the ability to design the document once but render it in any number of popular formats. Many first generation Disclosure Management products allowed for the re-purposing of content in this way but crucially were limited to
one document to many output formats. The ‘binder of binder’ concept takes this a stage further by allowing multiple related documents to be assembled and published in parallel, i.e. many to many.
Fig 3.0 Next generation Disclosure Management allows parallel content preparation, and ‘many-to-many’ relationship between documents, outputs and document authors
The user experience
Microsoft Word and Excel are the ‘work-horses’ of the finance function. It’s the preferred document authoring and working environment for most people and its familiarity is a major boost to productivity. Cadency Complete leverages this capability by faithfully adhering to the Microsoft technology stack rather than implementing an emulation product, which risks potential glitches in relation to forward and backward capability with genuine Microsoft files. Furthermore, the Cadency Complete solution can leverage existing investments in Microsoft SharePoint for specialised additions to the process and workflows falling outside the scope of the Last Mile.
XBRL tagging and taxonomy management
Fujitsu is one of the foremost solutions for XBRL tagging and efilings and is the third pillar of the Cadency Complete solution. It allows users to build, validate and analyze XBRL submissions for multiple jurisdictions around the world, such as the US SEC and UK HMRC (iXBRL). Taxonomies are easily imported and users can quickly view and compare multiple filings side by side without in-depth knowledge of XBRL. It provides easy to use and intuitive navigation with a drag-and-drop environment, context-sensitive menus, and powerful search-and-filter capabilities to rapidly find relevant data. It also works efficiently with Microsoft Word and Excel.
Fig 4.0 Cadency Complete leverages the Fujitsu XBRL engine
THE BENEFITS OF CADENCY COMPLETE
“All parts of the orchestra working together”
The uniqueness of the Cadency Complete solution is how it combines some the best technologies for content management, XBRL tagging and personal productivity in a single environment. But how exactly does it solve the issues of the Last Mile and why does it stand out against first generation solutions?
Cadency Complete users have the flexibility to deploy and consume their applications any way they want, and change their approach as their business requirements change. So, in addition to traditional on-premise models, users can deploy Cadency Complete as a hosted/managed application or consume the application on demand as a SaaS (Software as a Service) solution.
But none of these deployment options are disruptive. They complement existing investments in IT and work sympathetically with any of the popular ERP and consolidation systems.
The powerful Adobe content management system which underpins the Cadency Complete solution provides sophisticated functionality coupled with a high level of control over the process. Users and administrators have instant visibility of the status of documents and issues around their compilation. It allows complex sets of documents to be managed in a single environment and for the finance function to engage with process participants wherever they happen to be, i.e. within or beyond the corporate firewall.
As such the Last Mile can transcend functional or physical boundaries, limiting the impact of ‘pencils down time’, for example between printers and external tagging bodies, leading to far greater accuracy and complete process visibility for finance function administrators.
Finance function productivity and responsiveness
Cadency Complete enhances productivity in the Last Mile by seamlessly linking the tasks, issues, workflows and reporting in a single collaborative environment which can handle multiple stakeholders and document types. Historically, time has been lost in the gaps between processes and the hand-off of documents between users working in isolation. Even where first generation Disclosure Management tools have been deployed, the inability to manage disclosures in parallel has limited the impact on productivity.
Cadency Complete, represents a step-change in efficiency because it is process-agnostic and can be used to drive the preparation of content and documents in a wide range of finance settings, such as management reporting, environmental reporting, the monthly Board pack, budget commentaries and so on.
Ease of deployment via a SaaS model coupled with support for mobile working adds a further important capability in support of productivity since documents can be approved on the move, further reducing time intervals between tasks in the process.
External Auditors too can benefit from inclusion in the workflow, the accelerated passage of documents between approval stages and the robust auditability of all of the changes held within the content management system. The ability to better manage the confidentiality of sensitive market information is an important addition.
Platform for continuous process improvement
Historically, the aspirations for Disclosure Management have been limited to statutory reporting but with the flexibility of deployment options, mobile computing, and highly configurable work flow there is almost infinite scope to refine processes as part of a programme of continuous process improvement.
Reporting on the workflow engine, specifically the duration of each sub-process or task, can guide administrators to bottlenecks in the process and provide benchmarks for continuous improvement. Experience gained in one process area can be carried over to other process areas, ultimately stretching Disclosure Management across the entire ‘Record to Report’ cycle.
Many corporate finance functions are struggling to cope with the unrelenting burden of compliance and regulation coupled with unprecedented market volatility and risk. While there has been significant progress in the collection and consolidation of data, there is rising dissonance and discord in the ‘Last Mile’ of finance. Content management does not sit easily with finance functions more accustomed to working with numbers and spreadsheets. They neither have the enabling technologies nor time to streamline the haphazard processes that characterise the Last Mile.
Numbers, narrative and XBRL all coalesce around the last half of the Record to Report cycle and traditional approaches such as ERP, Microsoft Office and niche products have done little to alleviate the challenges. As a result multiple stakeholders are left to fend for themselves – everyone working to a different beat as they each set about producing reports for different stakeholders more or less independently using outdated technology.
But these reports have much in common and the key to the way forward is to create the conditions in which individuals from different functional areas can collaborate, i.e. to create a ‘many-to-many’ environment in which multiple stakeholders and document authors can work in parallel, sharing content where necessary and re-purposing it for the many delivery channels in which information has to be published.
Cadency Complete is a next generation Disclosure Management product that utilises the ‘Best in Class’ technology (Microsoft, Adobe LiveCycle and Fujitsu respectively) for the three pillars of disclosure management, namely; document authoring, content management and XBRL. These three components work rhythmically to streamline the processes of the Last Mile, complementing legacy investments in ERP and other operational systems.
By joining all stakeholders, whether inside or outside of the corporate firewall, in a single seamless environment Cadency Complete is able to restore harmony to the Last Mile, providing complete visibility of the process, while enabling a higher level control, accuracy and productivity – giving the CFO peace of mind and confidence in the integrity of any reports and disclosures.
Note1 Robert Kugel, Ventana Research Blog Post July 2nd 2012 based on Ventana Bechmark study, “Trends in Developing the Fast, Clean Close”
Note2 “The Challenges of Corporate Financial Reporting, May 2012, Accenture and Oracle
Note3 Ventana Research “Fast, Clean Close Benchmark” March 20th 2012
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.
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