Annual financial statement reporting is a process with which finance professionals are very familiar. As this is a statutory requirement, a lot of the yearly planning is built around it, and rightly so. However, the process can be an onerous one, particularly since queries and corrections might relate to transactions from up to a year ago.
Additional reporting is also required throughout the year, and management may need reports at shorter intervals in order to stay abreast of the organisation’s financial status.
In many organisations, the annual, interim, and monthly reports are approached as independent reporting processes, resulting in a disjointed approach that duplicates effort and consumes a great deal of time.
This begs the question of whether we are missing an opportunity to streamline all reporting processes by integrating them.
What is defined as the interim financials?Different industries use different terminology for financial reporting that is not prepared on an annual basis.
Interim financial statements are defined by IAS 34 and although this standard does not prescribe who must prepare interim financials, it does provide the requirements of how they must be prepared. They are mostly performed by listed entities, but also by some specific industries that are regarded as more volatile.
Management accounts or monthly board packs
These are not legislatively regulated and are normally produced for management and other stakeholders who might not be intimately involved in the detail of the business on a daily basis. Management accounts originated from the manufacturing sector where there was a need to prepare a profit and loss statement on the basis of cost accounting rather than IFRS/SME standard.
Other industries adopted this procedure also but more from a monthly balance sheet and income statement perspective with the same grouping as that of annual financial statements.
By integrating and aligning the reporting requirements, organisations are essentially preparing their annual and interim statements throughout the year, as they prepare monthly reports.
This is perhaps where the biggest efficiency gain will be for an organisation, not only on a monthly basis, but also enabling management during the audit period to get back to running their businesses a lot quicker as there are no surprises at year end.
- As you are preparing management accounts on a monthly basis, you will stay close to the numbers, and therefore, any adjustment or analysis of the transactions can be done with the details at the forefront.
- The grouping of the accounts is also performed monthly, and as such, the audit can commence with no changes required to the line items on the financials. This also helps to avoid duplication of work due to rework on audit packs as groupings are amended.
- Adjustments can be made throughout the year for depreciation; expected credit loss calculations etc., and this increases the predictability of more accurate final numbers.
- Provisional tax calculations are more accurate and therefore, the risk of incurring interest and penalties is less likely.
- Then for the issue that is perhaps the most relevant to businesses – cash! This will enable you to have more accurate cash flow projections and make more informed operational decisions.