Financial Management Applications Must Step Up to Increased Accountability and Regulation

As accounting and financial reporting receives increased attention in the wake of several corporate accounting debacles, public companies must ensure that their financial systems are up to the task. In reaction to the U.S. accounting scandals, the Sarbanes-Oxley Act of 2002 was signed into law on July 30, 2002. Several provisions within the Act impact corporate financial reporting and disclosure requirements, including correcting adjustments, additional information on related entities, CEO certification of financial results, rapid disclosures of material changes in financial condition and reduced filing windows for annual and quarterly reports.

Contemporary accounting systems from leading software vendors are well equipped to handle the financial reporting requirements of companies in the US and abroad, as long as sound accounting policies, procedures and controls are in place. For the most part, the new and evolving requirements focus on corporate governance and accounting procedures, which are independent of the software being used to generate financial reports. To the extent that systems are impacted by regulatory changes, software vendors will typically respond quickly with software maintenance updates.

Companies with disparate and legacy accounting systems, however, could be more at risk to meet the new and evolving requirements. A fragmented financial systems environment requires more interfaces and reconciliation procedures, extending the time required to close the books. Such an environment also increases the risk of material errors in consolidating financial results.

Giga recommends clients with current, supported versions of accounting software pay close attention to software release cycles and apply compliance updates as quickly as possible. In addition, clients should look to improve financial information delivery capabilities to increase the visibility of financial results to management, shareholders and the public. Enhanced reporting capabilities may include:

• Analysis and reporting tools to deliver financial results internally, including portals and performance measurement
• Delivery of financial information to external parties via XBRL, an emerging technical standard for financial reporting via the Internet
• Capabilities for enhanced audit trails and annotations for improved disclosure
• Advanced capabilities for financial planning and forecasting

Going forward, companies should maintain their accounting systems with the highest standards of reliability and accuracy while enhancing financial reporting capabilities for timeliness and transparency. Enterprises with disparate accounting systems and those with older, unsupported accounting software should seriously consider moving to an integrated environment from a single vendor. Closer integration of financial applications can benefit companies by improving the timeliness of periodic reporting cycles and by reducing effort levels and errors. Additionally, a seamless accounting system is less costly to maintain and more easily upgraded in the event that additional regulatory changes are imposed.