Workiva’s Wdesk, a cloud-based productivity application for handling composite documents, will have a larger role to play as companies adopt new revenue recognition standards governing accounting for contracts. The Financial Accounting Standards Board (FASB), which administers Generally Accepted Accounting Principles in the U.S. (US-GAAP), has issued ASC 606 and the International Accounting Standards Board (IASB), which administers International Financial Reporting Standards (IFRS) used in most other countries, has issued IFRS 15. The two are very similar, and both will enforce fundamental changes in accounting for contracts.
One of the changes is the more extensive disclosure requirements that public companies that use accounting for contracts will need to add to their regulatory filings, such as the 10-K annual report required by the U.S. Securities and Exchange Commission (SEC). For these companies, the expanded disclosures cover topics such as the disaggregation of revenue from contracts with customers, contract balances, performance obligations, significant judgments and assets recognized for costs to obtain or fulfill a contract with a customer.
Some of these disclosures will be pro forma, repeated with limited changes from one filing to the next. These will include descriptions of accounting treatments and methods where consistency is necessary. Other disclosures will be period- or date-specific, including those that deal with items such as individual contracts if they are material, or a classified list of aggregated amounts by categories if these are relevant to investors.
Both types of disclosures benefit from having software that automates the creation of what I call composite documents. A composite document is one in which text is created and edited collaboratively by multiple contributors and that incorporates tabular and numerical data from multiple sources in a controlled process. Composite documents often have formats defined by law, regulation or contract, and typically must be created at periodic intervals. The disclosure requirements specified in the new standards for contract accounting are just one of many use cases for composite document management software. Other composite documents are ones prepared at regular intervals for internal reporting purposes that combine text, data, charts and other illustrations.
Composite documents management software like Wdesk is designed to be easily used by business people, with limited or no need for technical specialists and at a low cost of ownership. A dedicated composite document management application is superior to personal productivity software because these documents are the result of a collective effort done repeatedly, requiring controls and defined workflows.
In the course of creating a composite document, inevitably multiple versions are created, so the software is designed to ensure that people work only with the current version. Permissions for creating, editing and approving the document can be broad or extremely granular – they can be limited to a specific paragraph or table or even a single data point. And to facilitate reviews, Wdesk enables approvers to read, comment on and accept a document or any component of it on a mobile device.
Our Fast Close benchmark research found that 62 percent of companies have significant issues with data consistency and quality in their financial reports. In addition to ensuring consistency, another major advantage of using an application such as Wdesk to automate the document creation process is that it can significantly reduce the incidence of errors while also reducing the time devoted to checking the document for them.
For example, numbers referenced in the commentary about specific contracts or tables must agree with those in the tables, referenced in footnotes or mentioned elsewhere in the document. These numbers often change over the course of the drafting period, sometimes frequently and on occasion late in the process when deadlines are short. A composite document application will always contain the most accurate and up-to-date numbers. This is important because in our benchmark research on the financial close three out of five participants said that the consistency and quality of data in company reports is a significant or very significant problem.
Using a software application designed to automate the process of creating and working with filing documents can reduce the amount of time and effort necessary to produce them. It does so by establishing a repository of record for the text and data, automating the compilation of the document including the tabular data and individual text sections, using workflow to manage the process, and applying controls and audit features.
Composite document automation software enables corporations to achieve substantially greater efficiency as well as tighter and more consistent control over creating regulatory filings or reports. Process management capabilities can cut the administrative workload for people who “own” the document and reduce the possibility of delayed handoffs and missed deadlines. Document management features enable administrators to track the progress of the individual components, automate reminders to individuals as deadlines approach and generate alerts if they miss start or completion times.
In contrast, when regulatory filings and similar composite documents are assembled using personal productivity software and orchestrated through email attachments and notifications, the process needlessly occupies the time and attention of highly trained, well-compensated people who spend hours performing dull, repetitive tasks. Automation leaves only the essential work to be done, allowing expert individuals to focus on things that require their expertise.
Wdesk competes with other disclosure management applications as well as manual approaches that utilize personal productivity software such as Microsoft Office. The additional disclosure requirements of the new contract accounting standards underscores the value of using an application to manage their production. Using composite document management software to automate and control the creation of composite documents for external or internal users can substantially cut the risks of errors and missed deadlines. This software can be used broadly to address multiple regulatory and legal requirements in the finance, legal, internal audit and other departments.
I recommend that companies that create composite documents, and especially their finance and legal departments, automate their production and investigate whether Workiva Wdesk will address their requirements.
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