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Delivering on Performance Management and GRC convergence : IBM Cognos Financial Statement Reporting

Introduction

Clarity FSR (Financial Statement Reporting) was acquired by IBM in 2010 as part of Clarity Systems. Clarity FSR is an innovative new type of reporting solution that assists in the creation of statements and (annual) investor relations reports. It is completely complementary with the existing IBM Cognos portfolio and will be called IBM Cognos Financial Statement Reporting going forward. IBM Cognos FSR will be pushed as a state-of-the-art Financial Reporting and Governance solution, and is supposed to be part of IBM’s answer to complete the Cognos Performance management solutions with GRC (Governance, Compliance & Risk)-functionalities, as the CPM, BI & GRC markets & solutions are converging. Another recent IBM acquisition, OpenPages should also be seen as a part of this strategy.

This insight discusses the challenges that IBM Cognos FSR addresses in current Financial Statement Reporting processes and the functionality the solution is delivering to finance, controlling and investor relations.

The world without ‘IBM Cognos FSR’

These days lots of different types of reporting already exist within large organizations.There is quite often a fully integrated data warehouse available into which operational, financial, personnel, CRM and other data is loaded. On top of this data warehouse many Business Intelligence possibilities are available like cubes, reports, graphs, dashboards, analysis ... However management, the board of directors or the external world, including compliance related reporting, are not only interested in numbers, but also want to have a consolidated view of the key data of the organization in order to better analyze and act upon it. Additionally, they are not only interested in just formatted figures, but want to get explanation and context in written text, next to the reported data.

The creation of such a management reporting document is generally done during a manual process by cutting and pasting and dragging and dropping the required information from BI reports or –more typically- Excel spreadsheets into a word document, where the necessary comments are added. Those actions need to be performed every time the report is updated or recreated for a new (financial) period and for every report –tailored to its audience- that the organization has to produce. How organizations currently address this Financial Statement Reporting process is not without risks and generates significant overhead. Typical challenges are:

  • time-consuming and therefor expensive : composing a financial statement with information from accounting, controlling and legal is not done overnight. You need at least stable data as a change of the data, perhaps due to an audit adjustment or last minute management instruction, will cause a review of the entire document to manually change all references to the changed numbers. Internally –and potentially also externally if external parties are involved in the process- the document will need numerous, last minute reviews. Often there are few, but important differences between documents making the revision work time-consuming and risky.
  • data inaccuracies and inconsistencies between internal and external reporting and/or different versions of the reports : when the numbers are internally communicated, they should be the same as during the external reporting. When manually copying data from one report to another and reusing the same information manually within multiple reports this might cause data (manipulation) errors.It is not easy to keep all the different reports (management, board and external) consistent, given the important manual interference.
  • no audit trail and track changes: multiple persons are normally working on the financial statements at the same time.There is a ‘track changes’ option within Word but this does not cover a lot of the controls that should be in place.You want to know who changed something, when it was changed, what the previous data was or even all historical changes, both on text and numbers. From a compliance perspective, you also might be interested in being able to manage who can change what kind of information or data …
  • no system to manage the process: how is the collaboration done by the different users. Each user is changing his/her part and one person is combining all pieces. This happens without any kind of word editing workflow or approval workflow, often resulting in Office documents being emailed throughout the organization.

When reporting to the Stock Exchange, this might result in late filling or errors resulting restatements or insider leaks as too many people see too much information. These risks are on the priority list of the CFO so any solution to limit those risks will give the CFO more confidence in the numbers and data produced under his responsibility.

IBM Cognos FSR target audience

IBM Cognos FSR is mainly to be used by the finance department and the main beneficiary will be the CFO as the quality of the financial reporting will be improved and restatements due to e.g. simple copy-paste errors will be limited.

The users will come from the following departments:

  • Investor relations
  • Accounting
  • Legal
  • Controlling.

All those people are collaborating during the creation of the financial statement and everyone is responsible for a part of the document. IBM Cognos FSR will guide these users to complete their part of the report and protect the rest of the document. IBM Cognos FSR can be used to manage the following types of reporting :

  • Board book
  • Management Discussion and Analysis (MD&A)
  • Flash and Management reporting
  • Annual report
  • Statutory and regulatory filing
  • 10Q, 10-K, 20-F, …
  • XBRL- filing
  • And any other standard report that needs to combine text & figures …

IBM Cognos FSR functionality

General

IBM Cognos FSR focuses on improving financial processes and controls during the creation of both internal and external reporting and particularly during the final stages before disclosure. It helps the finance department with improving the timeliness and quality of financial management processes and reporting.

Figure 1: IBM Cognos FSR Financial Statement Reporting - Workflow Overview

 

IBM Cognos FSR uses common known tools like Microsoft Excel, Word and PowerPoint to create reports. IBM Cognos FSR is easy to use and offers workflow, audit trail and track changes functionalities to facilitate the reporting process. The direct integration of source data as reported data in the document and keeping an active link between both helps to keep reports up-to-date with the latest numbers, even when using the report for a new reporting period. By defining a single variable, you can switch periods when copying the report from one month to another. The usage of business rules and validation rules with IBM Cognos FSR will help to keep the integrity between different sections of a report of even between reports.Furthermore, IBM Cognos FSR extends ERP transactional data and controls, improves financial risk management and automates the process of eXtensible Business Reporting Language (XBRL) tagging for compliance with the Security Exchange Commission as well as other XBRL mandates around the world.

IBM Cognos FSR is easy to use as the user interface provided leverages all of the formatting capabilities of Microsoft Word and all of the calculation capabilities of Microsoft Excel, next to the additional functionalities described.

Linking Data

By linking every number in the final report directly to a single data source, in the most ideal case the data warehouse or the IBM Cognos BI & CPM Suite, IBM Cognos FSR ensures that there are no conflicts between numbers anywhere in the report or across reports and versions. Changes to the source number automatically cascades through to the report. This ensures there is only one version of the truth. Additionally it supports business rules to ensure that summary data in one section of the document always ties to the detailed data that may exist elsewhere in the document. The integration of data is done by an easy-to-use method to pull data from different sources including the leading enterprise resource planning (ERP) systems, the leading financial consolidation applications (like IBM Cognos Controller), relational databases, OLAP databases (including IBM Cognos TM1), and Microsoft Excel.

Re-use

To create a report for a new periodical reporting cycle, a prior report can be used as a template as new reports might contain the same sections as previous reports and even reuse the same data, general text (with only updated figures) and look and feel. Through the links with the source systems, the latest data is loaded automatically into the new preformatted report.

Workflow and Audit trail

The entire reporting process can be put into a workflow process that tracks the status of each section of the document, including due dates and responsibility assignments. With the workflow, the administrator can quickly see the status of each section and understand which sections are overdue. Each section of the document can be assigned to a separate user so that multiple users can work on the same document simultaneously. The users will only view the sections of the document they are responsible for. The workflow is accompanied by a comprehensive audit trail to track each change to the document and to compare two versions of the document to see what was changed, who changed it, and when it was changed. The workflow also contains a set of internal controls to ensure that the proper steps are being followed to create, submit and approve each section of the document.

Figure 2 - IBM Cognos FSR Financial Statement Reporting - Audit Trail

Exporting Possibilities

The generated document can be sent to the following tools:

  • XBRL
  • Microsoft Word
  • Microsoft PowerPoint
  • Adobe PDF
  • Adobe InDesign
  • EDGAR (Security Exchange Commission's Electronic Data Gathering, Analysis and Retrieval system) HTML.

Financial data and comments can be tagged within the document and this tagging will be copied when the report is used as a template. Users can render the XBRL tagged financials for review at any time during the reporting process and IBM Cognos FSR will automatically run the XBRL validation to ensure that all tags are accurate.

Extra Features

An interesting feature for financial reporting is the rounding option. The normal rounding within Excel will round each number. If it is a list of numbers without a total this way of working is good enough. However when you add up 2 numbers which are rounded, there is a possibility that the total number differs from the number that is calculated when you do not round. The FSR-rounding works differently from the basic Excel rounding as this automated method is rounding the financial data to thousands or millions while ensuring that all numbers tie to the bottom line total.

When creating a report, some elements can be inherited from other sections and other reports. This gives the opportunity to create a basic set of reports within FSR and use these objects in multiple reporting sets. So when creating a booklet for management and if a lot of the information is also required for the board of directors, you will probably create 2 booklets and copy some information from one into the other. When using IBM Cognos FSR, you can easily import any item that is shared within FSR. The owner of an item or the administrator can set the option to share the object throughout any other report created with FSR. The information will automatically be updated within 2 or more reports that use the object.

Conclusion

IBM Cognos Financial Statement reporting mainly has 2 major benefits.

  • It reduces personnel and external cost in the statement reporting process.

By linking the reports directly to the source systems no manual interference is required to update the reports from month to month. Even when the numbers change, updates of reports will not take long, so more time can be spent on analyzing the data and writing the comments on the reported figures. When the report is used for external reporting purposes, an auditor will need to review the report. Tools like Audit Trail will help the auditors to speed up their review process, so less money is spent on that process as well.

  • Furthermore it considerable reduces Risk and Cycle Time.

By using a fixed process to compile, adjust and review the report, the time spent on finishing the document will be lowered and there will be fewer mistakes within the report so late filing to external parties and restatements are avoided.

IBM Cognos FSR is really a ‘need-to-have’ solution if a company is on a monthly or a quarterly basis reporting to its management or to external parties. The speed of creating new reports, inherit objects, update numbers and going through the entire reviewing and approval process with support of one single environment is a considerable step forward over current processes in most organisations. There is no need anymore to circulate and update the same document several times and to compile different versions of different sections to one final document with the risk of not having the correct and latest versions. After creating your first report with IBM Cognos FSR, you will start using it for every financial statement that is required on a regular basis as the tool is easy to use thanks to the (re-use of the familiar) Word and Excel interface. And the more reports you need to produce the more IBM Cognos FSR will help you to limit the time spent on creating the report. There will be more time to spend on analyzing and explaining deviations, which really is what this process should be about.

Monday, August 01, 2011