Consolidated financial reporting is a process that many businesses undertake in order to properly measure their assets, liabilities, income, expenses and other factors. Yet due to the complexity and / or lack of properly integrated systems issues can and often do arise. Here are five common problems associated with consolidated financial reporting, as well as a way you can solve them.
It would be much easier to do business and report your financials if every department or subsidiary within your business used the same applications. But with a huge number of applications available around the world, financial reporting can be tricky when you need to pull data from multiple sources and then present or manipulate it in a standardised way.
Many companies seek to counter this problem by adopting a single-system or ERP approach whereby the entire company adopts one overall solution to manage its reporting. However, this can be a costly process, requiring not only a large investment in the software itself but also in training users how to use it.
After this change, it’s even possible that the software won’t be as flexible as required. If other companies are acquired that aren’t on the same system, more time and resources will need to be spent in order to integrate their data and update their systems.
With different applications in use or with data needing to be consolidated from multiple sources, often the simplest method is to manually enter or collate the data. This, however, can create additional problems as many errors can occur, resulting in figures not matching across the different systems.
Companies are not being able to get the right information from the current systems, so staff members end up creating manual processes through Excel to overcome these issues, which leads to more work, more mistakes and few people knowing how to get the right data, if any.
This then creates further problems as the errors need to be identified and rectified.
With trained staff needed to oversee the consolidation of data, and then more time spent on checking that the data is free of errors, this adds to a business’s costs through lost productivity. With all departments expected to find savings in time and costs, it’s unrealistic that the consolidation of financial statements should drain even more resources. If your company is large, it’s also likely that there will be multiple centres managing your data – which are costly in and of themselves – adding to the complexity of consolidation.
Nevertheless, in order to provide a coherent and comprehensive picture of a company’s financial health, data consolidation is a necessary step to take. There are better ways of undertaking data consolidated that will actually increase a company’s efficiency and reduce their costs, thus minimising the number of setbacks you have to encounter.
Data integrity and security
As stated above, with multiple computer applications running and many users needing to interact with your data, mistakes are often inevitable. Not only that, it’s not always clear who is looking at your data. It should go without saying that this can create multiple problems for your business, affecting not only your bottom line but also your reputation.
It’s important to enact validation processes and access restrictions so that your data retains its integrity and can only be accessed by those users with the appropriate authorisation. Implementing automatic alerts to validate data can help remove the human element from the equation and guarantee sufficient checks and balances are in place.
If your business manages or is part of a group of subsidiaries, it’s important that profits, liabilities, assets and intercompany costs are set up correctly to ensure that the data accurately reflects the current financial situation of the company. Without consolidated and customisable data, it can be difficult to ascertain a comprehensive financial view, particularly if generally accepted accounting principles (GAAP) aren’t actually taken into account, such as management fees, loans or sales between subsidiaries.
For the above reasons and many more, it’s vital that a company approaches the reporting of consolidated financial statements as an important and necessary step, and for them to have options available to them to address their needs.
ITeM Group’s new whitepaper on the subject explains in greater detail how businesses can automate the consolidation of their financial statements.
To download the whitepaper, please click here.