Real-Time Accounting

By Paul Ashcroft

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Today’s economic and business environment requires different resources and ways of operating that alter a company’s structure. Today’s stock markets demand up-to-date financial information to meet the needs of investors.

The sheer data-handling power of advanced technology has created tremendous growth in the speed and volume of business transactions processed by companies. It has also greatly increased competition. Periodic reporting systems are quickly becoming outdated because they simply cannot adequately represent the rapid changes that occur in many companies and industries. All of these factors have created a need for real-time financial reporting.

Traditional Versus Real-Time

The purpose of accounting is to provide relevant information that is useful for making financial decisions. Companies have typically issued financial statements covering quarterly and annual periods to provide the accounting information needed by present and potential investors, creditors, suppliers, and customers.

Traditional, periodic accounting takes place over regular intervals, during which financial statements are prepared. Since traditional reporting provides the company’s financial position, results of operations, cash flows, and other financial information several weeks or even months after the reporting period has ended, the information reported is not as relevant as it could be. The sooner a company issues its financial statements for a particular period, the more useful the statements will be to users, as long as accuracy is not compromised in order to issue statements more quickly.

In contrast to periodic accounting, real-time financial reporting provides financial information on a daily basis. Current technology allows for financial events to be identified, measured, recorded, and reported electronically, with no paper documentation. Real-time reporting will continue to grow because companies now are much more reliant upon intellectual capital rather than physical capital.

Is Real-Time Reporting Better?

Real-time reporting can provide many benefits compared to traditional periodic reporting. Consider, for example, the City of Montreal, which implemented a real-time, online system for maintaining municipal finances and managing receipts in 2003. The system provides for financial reporting and allows employees to access tax records. The users are saving time, minimizing development costs, and leveraging financial data more than ever before, according to Herve Caparros, a programmer and analyst in the city’s finance department. The City of Montreal depends on its real-time system to maintain approximately 400,000 taxpayer accounts, which annually produce about Can$2.5 billion in receipts. In addition, the system includes tools for creating financial reports, graphs, and bar charts.

Real-time accounting allows management to quickly adapt to opportunities and address problems. Daily reporting greatly eases the stress involved in preparing quarterly and year-end financial statements. Rather than spending long hours in preparing periodic financial statements, management executives, accountants, and other business professionals are allowed more time for other tasks, such as financial management, product development, and customer relations. Businesses are becoming increasingly reliant on financial information that is reported as transactions and events occur. For example, the food service industry can now benefit from the MenuLink Internet Reporting Client system, a database that provides daily reports of the sales, purchases, and costs involved in the operation of a restaurant. After collecting data, MenuLink uses the information to generate payroll and accounting reports and presents the information on a secure website. Bob Thomas, MenuLink’s vice president, says this new information-reporting system gives restaurant operators the information they need to make critical business decisions.

Another example involves Cisco Systems. With $22.2 billion in sales for the fiscal year ended July 2001, Cisco used Oracle’s ERP software to generate a consolidated balance sheet and income statement within about half a day of a fiscal quarter’s close, compared with two weeks for 1996. In 1996, Cisco’s finance department spent 65% of its time processing transactions and preparing financial reports, and only 35% helping managers use the reports to make better decisions. After Cisco implemented real-time reporting, these percentages reversed.

Additionally, the finance department’s expenses as a percentage of total company revenue decreased from 2% to 1.3%. All of this occurred even as Cisco added personnel to keep pace with growth. Real-time accounting has given Cisco an accurate measure of revenues, expenses, margins, and profits every day of every month.

Small to medium-sized companies now have the opportunity to adopt real-time accounting as well. AccTrak21 has released version 10 of its online, real-time accounting and business software designed for small to medium-sized businesses. Version 10 is Windows-based, includes hyperlinked online help, and integrates with Microsoft Word, Excel, and Outlook. Version 10 also captures information on the financial and nonfinancial transactions of the company and on customer information, and provides for interactive financial reporting and generation of financial statements. On its website (www.acctrak21.com), AccTrak21 says its software is fully scalable and and that its customers range in size from single-user small businesses to publicly traded firms with thousands of employees.

Real-time reporting will very likely be adopted by many more entities in the next few years. The information needs of financial statement users and the benefits provided by real-time accounting fit well together. Be prepared for this monumental transition.