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MANAGEMENT ACCOUNTING / FINANCIAL REPORTING

Cutting the clutter: Streamlined operations reports engage key stakeholders

See the benefits one company found in moving the most important financial information to the first few pages of monthly operations reports.

By Neil Amato
February 2014

Carol Kenner, CPA, CGMACarol Kenner, CPA, CGMA, knew her company’s financial statements backward and forward. Every number on every page made sense to her.

But not everyone at Solix Inc., the New Jersey company where Kenner is CFO, knew what the numbers meant. And among the finance staff, not everyone involved in the creation of those monthly operations reports, which had grown to 20 pages, considered the process routine.

About a year ago, after a suggestion by a new board member, also a CPA, Kenner made the move to cut the clutter in the monthly Excel document that was emailed to the board and about 30 other stakeholders.

Instead of a large, numbers-heavy document, Solix delivers a streamlined monthly report that cuts to the chase and lessens confusion for board members and others who aren’t trained in finance.

The number of pages has decreased by about half, but so too has the number of “important” pages. Now, a few pages of key information in an easier-to-read format are delivered to inboxes. Instead of calling up a PDF, seeing it’s 20 pages, and thinking, “I don’t have time for this,” board members and department heads are more engaged in scanning over the key numbers in the report.

MORE AND BETTER INFORMATION UPFRONT

Solix, a $100 million private company of about 450 employees in Parsippany, N.J., is a provider of eligibility determination, qualification program management, and customer-care services to government agencies and businesses in the United States.

In the past, the operations reports included the most recent month’s revenue versus budget on one page, the year-to-date revenue versus budget on another page, and then separate pages for current month versus previous year’s month and current year to date versus previous year to date. That’s a lot of flipping back and forth through a printout or scrolling through the tabs of an Excel document.

Those four pages have been trimmed to two. Now, data for July 2013 actual, July 2013 budgeted, and July 2012 actual can be viewed on one page, the same for 2013 year to date, 2013 year-to-date budgeted and 2012 year to date.

The consolidated operations report has three key pages after the consolidated balance sheet. The first is an easier-to-read income statement. In addition to having rows for revenue, operating profit, and net income, the statement includes contribution as a percentage of revenue, and operating profit as a percentage of revenue.

“We’re able to compare both the amount and the volume of the contribution, in addition to a comparison in percentage,” Kenner said.

The next two pages are for month and year comparative results with the headline “Operational Results Summary.” They have comparisons to actual numbers, budgeted numbers, and prior-period numbers.

Those who crave the details can still look at the full report, which Kenner says has been cut to about 10 pages. For the rest, the first four pages beyond the cover tend to do the trick.

Solix still creates full annual reports for shareholders and quarterly reports for its bank. “We’re giving the traditional GAAP financial statements, with balance sheet, cash flow, P&L, stockholders’ equity, footnotes,” Kenner said.

The June 2012 report for the board was 20 pages. One from this past summer was 11 pages.

THE ADVANTAGES

Less time on the monthly report, more on forward-looking analysis. The finance staff is “asking more questions about the numbers,” Kenner said. They’re also happier about the change in emphasis—e.g., the elimination of one specific segment report that a Solix executive had requested.

“My staff was just thrilled,” she said. “They told me, ‘That [segment] report was such a pain to create. It’s always got rounding errors, and you have to cross-reference it to others.’ It was a nightmare to create. You don’t even know what kind of machinations they were going through to create these reports. It looked simple, but they said, ‘No, it’s really awful.’ ”

Greater accuracy. “Any time you free up the time of professionals, you’re going to get more accuracy,” Kenner said. The finance staff uses that time to double-check and root out any inconsistencies. “They go back and ask more questions of the people providing the numbers,” she said.

Positive feedback from the board. “They’re all good with it,” Kenner said. “You put too many numbers out there, and they don’t even mean anything to some people. We hand out a report that’s maybe 12 pages. On one or two of them, we really encapsulate what we think are the most important measurements.” More detail follows in subsequent pages. For instance, if someone wants to know specifics on labor costs or facilities spending, he or she can dig deeper into the report.

Better comparisons. In the past, Solix compared year-to-date numbers to budgeted numbers and year to date versus previous year to date. Now, the comparison on the front page of the monthly operations report shows the previous metrics as well as that month’s numbers versus budget and that month versus the previous year’s month. Much of Solix’s work is seasonal, so focusing on monthly numbers was a more meaningful comparison.

A smoother review. The more accurate the numbers, and the less voluminous the document, the better for the year-end audit. Kenner said the reduction in pages will make the audit process run more smoothly as well. The finance staff has “more time freed up to make sure that everything that has flowed through the financials is right,” she said. “The more you can keep up with that, the better it is for audit at year end.”

SIMPLER AND SMALLER

The thought process put to use at Solix can apply to other companies, and evidence shows a streamlining of documents such as annual reports is needed. One KPMG study shows companies’ 10-K filings and disclosure notes growing substantially over the years, in part due to more regulatory requirements. (See the sidebar, “Five Tips for Streamlining Annual Reports,” for advice on how to present material that engages stakeholders.)

For instance, the Form 10-K for Bank of America grew from 160 pages in 2004 to 245 pages in 2010. Dow Chemical’s 10-K grew from 118 to 203 pages in that same span. Overall, 10-K volume grew 16% among 25 companies tracked by KPMG, and footnote disclosures grew 28%. The KPMG report said that the volume and complexity of the documents and disclosure notes made it more difficult for stakeholders to absorb the material.

While Kenner doesn’t have to follow the same reporting guidelines as a public company CFO, the principle is the same: Smaller and simpler is better, for the good of everyone.

Click here for a video of Kenner discussing how Solix streamlined its financial reports.

Neil Amato is a JofA senior editor. To comment on this article or to suggest an idea for another article, contact him at namato@aicpa.org or 919-402-2187.


Five Tips for Streamlining Annual Reports

The issue of lengthy reports is a global problem, and that is one reason groups such as the International Integrated Reporting Council have advocated streamlining annual reports. PwC’s Practical Guide to IFRS: Streamlining the Annual Report includes five tips on how to make annual reports more worthwhile for stakeholders:

  1. Make the report easy to navigate. If the report is online, try making it interactive, with drilldown capability that easily gets the user back to a home page.
  2. Play up the most important information. Consider a summary of the key information at the front. If the report is 100 pages, putting key information on page 90 isn’t going to help.
  3. Connect the information. The PwC report says companies should link strategy to objectives, objectives to performance, and performance to executive pay.
  4. Avoid reporting in silos. Consider whether information should be included at all. If it doesn’t serve the full audience and isn’t necessary, maybe include it as an online supplement only.
  5. Consider the quality of disclosures. Disclosures should not be boilerplate information but instead company-specific.

AICPA RESOURCES

JofA article

New Option a Game Changer for Private Companies,” Sept. 2013, page 44

Publications

  • Accounting Trends & Techniques—Employee Benefit Plans (#0066512, paperback; #WET-XX, one-year online subscription; and #AATTEBP12E, ebook)
  • IFRS Financial Statements—Best Practices in Presentation and Disclosure (#ATTIFRS12P, paperback; and #WIF-XX, one-year online subscription)
  • Not-for-Profit Entities—Best Practices in Presentation and Disclosure (#ATTNPO13P, paperback; #WNT-XX, one-year online subscription; and #ATTNPO13E, ebook)
  • U.S. GAAP Financial Statements—Best Practices in Presentation and Disclosure (#ATTATT13P, paperback; and #WNG-XX, one-year online subscription)


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cpa2biz.com or call the Institute at 888-777-7077.

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