Few companies would argue: SEC Reporting can be a complex and challenging process that places a significant burden on your internal team. On top of reporting mandates, the introduction of SOX has imposed additional requirements that cause an even greater strain.
For executives of publicly traded companies, who are personally held to a signed statement indicating that, to the best of their knowledge, their company’s system of internal controls over financial reporting is adequate, the process can be especially tense. But there’s good news: the advent of cloud-based software is helping many companies streamline the reporting and compliance process and alleviate the pressure. In this blog, we’ll address the most common challenges and discuss how cloud-based software offers a viable solution.
SEC Reporting Challenges
Your finance team, of course, expects a heavy workload in preparation for both quarterly and annual SEC filings. Even so, a number of organizations still underestimate the weight of that burden in terms of time and resources – and time and time again, they run into the following issues:
- The resource crunch. Filing your 10-Q and 10-K requires your finance teams to cull a substantial amount of data from multiple sources. Adding to this time-consuming task is the potential for industry-specific requirements (for example, new accounting standards and regulations) that can add another level of complexity to the process. Even after the data is gathered, “translating” and preparing it for filing is a job in itself that requires considerable time and expertise – often beyond what was originally scoped.
- Getting the timing right. Similar to your federal and state tax compliance deadlines, finance teams typically work backward from an unmovable SEC mandated reporting deadline by creating a series of reporting tasks along the way. But those deadlines can often coincide and conflict with other workflows, both internal and external, and cause necessary intervention upstream. Various factors (i.e., the need to release certain information to the public by a certain date) end up interfering with your reporting timelines, further straining your resources.
- ERP systems fall short. Many Enterprise Resource Planning (ERP) systems, while critical to many core finance and accounting functions, do not necessarily collect and present data in a way that efficiently aids in the financial reporting process. Many find that alone, their ERP is not enough, prompting many organizations to find other systems or processes to compensate for those shortcomings.
- Lack of coordination. Tackling the reporting process “in silos” often makes it difficult to ensure data accuracy and timeliness in reporting. To accurately report on your company’s performance and financial data, a collaborative approach – one that centralizes your data source and coordinates efforts across internal teams and external auditors – is absolutely critical, yet often difficult to manage.
Additional Challenges: SOX Compliance & Management Reporting
On top of SEC reporting, SOX compliance and management reporting pose similar struggles including the following:
- Documentation for internal controls. SOX compliance and management attestation requirements are mandated to be fulfilled on a quarterly and annual basis. Preparing the documentation for the processes in place, as well as testing and remediation, requires a substantial amount of time and resources.
- Deadlines, timing and coordination. Unmovable deadlines. Tight timing constraints. Cross-functional coordination from multiple teams. Many of the same reporting woes described above are also factors with SOX compliance. This adds to the pressure for companies who are struggling to provide senior management and external auditors evidence of control effectiveness in a timely manner.
- Management reporting. The reporting process typically requires managers to produce and provide analyses and reporting on a monthly, quarterly and annual basis. Managers not only have to collect and consolidate data from various sources, but ensure accuracy and timeliness in reporting on company performance and other financial data.
How Cloud-Based Software Rises to the Many Challenges
Given the pressures surrounding the reporting and compliance challenges, team leaders are tasked with finding the best ways to manage the process. This might include a combination of strategies, from implementing new data-management methods (in Excel, Word or PDF form) to the addition of new resources (either new hires or outsourcing to third parties). Perhaps the most compelling solution, however, is the application of cloud-based software. Through technology and automation, cloud-based solutions create efficiencies that free up resources, improve collaboration and help teams fulfill project tasks on time.
First, let’s take a look at some of the specific ways cloud-based software can aid in the management and fulfillment of activities including the following:
SEC Reporting Requirements
For periodic, quarterly and annual filings of Forms 8-K, 10-Q and 10-K, cloud-based software builds in several features and functions that automate the administrative burden to save time. Here’s just one example: when entering required data, certain solutions allow you to input common phrases only once. For data that appears in multiple instances (for example, a date or period of time), that info is saved in a workbook and linked to other relevant documents including tables, footnotes, written analyses, or the filing forms themselves. Additionally, when documents are rolled forward to the next period, those data points are automatically updated. Furthermore, data can be leveraged in the future for historical comparisons. The software can also connect filing requirements to their respective due dates, helping teams manage workloads and stay on track with target deadlines.
As teams collect the data required to become SOX compliant within certain reporting periods, a central data source is vital for ensuring accuracy and coordination among multiple users. Cloud-based software provides just that, with a central repository for all risk and control information and documentation that’s accessible to everyone, across all levels of staff and management.
Financial and Management Reporting
Cloud-based software solutions can be integrated with existing systems to bridge the gap in ERP or Excel shortcomings. In terms of SOX compliance, this enhanced functionality helps CFOs identify problem areas where additional internal controls might be needed. It also streamlines financial and management reporting, helping to determine, for instance, variance analyses for reporting and compliance. Such insights can also be leveraged to establish other key calculations and analyses, such as equity-based compensation, making the software a key tool for helping senior managers make important business decisions beyond SEC reporting.
With features designed to specifically address SEC reporting, SOX compliance and management reporting, cloud-based software also provides the following overarching benefits that address many of the challenges discussed above:
- Provides a single source of truth. Key data points — which are pulled from a central repository — can be automatically populated and used multiple times throughout the same document or across several different documents. This improves coordination among cross-functional teams and puts a considerable amount of time back into the data-collection process – freeing up your resources for other tasks. Additionally, it adds an increased level of integrity to better guide your data analysis – ultimately resulting in more accurate planning, budgeting, operational and financial reporting.
- Produces automatic data collection and aggregation. Most software solutions will allow you to import data from your ERP into templates that you can set up and modify in ways that are pertinent to your business. These templates can be applied to internal and external reporting, as well as various constant and ad-hoc analyses. Here again, is an example of how the software automates the data-collection process to save time and allow your resources to focus their effort on other key priorities.
- Leads to better-supported analyses. Many of the data points within your filings must be further supported by additional documentation. Today’s software solutions allow you to directly link to that documentation so users can quickly understand where and how those numbers and explanations were derived – without having to rely on human resources who may simply not remember or are no longer with your company.
- Streamlines XBRL and EDGAR filing. Your filing will require you to have a taxonomy presentation (a categorized tagging system) to guide users through your data reports. Cloud-based software offers built-in features that provide database references to assist with the tagging process, making the process considerably more efficient. In some cases, your software solution can even be a viable alternative to having a third-party resource to provide this service.
All in all, challenges will always exist with reporting and compliance challenges, but cloud-based software can ease many the pressures that companies commonly face. While this blog touches on some of the benefits of that software, keep in mind that 8020 Consulting is also here to help. If you have questions about financial reporting & accounting, or would like to tell us what type of guidance you’re looking for, feel free to contact us at any time.
Is your company getting bogged down SEC Reporting or SOX Compliance? Our specialists would be happy to help. You can contact 8020 Consulting here, call us anytime at 855.367.8020, or click the button below to learn more about our services.
About the Author
One of 8020 Consulting’s talented team of consultants, Brian Barton is a CPA with more than 20 years of finance and accounting experience across many industries. He has provided guidance to numerous clients regarding selection, infrastructure design, implementation and management of cloud-based software. Most recently, he provided project management for a cloud-based software implementation a solution that delivered significant time savings and improved data accuracy across his client’s accounting, legal and tax departments.