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Executive Summary
The demand for timely, reliable information is placing a tremendous amount of attention on corporate reporting and auditing practices. Financial institutions must comply with an ever-increasing number of regulatory mandates that impact both customer and capital information such as the USA Patriot Act requirement to gather as much customer information as possible at all levels of interaction and the Basel II directive to track capital adequacy across the enterprise. Additionally, new legislation such as the Sarbanes-Oxley Act has brought financial reporting and forecasting to the forefront of today?s executive agendas. At the same time, industry-specific regulations make unique demands for reporting and compliance in just about every public and private sector, from education to banking to pharmaceuticals.
This paper examines many types of reporting requirements faced by today?s organizations, with attention to formal government legislation, industry-specific regulations, and internal governance. The overriding purpose is to explain the challenges, highlight potential solutions, and demonstrate how an enterprise business intelligence (BI) environment can help companies overcome hurdles related to gathering, analyzing, presenting, and storing information. This paper does not attempt to cover every industry regulation or offer details about all types of compliance, but rather to use a few examples to reveal how business intelligence technology can be applied universally in many different situations, where reporting and compliance are pertinent.
Formal Government Legislation
Complying With the Sarbanes-Oxley Act
Some types of compliance impact all companies in all industries, such as the Sarbanes-Oxley Act. Created in response to high-profile accounting and management scandals, such as the corporate abuses uncovered at Enron and Tyco, the Sarbanes-Oxley Act is crucial to restoring investor trust in public markets and reestablishing corporate and accounting credibility. The reforms are designed to reduce fraud and oversights in corporate reporting, accounting, and auditing practices.
The Challenge
Financial reporting and forecasting are placed in the spotlight by the Sarbanes-Oxley Act. Facing tightened quarterly and annual reporting deadlines, corporations must gather disparate information from throughout the enterprise, then quickly process, format, and distribute it.
Corporate executives are held personally responsible for the accuracy and consistency of information located anywhere in their organizations. Given just 48 hours to report material changes in financial status that could affect the stock market, these senior officers need to be able to quickly summarize financial information and drill down to the underlying details. They must establish and certify internal financial controls and be able to open up their audit trails to government auditors. Criminal penalties have been established for altering documents, which means companies must implement auditable document retention procedures and schedules.
The filing deadlines for 10Ks have been shortened to 60 days, and the filing deadline for 10Qs to just 35 days, forcing corporations to produce complex financial statements faster than ever before. Disclosure of additional off-balance sheet transactions (such as debt leases, lines of credit, and guarantees) must also be included in a company?s regulatory filings, providing a more complete picture of financial health and making potential financial problems more visible.
A recent study conducted by Deloitte Consulting and Business Week shows that 93 percent of CFOs believe their jobs become more difficult under Sarbanes-Oxley and its heightened reporting requirements. Additionally, 63 percent of CFOs indicated that they are the ones who shoulder the burden for ensuring compliance with the new corporate governance regulations, serving as both stewards and strategists.
The Solution
Most organizations deliver financial closing statements using a detailed consolidation cycle. Data from throughout the enterprise must be manually manipulated to create flash sheets and financial statements. Financial reporting is very complex. Rather than the usual columnar reports, it is cell oriented. Many analysts use spreadsheet programs such as Microsoft Excel to compute results and calculate totals because they help automate this process. However, to meet today?s more stringent reporting requirements, these disparate financial reporting activities need to be combined into automated, repeatable processes. This involves simplifying data integration, report generation, and information delivery. For example, rather than allowing ad hoc report generation from Excel, departmental reporting processes should be integrated so that all sources of financial data across all lines of business can be quickly combined, summarized, and displayed.
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