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Real Time Consolidation (RTC) – What’s the point?
The RTC summarizes in a simple acronym all the ambition of the financial departments in terms of Record to Report: a fluid general and analytical accounting system, established monthly, and a simplified consolidation process with instant reporting.
The expected benefits are known. This involves reducing the time and cost of producing information, integrating systems to improve the audit trail and data consistency.
The idea is not new, we have been trying to achieve these objectives for more than 30 years through Lean Accounting or Fast Close projects; many groups are now closing in just a few days. However, with BTI, this is the first time that the consolidation and reporting process has been shaken to such an extent and it is in this respect that the approach is interesting.
Here are the 3 levers that will allow you to set up a RTC approach, while creating agility:
1. Harmonize upstream and downstream around a management framework
2. Differentiate between financial and management consolidation
3. Deploy self-service reporting
Harmonize upstream and downstream around a management framework
Transactional and decision-making tools are still very far apart in their content.
- Complex interfaces
The solution? Use a common management framework for the entire organization. This gives us the possibility to move from one universe to another in a more flexible way, which allows a coherence of the models. For example, a local account plan that would fit into the group’s account plan, or cost centers that, when aggregated, would reflect the value chain.
- Manual entry
The solution? Take out all the appendices of the BTI process. The objective is to quickly produce key elements for management, for example, those that contribute to the operating result or the available cash flow. Excludes the analysis of deferred taxes, the revaluation at fair value of financial assets or pension provisions.
Conversely, automate the generation of the available cash flow by integrating the notion of change in fixed assets into the general accounts, for example from the asset management module.
- Numerous quality controls and validation workflows
The solution? Once the accounting provides a quality closure, it is no longer necessary to make manual corrections in the consolidation tool. It is still good practice to close the accounts in the general ledger rather than in reporting. Of course, it is not possible to exclude round trips, but thanks to a data loading and consolidation time of no more than a few minutes and two or three clicks, it becomes easier to make the last entries in the general ledger.
Differentiate between financial and management consolidation
Since the 1980s and 1990s, it has been systematically recommended to unify statutory and management consolidations. However, this does not mean that they should be placed on the same level and subject to the same constraints.
For example, a management consolidation does not necessarily require the automatic processing of companies accounted for by the equity method, financial consolidation does not require to be produced in 3 days.
Differentiating the two needs, while maintaining a strong articulation, will make it possible to put the analysis of the business back at the centre and give room for manoeuvre to management control. It is not necessary to talk about separation here, just differentiation.
Management consolidation is primarily used to analyse performance, to disseminate key indicators internally and to feed into dashboards. She needs:
- Many dimensions of analysis, allocation keys
- Flexibility in the data model
- To be produced in real time, every month
- Comparisons with the forecasting phases
However, it does not need to be exhaustive and can focus on items such as operating income, available cash flow or main operating entities.
Financial consolidation is used for external communication (with shareholders, for example), financing and restructuring operations or mergers and acquisitions. It requires:
- Be exhaustive (Statement of Comprehensive Income, full legal scope)
- Include detailed analyses of financial items (debts, long-term leases, etc.) and current and deferred taxes
- To include all the notes to the financial statements, and therefore to treat a great heterogeneity of information (fair values, off-balance sheet, extra accounting analyses)
It is entirely possible to harmonize the two processes, to articulate them fully and automatically, while ensuring that they are supported by two separate reporting cycles.
Deploy self-service reporting
By working on the first two components, some groups have already drastically reduced delays. But on the last kilometre, the production of self-service reports, it is still very rare to see the financial departments change gears. This is an acute problem of change management.
However, it is useless to do BTI if it then takes a week to compile hundreds of tables in a file and send them by email. To remove the last blockages, ergonomic reporting tools must be implemented with:
- The possibility to download the tables online
- Notifications in case of data updates
- The opportunity to comment
But above all, it would be necessary to rely on a shared management framework and simplified data models, allowing drag & drop and drill through.
Some of these tools already exist. But organizations have difficulty accepting the idea that reports must be easy for non-experts to use in order to be self-service. However, there is indeed a need to review and simplify the very content of some reporting to achieve the objective of self-service.
By implementing a PSTN approach, you benefit from the investments made upstream.
You benefit fully from the efforts made to quickly close the general and cost accounting by adopting a Real Time Consolidation approach to this data. You reduce your lead times and costs while increasing the linearity of accounting processes. Monthly closing becomes routine and relies almost entirely on the accounting department, there is no need to go back and forth with the reporting system
By articulating financial and management consolidation differently, you put business back at the centre with a wider and faster dissemination of information on this scope and an emphasis on business-oriented financial indicators (working capital, capex, operating profit…). The link with more operational reporting such as sales, for example, is strengthened, and you can rely on a finer granularity for management data.
In conclusion, with the RTC, management control is back on track. He comments and analyses the results with the activity managers rather than compiling tables and all actors share the same information at the same time.