The Art of Financial Reporting

The typical Maltese business is often a group of disparate but related business entities, each with their own focused scope and reasons for being. This is often coupled with different technologies being utilised to run the various companies, the focus been to support their individual operations, often to the detriment of the support of financial integration and planning.

The solution in the past therefore has been to deliver group consolidations, through the “brute force” of accounting labour. Performing consolidations manually, with an available accounting team was possible ten years ago, when resource was more readily available, but in the current climate such resource is increasingly scarce. The consolidation of group financials was often done late, slowly and with questionable accuracy to fulfil the bare minimum of requirements that were demanded from the perspective of statutory reporting.

Now, the business climate is changing and quickly. Business growth is outstripping the business operations ability to keep up, they demand better information (management reporting) on which to make decisions. Equally, regulatory reporting in many industries is increasing at a frightening pace; e.g. Common Reporting (COREP) and Financial Reporting (FINREP). Finally, many corporate groups now choose to secure funding via bond issues or initial public offerings (IPOs) that will impose a stricter reporting regime on them.

Overhauling and standardising a corporate group’s accounts, practices and systems is definitely the fundamental avenue to explore. However, equally important is that there is an improvement in systems support of financial planning and reporting in general. This can be facilitated via a family of products known as Enterprise (or Corporate) Planning Management solutions (EPMs or CPMS).

How does EPM work?

EPM solutions are designed to take receipt of your key business information, for example, each company’s trial balance as a start. This trial balance starting point can be supplemented with adjustments, further operational data and key KPIs. All this is facilitated by a portal where potentially remote and disparate financial controllers can feed their data to a “group HQ”. Persistent intercompany consolidation rules can be defined within distinct consolidation scenarios that may support different accounting standards (e.g. IFRS or GAAP). Intercompany transactions can be identified automatically or manual flagged. Minority shareholding, differing company currencies and subgroup consolidations are also easily accommodated. All the above is delivered in a timely efficient consolidation with case studies claiming time savings of up to 90% on their legacy manual equivalents. This means that performing such consolidations can become much more “business as usual”; therefore, not only in supporting statutory end of year reporting, but also in time and with a frequency that can support your leadership’s in decision making cycle, on a monthly, even weekly, basis.

Data dissemination

The support of these solutions then also extends into the presentation layer. For example:

• The better EPM Solutions can be integrated to Microsoft Office to directly provision your branded reports from your live data.
• The annual shareholder’s report can be delivered to the relevant word document template reducing opportunities for mistakes during re-entry.
• Monthly management reporting can be delivered directly into the boards PowerPoint presentation, ensuring everyone works from one consistent set of numbers delivered in a common format.
• Seeing an accurate consolidated cash flow, or creditor and debtor positions and profitability provide invaluable confidence and consistency when dealing with external third parties be they banks, clients or venders, as a single coherent group.

Extended integration

Such solutions can then push into extended domains to further enhance their value. Budgeting and planning is supported, allowing you to manage group level budgeting and run associated comparative reports at a group / subgroup level or indeed at individual entity level. Integrated sales and operational forecasting, along with being able to run “what-if” scenarios, allows financial goals to be defined and monitored.

Quality or specialised EPM solutions will be able to provide specific sector or industry support. For example, companies looking toward funding via IPO or the issue of bonds will soon be required to provide their annual reports in XBRL format to the financial authority. This requires the “tagging” of financial reporting, providing it with an electronic hierarchy and syntax difficult to achieve without proper systems support. EPMs facilitate this.

Industrywide application

For industries that require “specialised” and specific reporting, EPMs can again assist. For example, in the banking sector, such solutions can assist in the delivery of COREP and FINREP reporting. They can help to deliver on evolving IFRS and GAAP demands. Insurance companies can also be assisted in delivering their Solvency II commitments.

While such solutions allow for the direct management and maintenance of your financial data, they can also be seen as a predefined financial / KPI data mart. They allow for integration with existing business intelligence (BI) reporting tools, that will users to explore further specific questions about the financial health and direction of your companies or group as a whole.

Combined factors, such as increasing global competition, tighter regulation and a need to focus skilled resources on decision making, rather than the compilation of data reporting solutions, EPM platforms will play an increasing role in the Maltese business landscape.