Automating the Last Mile of Finance #5: Disclosure Management and XBRL Reporting

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From Elizabeth Milne, Kristina Henn and Stephane Neufcourt

In the 2013 “Magic Quadrant for Corporate Performance Management Suites,” Gartner* emphasized that disclosure management capabilities “should support specific generally accepted accounting principles (GAAP) presentation rules, such as U.S. GAAP or International Financial Reporting Standards (IFRS), to enable the preparation of statutory financial statements with appropriate commentary and supplementary notes. Increasingly, financial reporting solutions incorporate process controls for reporting and disclosure, such as templates, collaboration between the company and the financial statement publisher, business rules, workflow, and audit trails to better meet regulatory, compliance and governance programs. In addition, they should support financial reporting technologies, such as eXtensible Business Reporting Language (XBRL), as regulators increasingly require the submission of financial statements in XBRL format.”

The reporting of quarterly and annual reports to financial institutions and stock exchanges is the final step of the “financial close-to-disclose” process; this step is critical as it has a direct impact on the enterprise market capitalization. Would an example be necessary, a few months ago Google Inc. got its shares suspended for two-and-a-half hours after its third-quarter results were made public a couple of hours early by mistake. What’s more, it wiped 8% off the value of the company at a stroke. Google blamed financial printing firm RR Donnelley for filing an early draft of the results, which had been expected after the closing bell. This had been done without Google’s authorization and with gaps for missing quotes from Larry Page himself. What clearly spooked investors was the uncontrolled release of the results which meant Google didn’t have the opportunity for the typical earnings and briefing calls where they could have explained the context behind the figures and managed analysts’ expectations. Investors really don’t like surprises even if it’s only results being released 3 hours early.

The process criticality leads an increasing number of companies to examine the benefits of implementing a disclosure management solution to fully own the process. Therefore SAP decided that we would be integrating SAP® Disclosure Management, starter kits for IFRS and U.S. GAAP into our holistic SAP® Financial Close and Disclosure Management rapid-deployment solution in order to help companies secure their quarterly reporting and XBRL filing to stock exchanges and financial institutions such as the U.S. Securities and Exchange Commission (SEC). As you may be aware of, our SAP® Disclosure Management software helps enterprises achieve a faster, more accurate financial close, it also gives them a flexible, collaborative disclosure process across geographies, systems, data sources and teams (including their external printer) that would improve compliance and minimize the risk of any hiccups in the “financial close-to-disclose” process. In complement to the software capabilities we will also provide companies with XBRL pretagging, prebuilt financial reports based on the latest U.S. GAAP and IFRS regulations as well as automation of data workflow from ERP or enterprise performance management (EPM) systems up to our disclosure management preconfigured software.

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Providing automated data workflow and consistency

As we were stating in the article “Automating the last mile of finance – From systems of record to systems of engagement”, one of the key requirements within IT is to ensure smooth data workflow and guarantee data consistency across applications. “This is particularly true for the last mile of finance”, writes Pierre-François Tchakedjian in his article “Data Workflow and Consistency with SAP® Disclosure Management” , “as the disclosure management application is being used at the end of the data-chain and consumes data from other sources of information within the company — consolidation applications, ERP systems, data warehouses, and a range of other information source applications”. Part of our rapid-deployment solution, the SAP® Disclosure Management starter kits for IFRS and U.S. GAAP have been designed to streamline data workflow and maximize data consistency when used in combination with transactional and consolidation systems, in particular SAP® Business Planning and Consolidation and SAP® Financial Consolidation applications. The starter kits embed best-practices to automatically extract data from consolidation systems, transforming and merging that data, and inserting it into financial statements, notes and XBRL instances for reporting purposes. In addition the SAP® Disclosure Management starter kits leverage both the “integrated” and “bolt-on” data synchronization approaches to automate and secure connectivity and access to the consolidation system; therefore no manual data replication between applications is needed and data workflow is simplified. Moreover the starter kit contains a set of pre-defined validation gates to ensure data consistency within the SAP® Disclosure Management application itself: pre-defined controls for the data repository, validation dashboard against Microsoft Office and XBRL data. In order to help enterprises automate consistency checks when running their disclosure management process, more than five “consistency gates” have been pre-configured in the starter kit (see graph below).

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Delivering GAAP-based taxonomies pretagging

The SAP® Disclosure Management starter kits developed for our rapid-deployment solution will also include custom XBRL taxonomies designed per U.S. SEC requirements and based on the public IFRS and U.S. GAAP taxonomies published by the IFRS Foundation and the Financial Accounting Standards Board respectively. The financial statements are pretagged against these taxonomies to accelerate your XBRL filings to stock exchange authorities (see the example below).

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Providing prebuilt chapter structures for Forms 10-Q, 10-K and 20-F

Even more beneficial, the SAP® Disclosure Management starter kits also come with prebuilt financial reports whose chapter structure is synchronized Form 10-Q, Form 10-K or Form 20-F forms as defined by the U.S. SEC. When designing your filing in the software, you can start from these reports and import your Microsoft Word® files into this structure (see the example below for the 10-Q form).

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Releasing generic Microsoft Word® and Microsoft PowerPoint® financial statements

In addition to the Form 10-Q, 10-K and 20-F above mentioned, generic financial statements heading templates and sample items are available including placeholders dedicated to the information related to your company (see screenshots below).

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Demo video clips on YouTube®

Corporate reporting is very specific to each company. In terms of content, many lines of your financial statements, your notes and all the textual information are relevant to your company only. As regards the form, the layout of your annual and quarterly reports is similar to no other. The SAP® Disclosure Management starter kits for IFRS and U.S. GAAP provided within our SAP® Financial Close rapid-deployment solution have been developed to provide you with a valuable starting point to secure and accelerate your own reporting to stock exchange authorities and investors. Would you like to see SAP® Disclosure Management starter kits in action? You can watch our demo video clips for IFRS and U.S. GAAP on YouTube®.

What’s next?

In our next article we’ll give you insight on the five reasons customers choose SAP® Financial Close and Disclosure Management rapid-deployment solution to help transform their financial close-to-disclose business: speed, efficiency, clarity, simplicity and time-to-value.

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