There are three main components to the Record to Report (R2R) process: close checklist, reconciliations, and journal entries. In our series on the R2R process, we’ll explore each component, starting with this first article on the close checklist.
Embedding internal controls throughout your entire R2R process is key regardless of public or nonpublic organizational status. Organizations should be able to create internal control tasks and monitor the performance and completion of them to help ensure their financial statement quality and accuracy while reducing risks. Organizations should design their internal controls to reimagine their control environment, centralize redundant controls, and eliminate controls no longer relevant.
Organizations today face many challenges with their R2R process that lead to increased financial risk.
Common Challenges of the R2R Process
The R2R process has traditionally involved many manual processes related to balance sheet reconciliations, close tasks, journal entries, etc. Manual process may have setbacks due to:
- Substantial amounts of time required due to lack of standardization (inefficiency)
- Being subject to human error
Another significant challenge of inefficient R2R relates to inaccurate financial data, which increases the risk of:
- Inaccurate financials (both external and internal)
- Missed reporting deadlines
- Challenging external audit times
- Lack of visibility resulting in poor decision making
Common Red Flags Seen in the Close Cycle
Organizations must complete their close cycle in an effective, efficient, and error-free manner in order to offset resources, and thus shift their focus to value-added activities. Many organizations face similar struggles during their close process, such as:
- Operational inefficiencies (extended close periods)
- Lack of visibility (status of the close for all levels of management)
- Lack of audit trails and extensive time spent supporting external auditors
Despite the obstacles faced by retailers today, there are many opportunities to enhance the R2R process and mitigate the risks discussed above.
Best Practices & Controls – Managing Close
Retailers can help improve the close process by creating and following a centralized process with clear visibility. This can include a myriad of steps and focal points:
- Reviewing of close tasks to help ensure all tasks are still relevant
- Reviewing of close tasks to improve when they are completed (moving tasks outside of the core close period)
- Clearly identifying dependencies of close tasks so bottlenecks can be identified, tracked, and resolved
- Centralized storage of close documentation that can be accessed directly by external auditors
- Enhanced dashboarding to allow real-time visibility during the close process
Examples of Improved Close Environment Using Cadency by Trintech
Organizations utilize tools such as Cadency by Trintech to help automate their close management through operational efficiencies, enhanced visibility, mitigation of risk, and reduced time spent on collecting support for auditors. Below are some ways that this tool can help organizational operations.
- Close tasks are centralized in one platform that allows management visibility into the status of tasks, rather than maintained on different spreadsheets or via email. Enhanced Power BI dashboarding provides visibility into the status.
- Cadency Close’s Close Task Field API can link supporting documents within Cadency after they’re uploaded in a separate system, allowing for enhanced documentation management.
- Electronic binders can be created to export each period’s close tasks and documentation, helping to reduce time spent on collecting auditor requests.
About Us
Forvis Mazars is recognized by Trintech as a strategic alliance partner. We work with Trintech to deliver services to help standardize and centralize financial reporting processes while driving greater transparency and automation initiatives. Our CFO & Business Consulting team stands ready to help your company solve its complex business problems. If you have questions or need assistance, please reach out to a professional at Forvis Mazars.
Additional Articles
For more insights on the R2R process, see the other articles in our series on reconciliations and journal entries.