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Finance – end of period analysis


Posted on: 18-09-2017 14:04:31733

Last month I blogged about the ‘end of period analysis stress’ in Supply Chain, stating that an ‘end-of-reporting-period’ (EoRP) is always stress, and that the Supply Chain guys and girls get even more stress because ‘the Finance guys’ always ask for information like ‘what will be the inventory level at the end of the month’, … before we are at the end of the month.

It is not a pleasant state to be in, but I also stated that financial controllers too get in overdrive when the ‘EoRP’-time gets in sight. And I know how that looks and feels like. So, I will use this blog to explain to the SC people what your ‘last week of the period’ (end-of-month, end-of-quarter job or an end-of-year job) looks like.

Expectations

First the expectations that you must live up to. A large part of the management population is anxiously waiting to get your figures, and these figures better be correct, don’t they.

Operations managers want to know how their departments (and thus ‘they’) performed on their KPI’s, and that for very good reasons – bad/good performance affects the business’ performance, and it will highly probably effect their bonus and future within the company.

The top of the company also has good reasons to put pressure on timely availability of correct financial results. They want to know how the business (and thus ‘they’) performed. Shareholders are eager to get the information; financing banks use these figures for internal decision making on corporate finance deals, it’s the favorite literature of tax authorities and – for publicly listed companies – financial analysts eat these reports for breakfast. Need it be said that business controllers (who prepare the information) and external accountants (who have to check the information for correctness) face a serious EoRP challenge. I’ll focus further on a specific task of the internal financial people (e.g. Finance directors and controllers):

Assuring that all the financial bookings in the profit & loss and balance sheet accounts are correct.

The approach

Let’s consider the environment where one is running an integrated ERP package (like SAP) where one checks the financial bookings. There are loads of financial bookings to be checked in such an environment. Nearly each operational transaction (delivery note, sales invoice, purchase order, production order, distribution order, …) generates one or more bookings in the general ledger. And, believe it or not, people do make data entry errors, a zero more or less, a decimal point at the wrong place, selecting the wrong customer or supplier, you know the drill. To stamp ‘Correct’ on the data, all transactions should be checked, yet there are thousands of them. That’s undoable, so the approach is:

First, look for exceptionable, unexpected amounts first and dive into these transactions.

Second, look at the transactions of the usual suspects (people known for their sloppiness) and dive into these transactions.

Third, take a relevant sample of the normal-looking bookings and dive into these transactions.

Now what does ‘dive into these transactions…’ mean? Remember, you are working in an integrated ERP system, looking at general ledger bookings, wondering what caused these specific bookings.

The answer? Attack it line per line, clicking on lines, selecting and copying keys (e.g. invoice number), opening operational transaction screens to view transactions, pasting the copied keys in search fields to investigate the listed transaction, then trying to figure out the name of the co-worker who entered or changed the transaction. Line per line, for many hundreds of lines, and for each line with an error the ill doer must be notified and asked to correct the transaction. And when the transaction has been corrected by the ill-doer (if you haven’t corrected it yourself), then you must check whether the adjusted figures yield the expected result. In many cases that work is done in the last week before the publication of the figures. That’s what one could call ‘stress’!

The answer

Wouldn’t it be nice when these precious time-consuming activities could be facilitated? Imagine analysis logic connecting the various general ledger bookings to their causal operational transactions, logic built-in in a self-service information system. Imagine that system doing the analysis for you overnight, for all financial bookings, highlighting the deviations in an action list presented to you on a daily or even a near real-time basis. Imagine you can jump from a suspicious booking reported by that action list, to the causing transaction with just a few mouse-clicks.

You don’t want to be bothered in that last EoRP week figuring out and correcting what went wrong. You would appreciate a system that allows you to do the checks to get the data right daily; a system that frees up time to prepare and substantiate the financial reports.

You need the extra time to use your brain power to execute the complicated task to properly calculate what the company is worth at the end of the reporting period and how departments and people performed compared to their targets. The good news is, if you are using SAP, then Every Angle delivers that kind of support. It may help you getting there.


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