Corporate reporting is a topic that virtually any organization deals with as chief executives (both CEO and CFO) expect to receive regular updates on corporate performance. Delivering on this necessity in some cases is a cumbersome exercise – but it doesn’t have to be. We identified some key causes of cumbersome corporate reporting.
1. Ignoring the power of push down
Some corporate centers have the tendency to assume over centralized responsibilities. Whether it is related to bridging local accounting principles to group accounting principles, purchase price accounting, or cash flow statements, the idea that operating companies are unable to assume more responsibilities is counterproductive. Besides cluttering the process, this approach generally results in multiple versions of the truth – one truth as the operating company sees it, and another truth as the corporate center sees is. You can identify this if there are frequent debates about which are the ‘real’ figures.
2. The lost art of double-side bookkeeping
Some people consider controlling, FP&A and reporting a superior activity compared to accounting, but at the same time they ignore the fact that the one depends on the other. Coherent and effective financial controlling, planning & analysis and reporting can only be achieved by relying on a solid journal entry basis. Corporate reporting sometimes fails to reflect that journal entry logic. The information then easily becomes incoherent. You can identify this if the indirect cash flow statement requires too much manual adjustments to be completed.
3. Misaligned information architecture
Each corporation’s information architecture consists of a suite of software solutions. ERP, CRM, BI and CPM (Corporate Performance Management) are widely adopted, but are often misaligned, limiting their potential. Being overly dependent on Excel for corporate reporting is a typical sign that CPM should be better positioned. Another example is when ERP is used for data collection or BI is used for financial consolidation. You can identify this if there is a general feeling that there is too much time and effort involved in submitting the required information.
4. The corporate reporting black hole
Corporate reporting can be a one way street where information is pushed up the chain without a proper feedback loop. Such a situation is likely to exist in corporations that ignore the power of push down, but a missing feedback loop can be a broader problem. Reporting systems that do not provide the user immediate and automated feedback whether the information provided reconciles and makes sense also miss the feedback loop. A well-designed feedback mechanism is one of the pillars of accurate and reliable reporting. You can identify this if it is possible to submit inaccurate or incomplete information without any red flags being raised.
5. High expectations but little guidance
Delivering good corporate reporting requires a corresponding skillset. Understanding complexities around cash flow statements, organic growth, and business combinations is no small feat. Corporate centers generally expect the operating companies to deliver high quality information, but this is only feasible when there is a clear knowledge management strategy that incorporates user-oriented documentation and training. You can identify this quite easily by a lack of self-learning materials or by outdated documentation.
Corporate reporting becomes cumbersome when the organizational, technological and social aspects are not sufficiently addressed. The corporate center should be aware of its role as competence center and process coordinator with regards to corporate reporting. With a well-designed and value added Corporate Performance Management platform and reporting process in place, the corporate center can concentrate on teaching and coaching the operating companies. This requires a different skill set compared to the classical accounting-centric skills sought after in corporate centers. It is the combination of hard skills and soft skills that really makes the difference!
I invite you to evaluate your corporate reporting process, keeping the above five causes in mind. Please reach out if you identified some of them.
Casper van Leeuwen is an Executive Partner at Satriun Group, a Corporate Performance Management consultancy with offices in Amsterdam, Geneva, Paris, Munich, Zurich and Bucharest. Clients include family owned businesses, stock listed corporations, as well as private equity portfolio companies.