Question

Why might it be necessary to consolidate and/or convert financial data to allow it to be analysed in accordance with organisational requirements? Discuss in 80–100 words

Answer 1

For most government organizations, it is challenging to aggregate historical results in monthly or quarterly reports. One of the greatest challenges is meeting requirements for both statutory/legal and management reporting. Statutory reporting refers to the financial reporting requirements, standards, and guidelines defined by federal agencies, independent organizations, acts of Congress, and executive orders. Management reporting is the operational intelligence that organizations gain from internal analysis that helps them monitor results and plan for future change.

To achieve the purpose of consolidated financial statements, those statements must report as faithfully as possible the financial position, results of operations, and cash flows of an organization and its component departments, agencies, and instrumentalities. Underlying that conclusion is the public’s need for relevant, reliable, and comparable financial information. This information is necessary to maintain public confidence, and to enable legislators, executives, and the public to assess an entity’s performance and effectiveness in administering its programs. A fair assessment of an entity’s performance relies on information about all the activities related to the economic resources that it controls. A fair assessment of an entity’s performance relies on information about all the activities related to the economic resources that it controls. For today’s government agencies, complying with statutory and management reporting requirements can be a daunting task. And without robust consolidation and reporting processes, it becomes a difficult—if not impossible—task.

APPROACHES TO FINANCIAL CONSOLIDATION AND REPORTING There are three basic methods for financial consolidation and reporting (Figure 2): • Packaged or best-of-breed applications (FCRA applications) • ERP systems • General tools These primary methods were identified in a study by BPM International. In 2006, BPM International surveyed 130 of the largest corporations in the world across all industries to identify common traits of top-performing finance departments; this study can provide useful insights to government agencies. The study found that 59 percent of survey respondents used packaged applications, while 29 percent used an ERP or general ledger/ERP system. The remaining 12 percent used general tools, such as spreadsheets and data warehouses.

In its study, BPM International asked companies to report the number of full-time equivalent (FTE) employees they had on staff to support financial consolidation systems. Among companies using packaged FCRA applications, or best-of-breed solutions, only 18 percent in the study had more than five FTE employees on staff to support the system. Among companies using ERP systems, 42 percent in the study had more than five FTE employees on staff for support. Finally, among companies using general tools, 23 percent had more than five FTE employees on staff to support the system (Figure 4). This highlights the extra maintenance and support requirements of IT-based ERP approaches and generic tools.

So, it is necessary for a company to consolidate its accounts for comparison of accounts with previous years and for better presentation fo financial statements for complying with all the required policies.

Thank you.