Reconciliation - Leading Practices Benchmarking v1

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Best Practices General Accounting
All
feeder systems/subledgers close on same day (last day of month) Front-end software edits Originator responsible for quality of information (zeroerror tolerance) Electronic transmission of division data Limited number of hard general ledger closes Automated translation process
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Study from a Consumer Products Company
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The transformation project should start with the detailing of best practices
Activity
General Accounting
Consumer Product Client
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Best Practices General Accounting
Automation
of controls/clerical functions Eliminate redundant journal entry approval Automate recurring journal entries Real-time integrated financial system with continuous close (Event-Based Accounting) Cost/benefit to set materiality levels for reconciliation tolerance No reconciliation between legal and performance reporting


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Continuous Improvement Initiative for Manufacturing Company
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Leading Practices in General Ledger Processes
Leading practice
Process Virtual Close (Cisco, Oracle)
Best Practices
• Automate consolidation/validation of source data • Integrate front-end controls to eliminate and/or reduce errors/exceptions • Adopt standard materiality levels for accruals, allocations and intercompany transactions • Standardize cost accounting methods throughout the enterprise • Use ABM models to relate source costs to specific processes during burden rate development • Automate production and dissemination of standard business performance reports based upon standard reporting cycles • Ensure that analysts use consistent tools and models across the company • Develop an enterprise-wide data warehouse with online access to commonly shared data definitions and rules for calculations and consolidation • Utilize an online, interactive, user-friendly reporting tool with automatic drill down to cost drivers in place
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Best Practices General Accounting
Automatic
consolidation and uploads Automatic intercompany posting, reconciliations and eliminations Post mortems and performance measurement of closing and consolidation process Limited number of reporting entities (if possible) Intercompany charges consolidated and funded at one time each month

Sending/receiving EFT transactions Communicating with banks Executing cash pooling transactions
Low
Low None 14% 22% Medium 42%

Percent of disbursement accounts set up on a positive pay program and automated bank account reconciliation Percent of cash transactions with daily cash positioning and funds mobilization automated through electronic linkages of local/remote sites Use of cash flow forecasting models that analyze current/historical trends Foreign exchange cost minimized through consolidation and netting of foreign exchange and settlement transactions
Business Performance Reporting
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Best practices analysis for cash management
Best practices

CP Client
World class
Medium
High Medium 76% 86% High 99%
Extent an Internet or intranet application is used to support:
General Accounting – Leading Practices
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பைடு நூலகம்
Best Practices General Accounting
Automated
account reconciliation Automatic interface between general ledger and feeder systems Standard general ledger packages Multi-currency and multi-lingual accounting packages Financial database for analysis & reporting Common chart of accounts
• 10 days to close/report at month-end (corporate) • Materiality levels for allocations and intercompany transactions vary depending on the location (many report $0) • Manual consolidation efforts • Over 50% of aggregate general accounting time is spent in non-value added activities (GL maintenance, account reconciliation and preparing journal entries) • Minimal use of the Internet/intranet for distribution of reports or manager self-service • Heavy reliance on PC spreadsheets • Minimal development of a balanced scorecard • An average of 234 standard business reports issued monthly
– Real-time Postings (no sub-ledger feeds) – Close Performance Report Card (timing and quality) (Cisco) and review results – Standard And Predefined Close Schedule (Cisco, Nissan) – Automatic Account Reconciliation (Cisco)
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Industry context for leading practice
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Virtual close is a snapshot of where we are financially at any given point in time. Cisco is currently adhering to a virtual close. This results in key decision making data being provided to management on a real time basis. Real time postings indicates that transactional data entry occurs at one point with no redundancy of data entry. An example of real time posting is the event - receipt of inventory -triggering the related financial entry. Close performance report card is a scorecard of key performance measures surrounding the close process. Review performance report card and develop action steps to improve process. Closing the feeders and sub-ledgers on the same day ensures consistency, timeliness and accuracy of data. An automatic account reconciliation between the sub-ledgers and G/L reduces the need for manual analysis and adjustments.