You are currently browsing the tag archive for the ‘Financial Close’ tag.
IBM announced it has acquired Clarity Systems, a Toronto-based vendor of performance management software and consulting. Terms of the deal were not disclosed. (My most recent blog and analysis about Clarity Systems can be found here. The acquisition fills an important hole in the IBM Cognos applications portfolio, as Clarity FSR is a leading application for automating and managing the close-to-report cycle. This capability has become essential for companies that are required to file financial statements with the U.S. Securities and Exchange Commission (SEC) under its “interactive data” mandate. That mandate, which is being phased in now, requires these corporations to tag their financial statements (and most of the footnotes attached to the statements) as well as their 8-K forms (which are essentially press releases, but especially earnings announcements). I estimate that for a large majority of Fortune 1,000-size public companies, automating the close-to-report cycle alone will have a positive ROI and a short payback period. This is why earlier this year I listed automating the close-to-report cycle as a 2010 priority for finance departments. Many finance departments use up a great deal of time of highly paid employees in this process, cobbling together tables with data from multiple sources; writing, editing and reviewing scattered snippets of text and triple-checking the resulting documents for errors. Many of them, too, will have to automate the process of tagging data to reliably meet filing deadlines. I also expect that most corporations ultimately will prefer to prepare their own filing documents internally and use the financial publishers (Bowne, Donnelley and Merrill are the leaders) as conduits rather than outsourcing this work to them.
The combination of FSR and the recent acquisition of OpenPages, a compliance management product, gives IBM increased opportunities to sell to the office of finance and improves its positioning relative to Oracle, which has its own close-to-report application and a range of governance, risk and compliance (GRC) applications aimed at the finance departments of large and larger midsize companies. Despite the fact that FSR has been purchased by many large companies, I suspect that Clarity’s size (I estimate its revenues at well below US$100 million) prevented it from closing business with others concerned about its viability. This is no longer an issue and probably will enable Clarity to close business immediately that it could not have before. (Underscoring the importance of having a close-to-report automation capability, Longview recently entered this market.)
FSR integrates with IBM Cognos’ consolidation system, but having that direct connection is not essential because data from the statutory consolidation process accounts for few of the numbers a company files. Data going into a 10-K/Q annual/quarterly report, 14D proxy and other, non-SEC filings may come from unconsolidated elements stored in an ERP or other enterprise system, an Access database that (for example) tracks leases of property and equipment, and spreadsheets of all kinds that are kept on controlled servers. Because FSR can handle any sort of reporting task that requires the integration of numbers from a variety of source systems with text in an automated and controlled fashion, organizations can extend its use to save time and reduce the risk that reports and filings contain errors. This use includes any external regulatory filing to any government body, earnings press releases (which typically are already incorporated in 8-K filings for the SEC), reports to third parties (such as lien holders or lenders) or internal reports such as Board Books (we’re waiting for the PowerPoint addition to this mix). Importantly, none of these items by themselves would justify purchasing a reporting platform, but once deployed for the high-value close-to-report cycle, such a system can generate additional benefits for finance departments that deploy it.
IBM will continue to support Clarity 7 users with no plans at this point to sunset the application, but IBM/Cognos’ existing financial performance management suite is the focus of all future sales efforts for both larger and midsize organizations (see my comments on IBM Cognos Express here.
One aspect that remains unclear at this point is the ultimate fate of Clarity’s sales and consulting organizations. For me it will be a measure of success if IBM is able to use the acquisition to create a team focused on financial performance management that truly understands and delivers on the needs of the finance organization.
Robert D. Kugel – SVP Research
With its FXR offering, Longview Solutions becomes the latest entrant into the market for software that automates the close-to-report cycle. Addressing the steps in the accounting cycle after the books are closed, the product assembles this accounting data, data from other sources (for example, management data such as a business segment breakout of revenues and operating profits or nonaccounting data such as the amount of real estate owned or leased), and the written commentary that accompanies such data in external reports, such as a legally mandated filing by a public company (for instance, in the United States, form 10-Q, 10-K or 8-K) or a periodic filing required by a creditor or lien holder. Longview FXR and its competition come at an opportune time for both vendors and users. Until recently, companies prepared these documents manually with little if any automation. However, the mandate of the U.S. Securities and Exchange Commission (SEC) that U.S. public companies must tag their filings using the eXtended Business Reporting Language (XBRL) is forcing companies to rethink this manual process because of the time it will take to perform once the requirement is fully phased in. Larger companies may have thousands of items that they will have to tag at this stage. If history is any guide, the number of tagged items is likely to grow over time. For example, items in the management discussion and analysis and in the compensation table are not covered by tagging at this point because of how long it will take to create a useful taxonomy for these items. Moreover, governments worldwide are likely to increase the scope of business reporting that must be tagged.
Although the XBRL tagging requirement places a new burden on reporting companies, I think it’s a classic “step in the mud and wind up with a shoeshine” situation. The manual close-to-report process that most companies have been using is extremely inefficient and wastes the time of high-value employees. Software that automates this process allows companies automatically to assemble text, tables and charts using data and text from source systems, and it ensures that the numbers are accurate and consistent and simplifies the process of creating, editing and reviewing text and the completed document. Along the way, it embeds the XBRL tags in a streamlined fashion that “bolt-on” XBRL tagging software cannot match. In almost all cases, fewer people will need to spend less time on the process.
Furthermore, although periodic SEC filings may be the main reason for purchasing close-to-report automation software, the system can be used to manage the creation of various other legal or statutory reports or filings for government agencies or business partners that combine text and numbers.
I recommend that all U.S. public companies that fall in the category of “large accelerated filer” or “accelerated filer” automate their close-to-report cycle to make it more efficient and more accurate, and that they use the same technology for all regulatory filings. Longview has been around for decades, initially making a name for itself in handing statutory consolidation for some of the largest and most complex companies. FXR is one of many financial performance management capabilities the company offers, and it’s worth looking at if your company is considering automating the final steps of its financial cycle.
Robert D. Kugel CFA, SVP of Research