A Brief Discussion of Financial
Reporting
A primary objective of any
financial accounting system is to provide accurate financial
statements on a timely basis. A frequent complaint is that a product
won't produce the kind of financial reports a company wants. Yet,
considering the importance of financial reporting, users typically
fail to fully consider financial reporting capabilities when
evaluating products.
When it comes to financial
reporting, many accounting software products incorporate two
third-party products—FRx and Crystal Reports—into their packages
rather than develop their own. And in recent years those two
products have become industry standards. Both work seamlessly with
more than 25 top accounting software packages. So dominant is
Microsoft's FRx that some products, such as Great Plains Dynamics,
Platinum for Windows by Best and Solomon IV, rely on it as their
primary financial reporting tool.
When evaluating software, you
should ask whether it works with FRx or, if it doesn't, whether the
built-in module exhibits comparable features. Here are some of the
key capabilities of FRx:
-
Produces financial statements
with up to 256 columns.
-
Links financial data from either
a general ledger or other products such as a spreadsheet or
database application.
-
Creates calculations such as
expenses divided by units produced.
-
Produces provisional financial
statements—that is, as if all un-posted transactions have been
posted.
-
Views reports on screen and
easily drills down from financial summary information into account
and transaction details.
-
Sends e-mail reports directly to
remote users from the report preview screen.
-
Exports and imports reports to
and from spreadsheets.
-
Handles complex calculations
such as conditional if-then statements.
-
Provides a drag-and-drop utility
in the reporting tree so users can see the financial effect of
restructuring.
-
Creates virtual roll-up
structures for reporting at different levels—that is, by store,
city, state, territory or country.
-
Prepares and distributes
presentation-quality reports using customized fonts, colors and
other formatting options.
-
Compares revenue and expense
figures for different departments by creating side-by-side
reports.
-
Operates in a client-server
environment.
As powerful as it is, FRx
primarily offers superior reporting capabilities only from the
general ledger module; it's not designed to extract data easily from
other modules. This is Crystal Reports' forte. It's superb at
extracting and reporting transactions from all modules. For example,
it can produce a set of mailing labels for all vendors that received
more than $600 for the year but failed to provide the proper
taxpayer identification number. It also can produce a report for
each salesperson, displaying his or her top 10 customers in terms of
total sales, the outstanding amounts receivable and the profit
margin attributed to each customer. Like FRx, Crystal Reports works
with many of the top accounting software packages. Some products
such as MAS 90 and MAS 500 have even gone so far as to use Crystal
Reports to develop all its module reports.
Over the years, I have encountered
many clients who thought they had to replace their accounting
software because of inadequate financial reporting. A number of
them, however, resolved that problem simply by adding FRx and
Crystal Reports.
Rating Ratios
Another important aspect of
financial reporting is built-in ratio reporting. Unfortunately, most
accounting software and third-party application developers either
ignore this function or don't give it the attention it deserves.
Many vendors say they provide built-in ratio reporting, however, in
my view, the number of ratios most of them provide is hardly
adequate.
One of the few products that does
adequately addresses this need is BusinessWorks Gold—a product that
serves the low-end market. Each of its modules contains a flash
report function that summarizes key financial ratios and highlights
key information. The general ledger flash report displays 20 key
ratios for the following periods: current, year-to-date and
prior-year. Also displayed are sales histories and balance sheet
amounts for the past 24 months. The inventory flash report provides,
among other things, inventory ratios, days in inventory, a
reconciliation of the inventory account for the month, inventory and
cost-of-goods-sold balances as well as highlights of the fastest
selling and highest profit items. This is vital information that
helps management detect problems in time to take corrective
measures. In any company, it's important for management to receive a
set of financial statements at least monthly, complete with
financial ratio reports attached.
Graphics
A picture is indeed worth a
thousand words, but it's probably worth several thousand
numbers. You should check to be sure the package you're
considering can convert numbers into graphics. Several accounting
packages can produce pie, line and area charts from the numerical
data.
Pivot Tables
One of the most powerful
analytical tools are pivot tables—a tool used in spreadsheets that
allows the user to take data and pivot, or turn, it in many
different ways so the information can viewed from different
perspectives. For example, it can show the relationship between,
say, sales in various cities and sales of individual products; and
then, by pivoting the data, it can compare sales broken down by
cities with those by individual outlets or by individual
salespeople.
Many companies praise pivot
tables; for example, Microsoft claims the pivot table is its primary
vehicle for analyzing financial data.
ACCPAC for Windows offers an
excellent reporting tool called BrioQuery, which is basically a
pivot table function. This tool queries the ACCPAC database using
virtually any criteria desired. The resulting query may then be
displayed as raw numbers, charts or in a conventional spreadsheet
pivot table format. Other accounting packages allow the user to
export data into Excel, which has its own pivot table features, but
ACCPAC's pivot tool is much faster and easier to use.
Hotlinking
Another important financial report
feature is the ability to hotlink accounting data directly to an
Excel or Lotus 1-2-3 spreadsheet—a feature first found in Platinum
for Windows. Such a feature allows the user to export financial
statements directly to Lotus or Excel as easily as sending the
report to a printer. Once in Lotus or Excel, Platinum for Windows
automatically inserts the @SUM formulas everywhere, making what-if
scenarios a snap to create.
Event
Triggered Reporting (Alarms)
Many accounting software products
have the ability to alert users to predefined financial conditions.
With such a feature a CFO can create simple calculations that the
accounting software continuously compares against a preset value.
When that value is exceeded, an alert pops on the computer screen.
For example, a CFO might create calculations to sound an alert if
cash on hand falls below $100,000, gross margin drops below 20% or
the number of days in inventory exceeds 80. In most cases, there is
no limit to the number of triggers that can be established.
ACCPAC ProSeries, for example, not
only monitors custom events, but it can alert mangers by sending
them e-mails. As you would expect, many high-end accounting
products—the so-called beginning enterprise resource planning
(ERP) products, such as Epicor eFinancials, offer event-triggered
reporting. However, this high-end feature
also can be found in an entry-level product, Peachtree Complete
Accounting. Its alarms automatically monitor amounts related to
account balances, customers, vendors and employees.
For accounting software packages
that don't provide event-triggered alarms, a third-party solution
often is available. For example, Forest & Trees (from Computer
Associates) can extract data from a host of accounting software
packages, spreadsheets and other databases. In addition, the
software can dial your telephone or beeper if it spots a potential
problem. Thus, it can warn of impending problems on a real-time
basis, whether you're in a meeting, traveling or on the golf course.
Although Forest & Trees can provide alerts, it is difficult to
program so you should probably hired a consultant to install and set
it up. |
