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.
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