2005 - A monumental change is emerging in accounting: the
movement away from the decades-old method of periodic financial
statement reporting and its lengthy closing process, and
toward issuing financial statements on a real-time, updated
basis. The AICPA has even been investigating the topic through
its Special Committee on Enhanced Business Reporting.
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.
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Periodic reporting systems are quickly becoming outdated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
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,
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.
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.
Real-Time Reporting Better?
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.
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.
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.
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.
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.
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.