Tis the Season to be ........ preparing for your next audit/review?

As the Australian reporting season winds up, with the vast majority of AGMs over now, it is an appropriate time for each business to reflect.....on how much of a nightmare the audit was.

Hopefully, your audit season was smooth sailing, with the audit starting on time, no late issues identified, accounts and reports finalised a week before the Audit Committee (or Board Meeting) and no uncomfortable audit fee overrun discussions.

Actually, if you scored any two of those, you are probably doing well and are looking forward to a relaxing break over the holidays - as you have the half year (or full year) under control already.

However, this post isn't aimed at businesses who have their audit processes under control, it's more for those that don't.  Set out below are some practical tips for those businesses who didn't have a smooth audit season last time and are hoping that because this is a half year, things will be easier this time.  Without a plan, that's probably not going to happen.

Improve your Forecast Reporting - Integrate your Forecast Details!

Nearly all businesses spend considerable time and effort in preparing an annual budget or forecast.  Generally, time spent in looking forward at what is expected to happen is a good thing, for a variety of reasons.

The problem with Budgets or Forecasts is that at some point you compare it with actuals.

Excellent, all good...or is it?

So, from the above picture, should a user be happy that things are going to plan? Revenue down, but operating costs down, slightly higher maintenance bit overall profit up.  Looks ok, right?

Well, it could be ok, or it could be not.  The main issue is that this picture alone doesn't tell you context - are those variances simply timing differences (ie, actions that were done at a different time to the budget) or permanent (ie actions that weren't forecast/budgeted at all).

Being a high level view, another issue is that large offsetting variances in a line item net off.  So, in operating costs, significant overruns in salaries might be offset by lower materials costs (due to poor accruals.

What is a business to do?

Managing Non-Financial Information in business reports.

Managing Non-Financial Information!

I'm pretty sure that most business routinely incorporate at least some non-financial information into daily and monthly reporting.  Hopefully, non-financial information is a critical part of your daily and monthly reporting, because having the right non-financial information in your reports is the quickest way to improving business performance!

However, non-financial information poses a number of issues when used in financial reports and if businesses aren't careful these issues can quickly erode users faith in the report.

What are the primary issues and how can we practically deal with them?

Accruals - Are they worth the effort?

Accruals - Are they worth the time and effort?

Because.....Star Trek?

Soooo, accruals.  In my experience, accruals are bottlenecks in every medium to large company - in some cases even in small companies.  Typical issues include late delivery, incomplete or inaccurate numbers and time consuming processes to collate and post.

On top of that, in many businesses, monthly costs are comparatively consistent - so the monthly result isn't particularly different if you don't post accruals.  Depending on the focus of your management reports, it may not matter at all (for example, if your management reports are cash focussed or primarily focussed on non financial performance indicators).

With that context, why do businesses spend the time and effort to collect data and post accruals (at least on a monthly basis) ?  For compliance reporting, such as half and full year accounts, you obviously have to take the time, but why every month?

Shorten Your Month End Close - Starting now!

Welcome all, to 2015 - an auspicious year in which you WILL improve your work/life balance by cleaning up and speeding up your month end close.

Why do you need a shorter month end close?  Simple you get performance information back to the business faster - which is the entire point of the process.  As a side benefit, shorter closes also tend to refine processes so they are more efficient throughout the business.  

Essentially, you need to be shooting for at worst a work day ("WD") 5 close - my personal view is that you should have completed your reporting by that time as well, but some are saying you can have an extra 3 days to complete that.  Ideally, WD 3 is better and is a target I tend to shoot for.

Why not WD1?  Practically you need a lot of resources in the Finance team to get that to work.  Most businesses without business intelligence systems are better off accepting a slightly longer close.

So, the key question is - how do you go about shortening up your close?