What is Record to Report? Processes and Best Practice in Financial Consolidation

Process and best practice in financial consolidation

Are you dreading another financial close? Are you facing challenges and the enormous effort required during the consolidation process? Are you afraid, just like every year, of manual and time-consuming closing reports created in Excel?

In our webinar 'Record to Report', we will show you how you can improve your consolidation and reporting process based on reliable data. Based on our experience in optimising the process for many of our customers, we will have a look at the process flow and present the most common challenges. We also examine useful insights on the best practice for financial reporting.

What is Record to Report?

Record to Report is a holistic view of how LucaNet customers interact with our FPM software. Starting with the data flow for single entities, we reconcile the data in our system, then shift to the second part, the group level, where we perform the consolidation, and then move on to the reporting of the gained figures.

Record to Report Process

The single-entity level starts with data collection and data enrichment. The next process step is the intercompany reconciliation in order to ensure, for example, the matching of intercompany payables and receivables, as well as income and expenses; and also, if there is a mismatch or if differences appear beyond a certain threshold. In this step, the partners need to clarify these differences and maybe return to their source systems and adjust intercompany data If all intercompany differences are clarified, we will bring the reconciled data to the next level, the group level, at which the consolidation includes necessary consolidation adjustments is performed. In a final step, we will use the consolidated financial statements for reporting purposes, where we distinguish between statutory and management reporting.

The Biggest challenges

We observe different types of challenges, and this can vary among customers. This depends on group structures, the knowledge of the finance team and their specific tasks. These normally fall into the following categories:

Data collection

Most challenges fall within data collection and different handling approaches. For example, there is a central approach, where the data is connected from the source system via interfaces using our LucaNet software, with a clear process in place. In cases where the data doesn't match, it is checked how the data is flowing. The second approach is more decentralised: The data is collected individually across the different entities, mainly using Excel. As this is a manual and error-prone process, our aim is to automise it using our LucaNet.Group Report module and converting this time- and resource-consuming process into a centralised approach to get a reliable data basis

Data validation

Not only the data collection but also data validation is a challenging process. Validated data at a single-entity level at the right time is necessary to proceed with the consolidation and reporting steps to get such reliable data, a sometimes-exhausting reconciliation process is necessary, which is even more complicated if different local GAAPs of multi-national entities are involved.

Equity elimination

If you shift some distance away from single entities in data collection and move to the consolidation part at the group level, we are seeing challenges within equity elimination. Multi-level structures with different hierarchy levels, non-controlling interest, or currency translation are obstacles that many multi-national companies are facing.

Special cases like mergers and acquisitions

Mergers and acquisitions are becoming more and more important for groups. Of course, there are similarities between these business cases, but often they are also somewhat unique due to aspects like the structure of the group: different kinds of hierarchies, different source systems for collecting the data, or different data quality levels. These facts can increase the complexity of the merger that needs to be taken into account and everyone involved should be aware of that before the process actually starts

Reporting data for different stakeholders

Having the right data for the right stakeholders is a challenge when it comes to reporting: On the one hand, we have the statutory reporting that needs to be provided to the authorities, but on the other hand, we have substantial internal and management data we have to report to different stakeholders. These demands and the fact that there are many people involved, require process management with clear responsibilities and also clear deadlines, especially for data collection, data validation and data processing to have the right data available in the right format at the right time.

Best practices

One of the biggest challenges is definitely the data collection. If customers have a decentralized approach currently running on Excel, our best practice is to switch this to an automated solution like our LucaNet.Group Report or a reporting package used centrally in the whole group and enabling the collection of data in a timely manner and import it into the system. The next focus then needs to be on a smooth reconciliation process to save precious time that later can be used to analyse the financial data. Once reconciled and validated data is available, FPM software like LucaNet can be used to support and automate the consolidation process with the aim to provide reliable data for different reporting purposes and stakeholders.

Learn more about financial consolidation and reporting with LucaNet from our on-demand webinar.

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