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Many organizations are now working in the direction for high quality, well-managed and quick Financial Reporting Close cycle. This is becoming extremely important with need to adopt IFRS, SOX compliance and also mandated adoption of eXtensible Business Reporting Language.

Needs and benefits of Fast and Well Managed Close

In view of this, there is need to revisit the entire business process flow that impacts reporting cycle. Few years back and even now, emphasis was more towards business process flows such as procure to pay, order to cash etc, which involved multiple departments processes to be structured as one end to end process but information was available in one transactional system (ERP). But in case of financial reporting close cycle, it encompasses multiple layers of data across different tools / systems within the same Finance department but located at different geographies.  So this now calls for streamlining of business process flow from ERP layer to Business Consolidation system and now even beyond that. This requires assessment of existing technology if they have independent accounting processes(Except for Local GAAP) and disintegrated systems.

Financial reporting close cycle is spread across three stages i.e., local close (ERP), group close (Consolidation) and last mile: Post close activities (Compliance framework including reporting / Publishing). I tried to summarize key activities / processes / functions within each cycle in the following diagram.

 Reporting Close Cycle Snapshot

In the diagram, activities / processes shown in Local close, Group close and Last mile section are the areas that needs technology to support financial close. Activities indicated in the bottom in circles are the foundation for all the three closes and these are more related to business processes rather than technology.

Local Close

Looking at technology perspective and in specific to SAP, Local close was addressed by SAP ERP Financials including SAP Financial Closing cockpit.

Group Close

In the group close cycle, consolidating the data at data warehousing layer is a straight topic and does not require much of discussion though it is very important and herculean task to implement integration projects.Going to the next process i.e., Intercompany reconciliations. SAP provides a SAP Business Objects Intercompany tool as none of the consolidation tools in SAP portfolio handle transactional level eliminations (Invoice to Invoice).

In the area of Consolidation, SAP is very excited in this area with release of new versions of SAP Business Objects Financial Consolidation (earlier BO Cartesis) and SAP Business Objects Planning and Consolidation (earlier Outlook soft BPC, SAP BPC) based on Net weaver and Microsoft. These new versions come with IFRS starter kits. SAP is now aggressively marketing these new tools for customers. But as my knowledge goes, none of these tools including competitors (Oracle Hyperion and IBM Cognos Controller) match the best of  Consolidation of Investments functionality as provided in SAP SEM BCS (SAP’s original consolidation tool). It is common for organizational change activities (transfer, divestiture, method change or liquidation) to take place in every reporting cycle. A tool / solution needs to handle these activities without much of manual postings. SAP SEM BCS has robust COI functionality to handle these activities (though it is not perfect world in BCS as well). SAP continues to invest in SAP SEM BCS by way of enhancements and maintenance strategy in line with SAP ERP. So at this point it is unclear if best of COI functionality of SAP SEM BCS will be integrated or will be built in SAP BO FC / PC in sometime future for existing customers to benefit from these new tools. In my opinion, customers using SEM BCS with need for best of COI functionality may have to continue using until SAP changes its approach / roadmap on SEM BCS. But there is one functionality that is lacking in SEM BCS i.e., dashboard functionality. The purpose here is to have a view on the status of consolidation tasks on quantitative basis for senior management. I assume SAP BusienssObjects Dashboard tool can be deployed to meet this requirement.

Last Mile

In the last mile – Post close activities, many of the organizations must have been handling this manually or possibly automated but with good amount of manual intervention. SAP has filled this gap with acquisition of Disclosure management solution from Cundus AG.This is now branded and launched in April 2011 as SAP Business Objects Disclosure Management. SAP is providing this with integration features with SAP products as well.

Following diagram sumamrizes SAP’s product offering for Financial close cycle.

SAP's product offering for Financial close

Group consolidation accounting team are not only expecting solutions which can streamiline particular processes, expectation is to have all these activities / functions from Post Local close sign off until publishing of statments as one process. This definetely calls for a BPM tool which can integrate all these processes in a single process flow. This might reduce the cycle time even further to what businesses are planning for. Would like to hear if any organisations have implemented this for a financial reporting cycle close.

My next Financial Reporting Cycle – Local Close covers on Local close cycle.

References:Accelerating the Financial Close  CFOs’ Insights into the Benefits of High-Quality Close – A report prepared by CFO Research Services in collaboration with SAP.

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10 Comments

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  1. Mark Chalfen
    This is a well informed piece that covers both the process requirements as well as the technical solutions.

    Can you provide a link to your reference article?

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  2. Muthu Ranganathan
    This is a great summary of the value software solutions can help in reducing the cycle time, though it involves other people and process aspects that needs to contribute.

    I am sure all the readers are aware of SAP’s ‘Accelerated Financial Close’ ((http://www.sap.com/solutions/executiveview/finance/accelerate-financial-closes/index.epx)initiative including the covering of ‘Last Mile’ of finance topic coming through the Cundus acquisition, which is now in SAP BusinessObjects Disclosure management (http://www.sap.com/solutions/sapbusinessobjects/large/enterprise-performance-management/disclosure-management/index.epx)

    Check it out

    thanks for this good blog once again

    Regards
    Muthu Ranganathan
    (Follow me on twitter @muthurangnathan)

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  3. Sreekanth E Post author
    Thankyou all for comments.

    Objective comparison between BCS and BPC document from the following link provided by Eugene is very detailed and useful.But comparison with SAP BO FC would have been more appropriate for the fact that SAP BO FC has more consolidation features than SAP BO BPC (now PC). But I missed to read this article earlier.

    http://www.sdn.sap.com/irj/scn/index?rid=/library/uuid/90aadc65-87f5-2d10-cba1-d0d11515cbe0 – Author Thibaud Collet

    Based on experience, can anyone comment on Hyperion in comparison with SEM BCS.

    Reference article can be found on the following link http://www.sap.com/solutions/sapbusinessobjects/large/enterprise-performance-management/brochures/index.epx

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  4. LOKESH NANDULA
    Very good blog Sreekanth. As the entire proces is very complex and dynamic, it will take time before we have a common tool to track and monitor local/group close till the last mile. But that is going to be the road forward. SAP’s FIM is doing similiar functionality right now but only as user’s ETL. It could evolve going forward. We are still comparing BPC with BCS and BI-IP (which we are doing from BPC 5.0 launch). Even the latest BPC 10.0 NW can’t address the matrix consolidation requirement without workaround/limitations. Although i could see some references of BI-IP in SAP’s statement of direction (2010-14), BCS is no where in the picture. BPC 10.0 NW has some functionalities adapted from BCS, Cartesis, BI-IP and clearly it is evolving as a superior product. But we need to agree that there is scope for improvement and integration. I know some complex BPC implementations of fortune companies and they have used the tool till the last mile.
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    1. Muthu Ranganathan
      Lokesh, SEM BCS would be continued to be supported by SAP including enhancements required from a legal compliance, and we are encouraging customers who have implemented BCS and are happy with what they have, to continue with the same.

      Yes,in BPC NW 10.0 we have a lot of significant functionality been added with respect to consolidations. We will continue to enhance to address many more needs.

      Comparison of these solutions are very difficult as the philosophies are different, and the needs different.

      My analogy always is like when you would like to go to buy a car. You have different cars and everyone prefers different models for different reasons – could be for looks, speed,features, style,local preference,space etc, even if it is from the same car company. But some of the basics like wheels and brakes are required for all.
      SAP has solutions for consolidation to meet different needs, based on customer needs.

      If you still want some specific questions on which consolidation solution to choose or propose to your client, reach out to me directly via email.

      Regards
      Muthu Ranganathan
      (Follow me on twitter @muthurangnathan)
      Email: muthu.ranganathan@sap.com

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  5. Cesar Hernandez Martinez
    Very interesting blog. It was good to understand the cycle close. I want to know some differences between version 7.5 and 10.0, specifically, How is the FIM and Intercompany integration in both versions? Is there communication from FIM into Intercompany only in 10.0?
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