Solid financial reporting applications are as different from run-of-the-mill reporting tools as financial accountancy is from bookkeeping.
Organizations routinely use common reporting tools to help with the technical processing of data (e.g., profit and loss reports, balance sheets, etc.) for the purpose of management accounting. And management can usually obtain whatever information they need for their internal decision making.
But financial reporting tools can go beyond the scope of such common reporting to elaborate financial statements for external users, such as, for example, decision makers, stakeholders, and suppliers. These users also have some rights—legal or moral—to access certain financial information about an organization, but generally have to rely on negotiation or specific regulations to obtain it. Financial reporting applications can support the process of data summarization for the benefit of external users, while helping organizations to share information as necessary and comply with disclosure requirements.
These tools can also help information workers and decision makers to analyze, format, and deliver financial data for measuring performance and improving the business decision process, fulfilling some specific functions for financial accounting.
Traditional reporting tools still have an important role within many types of organizations, especially for bookkeeping and accounting purposes, aiding in handling the data used for recording transactions and enabling the visualization of this type of data. But when it comes to extracting insight from this data, many organizations that still rely on common tools might be unable to deliver the right information to the right people, or might be exerting excessive efforts to accomplish the task.
These organizations should consider a financial reporting tool—which could give them the means to generate more valuable information to support the decision-making process of an organization, to comply with specific regulations, and to improve performance.
Can you deliver the same results with other tools you have on hand? Yes, tools like Microsoft Excel can do the job. But financial reporting tools can ease the process and increase the speed and timeliness of information delivery.
Financial Reporting Serves Various Interests
Most of the time, financial reports are used by accounting areas within an organization, but there is also an external community, outside the accounting department, that needs financial information, and which can benefit from these types of reports to understand the financial performance of an organization.
It is possible to identify certain basic groups of users that financial reporting applications can serve and the value they might have for each:
For taxation purposes, industry regulation, and public economic strategy
Shareholders and investors
To inform future investments and profits
Analysts and consultants
To advise shareholders and executive committees regarding strategic decisions
Suppliers and creditors
To verify amounts and dates of payments owed; to verify other claims, the general and financial health of an organization, etc.
To assess the general stability of an organization; to measure present and future job security
General public (i.e., economic organizations, journalists, and even competitors)
For general information showing the effect of the organization on employment, local economies, the environment, etc.
Of course, information will have restrictions; how much information is disclosed to each group will have to be carefully and consciously defined.
External needs deal especially with compliance and regulation. These applications can create the necessary framework for complying with financial reporting regulations such as the International Financial Reporting Standards (IFRS) (for the preparation of financial statements), the Sarbanes–Oxley Act, or the Statements on Auditing Standards No. 70 (SAS 70). As well, these applications can ease the generation and production of financial reports through the use of tools such as extensible business reporting language (XBRL), an XML-based language specific to business reporting.
Since the level of detail to be provided to each group may vary, a tool that allows you to automate and customize this process can manage the complexity involved in delivering a set of reports for each user group, while eliminating the duplication of work and adjusting to the communication media format (e-mail, mobile, dashboard, spreadsheets, etc.) required by the users.
Evaluate Your Need
One way to evaluate your need for a financial reporting tool is to review the quality of the information you currently provide using your existing set of tools. If you have problems complying with the following requirement set, you may need to consider adding a financial reporting tool to your business applications stack:
- Information is on time. Are you able to deliver the information your users need on time? If not, or if you struggle to meet reporting deadlines, and you’ve already tried readjusting your report generation processes, your tools may simply be insufficient.
- Information is reliable. Do your users have confidence in the information you provide them? Many things can trigger a lack of confidence, but make sure that problems generating precise and accurate information isn’t one of them.
- Information is clear and complete. Do your users understand the reports? Delivering the right information depends on good communication with your users, but you need the resources to develop reports addressing their specific and complex requirements.
This set of criteria is basic; your organization may have some additional fundamental requirements. But be sure that you’re experiencing a real lack of functionality, not just a process failure. Financial reporting applications are a means to improve the delivery of useful information, but remember: garbage in, garbage out—it’s necessary to establish the appropriate financial model, as well as designating the appropriate selection of the necessary data, to achieve your set goals.
It is worth noting that financial reporting information often relies on estimates based on data collected via models constructed to analyze the financial effect across an entire organization, which framework provides the basis for the reports. This means that financial reporting users are basing their decisions on estimates rather than on an exact representation of reality—which highlights the importance of having a sound financial framework, as well as a product able to contend with it.
If you have already decided to acquire a financial reporting solution, or if you already have one but haven’t been able to exploit it, these are some features to consider when choosing this type of application:
- Extensive ways for accessing data—enables data collection from financial applications as well as other information sources, such as enterprise resource planning (ERP) systems, spreadsheets, and others.
- A robust financial modeling and design tool—enables the creation of reports and financial data visualization tools with the least possible effort.
- Integration with front office applications, especially with Excel—gives users a familiar footing. Financial information users often rely heavily on applications such as Excel, which they already know how to use. So, why not let them have the information they want in an environment they’re comfortable with and know how to handle?
- Report and document distribution—gives users the information they want in the right format for them: Excel, XML, BRL, PDF, and e-mail are just some of the vast number of available options you might need.
- Compliance with regulations—helps you comply with local and international regulations, saving your organization time and money by letting you build the right report with less effort.
- Web-based user interface—extends the reach of your delivery, allowing users to access financial reports from any location.
- Forecasting and projection modeling capabilities—expands the view from historical data, allowing users to model possible future scenarios.
Now that we’ve described some of the important aspects and features of financial reporting applications, allow me to list some providers of financial reporting applications. This is not meant as an exhaustive list, but should serve as a reference as to the types of software applications on the market.
Finally, a recent post by my colleague Aleksey Osintsev, “Accountants Deserve Better?,” reinforces the idea that a financial reporting application can help not only to provide accurate and summarized financial data, but also to improve the decision-making process, as part of a complete strategic financial vision.
If accountants really deserve better—which, by the way, I think they do—it might be a good idea to provide them with the appropriate tools to perform to the best of their abilities, in addition to a complete tactical and strategic financial vision for your organization.