PERCENTIX BLOG

EPM Technology Can Help Your Company Avoid Financial Restatements

 Twitter |  Facebook |  digg it |   delicious |   StumbleUpon |   LinkedIn |  reddit 

From reading the news, one might believe that restatements are fast becoming the "norm" rather than the exception.  In reality the vast majority of publicly-traded companies haven't had to restate their financials and take their fiduciary responsibility seriously enough to put the right internal controls in place BEFORE things get so messed-up that they need to do a restatement.

CFO Magazine recently had an article on Sarbanes Oxley 404(b) compliance:  Does Sarbox Reduce Restatements?  The article states that companies that don't have their internal controls verified by outside auditors are 46% more likely to have a restatement than those that do.  So, if you were the CFO of a non-accelerated filer - companies with market capitalizations under $75 million - (much less a CFO of a company with a market cap over $75 million) why wouldn't you spend the money to have your auditor verify your internal controls (and more importantly actually put  adequate internal controls in place)?

• Time - CFOs have a lot on their plates and external filings, while important, can surely be pushed down the list when you've got debt covenants and low cash reserves taking top priority
• Quality - Having audited financial statements is simply "enough" for many boards, or was, until recently. Many companies are still "transitioning" to the new reality under SOX and frankly, with some of the changes recently proposed in congress, are waiting to see what that reality is.
• Cost - Auditors (internal and external) and consultants cost money and at it's definitely easier to get money for a project when a restatement is necessary than when you "might" have to make one

To be sure, managing the balance between Time, Quality and Cost is a difficult proposition but not an insurmountable one.  Below are the three things that my experience has shown companies should look for in any project you do around improved financial consolidation, planning and/or reporting:

1. Flexibility - Implement a tool/technology that gives you more than just internal controls. There are many tools in the market today that are purpose-built to provide BOTH internal SOX compliance AND improved reporting.
2. Scalability - Don't create something you're going to grow out of in the next three to five years. Look for tools and technologies that easily scale up and support large numbers of users both at corporate but also out in the field (they're going to want to look at the reporting after all...)
3. Supportability - If it takes an army from IT to run or you need a degree in applied statistical theory to understand, it might not be the right solution. Tools and technologies that can be owned and operated by finance but supported by IT are best. This puts the power to make changes quickly in the hands of finance and ensures that it's built on a sustainable infrastructure.

If you put a tool/technology in place that's flexible, scalable and supportable you'll have a much better chance of maximizing your ROI on the money you spend (cost), getting the most capability and accuracy out of what you implement (quality) and ensuring that the time you spend isn't wasted on something that will end up as "shelfware" a few years from now (time).