Deloitte and IBM for Accelerated External Reporting
Deloitte Insights video
Watch this video to listen from Andrew Hickey, partner, and Scott Rosenfelder, director, both of Deloitte & Touche, discussing Deloitte’s approach to Accelerating External Reporting (AER). In this short segment you will learn how Deloitte helps companies create an efficient, sustainable and technology-enabled processes to enhance external reporting and overcome operational inefficiencies, enabled by IBM technology.
Andrew Hickey, Partner, Deloitte & Touche LLP
Scott Rosenfelder, Director, Deloitte & Touche LLP
Sean O’Grady (Sean): Welcome to Insights, on this episode we are continuing our coverage on the ways financial professionals may increase efficiencies and reduce risk in the last mile of finance. That period of time, at the end of each quarter, when the books have been closed and the pressure is on to finalize performance reports. With us in the studio for this conversation is Scott Rosenfelder, a director from Deloitte & Touche LLP and we also have Andrew Hickey, a partner also from Deloitte & Touche LLP. Andy I know we are here to talk about accelerated external reporting, but before we do that I would like to drill down into what is driving this, so could you summarize the market.
Andrew Hickey (Andrew): Thanks Sean. The market for accelerated external reporting starts with when we talk to our clients about the level of effort necessary to prepare their financial statements and other external reports; it is a tremendous amount of effort. First we need to start talking about how much time does it take to close the ledger, it takes anywhere from four to 15 days to close a ledger, but then we ask them, well how long does it take to actually prepare the financial statements, its 30+ days. And so there’s a 20+ day differential between when they close the books and the actual preparation of the financial statements and the question is, why does it take so long to do that and the answer to that we believe is accelerated external reporting.
Scott Rosenfelder (Scott): One of the things that we really enjoy about working with our clients is really digging into their process and one of the things that accelerated external reporting has started to bring to the table is the ability to enable this with technology. So, as we start to look at these processes and unwind what they are doing, why does it take 20 to 30 days, what are some of the challenges that they are dealing with. What we are finding is it is quite manual in effort, but it is repeatable. And because of that and because of the new technologies and we are really excited about what the new technologies are bringing out into the market space today. And with that new technology, we are able to build and create a strategy around how to improve their reporting process all the way through, all the way out to the reporting needs and make it much more efficient, much more controlled, much more governed through the entire process.
Andrew: And when you consider the manual intensive nature of that reporting process, it gets magnified when clients are dealing with complex accounting areas. Because they often put in place redundant controls to make sure they are double and triple checking to make sure it is right and the lack of automation and the lack of like a real process really magnifies the level of manual effort that they are employing.
Sean: So you have employed this process with a few organizations, how is accelerated external reporting, the methodology, how is it making it easier for those organizations that you worked with?
Scott: As an example, one of the clients that Andy and I are working on together is that they have a group of folks that because of that manual process that Andy mentioned in this highly executed environment that they go through, they had two, three and even four different groups come up with the same number. And they felt that that was some level of control that they are bringing in place. In actuality, when we really started to unwind and started to look at the way the technology can be deployed, what we are able to do is do that once and then reuse that in many ways and the efficiency that we start gain on that is monumental. So, now those three other groups no longer have to do that type of work. They are able to just reuse that data. We also can build really solid controls and governance around that approach as we go. And so if you think about that and you start to build that on layer upon layer, then the efficiencies really start to grow quickly and then as we always have said good financial governance is the key component to the good reporting structure. And the new technologies and what we are trying to do with accelerated external reporting is to really build that foundational layer for these clients of ours, to really accelerate their process.
Sean: Has that been your observation as well?
Andrew: The goal at the end of the day is, aspirationally a client wants to automate and make a systematic a process around the production of the financial statements and other external reports, as they possibly can. But I use the word aspirational for reason, because in order to do that in many cases since it is so manually intensive, it will be almost like trying to boil the ocean to try and tackle this problem in one big fell swoop. So, our approach is a little bit different where we break it down into pieces and we break it down by accounting area and we drill into accounting areas. For example, you know you could drill into financial instruments and even derivatives and our approach then takes, it looks at where the data is coming from to get from the close to the actual financial statements using rules engines to automate the process and other financial reporting tools to do that. So it breaks it down into pieces that we could focus on, for example derivatives first but then you could focus on inventory later, you can focus on different accounting areas, you can focus on disclosures, etc., etc.
Sean: Well let’s talk a little bit about the head scratchers and the monkey wrenches, so as the folks you are working with encounter issues, how are you helping them to solve those problems.
Andrew: Well our approach to this is not a black-box approach. Deloitte’s methodology is highly customizable to each client’s situation because every client has a different accounting policy, every client structures their data differently and every client has different systems. So, our approach is highly customizable. We believe we have a differentiator because we bring a deep and broad bench of skills to address all these different problems and challenges, starting with understanding the accounting policies with technical accounting professionals who really can dive into the details and understand what’s the destination from a financial statement perspective and how do we define the data and the rules engines to get there. We also have operational accounting skill sets that understand leading practices around how do I flow data and design processes and enable technology. And then we have technologists, like Scott, who serve a big role in enabling this from that perspective.
Scott: I appreciate that Andy. I think the difference of today that we didn’t have three or four years ago again is the technology has really looked at this space, this last mile of finance. This external reporting space and they have really started to explore into that area, so we are working with these vendors like TM1, FSR some of the rules and reporting engines that we are able to go in and it’s very agnostic in a sense that we don’t make the client remove or change their GL systems. There is not an ERP rewrite here at all. What we are able to do is pick it up at consolidation and really start to move it through a very technical, very efficient process along the way and then I think the key element that also Andy was getting at too is it is very foundational layer. So we are able to take pieces of it and then build upon it. So once we build into a model, with the reusability of that model we can grow on that. So, the foundational layer is there and then we are able to expand efficiently as we go through the process.
Sean: My last question for you factors reality into the equation and that is accounting standards change, regulations change, I am interested to know how that flows through the methodology.
Scott: I think that is also the beauty of the technology itself. So, when we look at a rules engine and a data cube what we are able to do is bring those components in and you build a structure to that approach. And so we might base that on U.S. GAAP and you might have an IFRS component in it and then all of a sudden some new strategy comes out, or what if type scenario starts to come around. With these technologies, we are able to adapt quite quickly, you are able to do what if technologies on your financial reports to draw in the impact of what that new regulation is about and then efficiently start to work your way through it. I think the other big plus that we are really starting to see here too is the analytics aspect of this. So we are now starting to get that data outside of the Excel spreadsheets. The data is almost trapped in the spreadsheets and what we are able to do now is get it into more of a data cube component where we are able to start to do some finance analytics. And I think that that really starts to add that value proposition that we are after with our clients is to get you out of the mundane, heads down, keep on doing the quarterly reporting or the close reporting and actually start to get strategic about your financial numbers.
Andrew: For example, if there’s a new accounting standard that came into play in the coming years, if they already have an existing approach with rules engines and automating the data to flow through to do the financials associated with that accounting area, the Deloitte approach to that is we have folks who understand those standards, how to interpret those standards, work with the technologists to develop the business requirements, the data requirements, to change that rules engine, so that the financial statements are then prepared in accordance with the new standard. And the same could be said for other regulations that folks are dealing with. And so the approach builds upon what you have already put in place. The foundational words that Scott has been using I think are important because as a new standard or a change in standards comes, we just go in and we use the intellectual knowledge capital that we have around the standards and redefine the rules and redefine the flow of the data in accordance with that.
Scott: I think one of the things that we like to see upon this is our clients are always worried about the level of investment that this takes, technology instantly equates into big dollars. And what I like about what we are doing today with these rules engines and with this reporting engines, what we are able to do is actually start to build a foundational model that they can get a return on investment immediately, but also start to build on that and grow on that, so that return just continues to return for them, so that investment continues to get better and better along the way. And we don’t have to change anything that they’re doing today, what we are actually doing is helping them automate, enable and govern that process in a more efficient manner.
Andrew: And it clearly creates efficiency. As we started, we talked about that 20+ days, which most companies believe that should be less than the 20+ days. So it is not only about creating efficiency, which is about how do I best use my resourcing, but also about what could those resources else could they be doing, what value-added activities and we believe in this area, there’s analytics, there’s different things that companies focus on, not just around the financial statements but around that data that help them make decisions as well as make communications externally that they could spend more time on by creating more efficiency in this process.
Sean: Well gentlemen thank you very much for walking us through the methodology. We have been talking about accelerated external reporting in the Last Mile of Finance with Scott Rosenfelder and Andrew Hickey of Deloitte & Touche LLP. If you would like to learn more about Scott, Andrew, or any of the topics discussed on today’s broadcast you can find that information on our website. It is Deloitte.com/insightsus. For all the good folks here at Insights, I am Sean O’Grady, we will see you next time.
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