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Record to Report (R2R) Best Practices

Record to Report R2R Best Practices

One of the most powerful tools available to modern businesses in the quest for greater profits, performance, and competitive advantage is data management. Companies can leverage the data generated by their financial and other activity to gain insights and improve their strategic planning. For example, the record to report (R2R) process is used to collect, organize, and analyze your company’s financial information to produce accurate and complete reports as well as actionable, strategically valuable insights.

Depending on the internal controls and workflows in place and the organization’s overall data management approach, it can be challenging for finance and accounting teams to complete the R2R process in the time allotted. That said, taking the time to understand how the record to report process works, why it’s important, and the best practices needed to optimize it can help companies improve their business processes, meet goals for growth and innovation, and achieve a healthier bottom line.

Why You Need Record to Report Best Practices

As it touches directly on the financial health of your business and informs the decisions you’ll make to meet the expectations of both internal and external stakeholders, the record-to-report process is critically important to the competitive performance and overall financial agility of your organization. Naturally, optimizing this process through the use of best practices can make a substantial difference to how your company meets its goals and funds its ongoing and future production and innovations.

A well-optimized record to report process also improves four areas of particular importance:

Financial Compliance. In the wake of major corruption scandals like the Enron collapse and Worldcom implosion, companies in the global marketplace find themselves operating under much stricter financial compliance regulations. Accurate financial reporting processes, complete with well-documented audit trails, are essential for companies who want to avoid finding themselves on the wrong side of industry and legal compliance requirements.

Tax Management. The reports generated by the record to report process affect all of your financial planning, including taxes. Complete and accurate information makes it much easier to prepare taxes accurately, pay them on time, and strategize intelligent tax reduction measures.

Strategic Planning and Decision-Making. By providing a comprehensive picture of what’s working, what needs improvement, and any areas generating more risk than value, the reporting process that follows the R2R process gives your company’s CFO and upper-level management the information needed to make smart, strategic decisions. The insights gleaned from the process can help determine everything from the structure of the company to an overhaul of business process management in order to support (for example) a shift to digital, rather than analog, workflows.

Value Creation. A formalized and well-structured record to report process supports value creation through process optimization. The more accurate and efficient the process is, and the shorter the cycle, the more quickly valuable insights and financial statements will be available for analysis, planning, and decision-making. Ideally, optimizing the record to report process will also allow for a “cascade” effect, i.e. the data collected and analyzed is used to evaluate the efficiency and efficacy of all your workflows. Key performance indicators (KPIs) can be used to identify those areas most in need of improvement, as well as those processes already generating value through cost reduction, efficiency improvements, etc.

As with many other complex processes, R2R can present a number of challenges for companies. This is especially true for large multinational companies with very intricate intercompany accounting workflows, but the truth is that any business can run into a number of issues when transforming their data into financial reports and insights. 

How Record to Report Works

You know why it’s important, but before you can optimize your record to report process, you need to understand how it works. Every company is unique, but generally speaking the process moves through four stages, beginning to end.

  1. Data Collection and Management. During this stage, the data that will be used to create financial statements and reports, including journal entries, is generated, collected, and organized. Ideally, this data collection (and, depending on the tools available, data entry) will be swift, accurate, and complete. This data—known collectively as master data—comes from a variety of sources in your software environment, including all of the transaction data from all your business units, including accounting workflows, your procure to pay (P2P) process and supply chain management activities, etc.

Depending on your approach, this may mean extracting most of your data from a single, consolidated enterprise resource planning (ERP) solution, a comprehensive process optimization and automation solution, or a mix of different systems bound together in a shared software environment. Smaller companies may even have manual workflows and paper-based document management in the mix.

  1. The Closing Process. Also known as the closing cycle, the closing process (also called financial close, the close process, or simply closing) occurs at the end of a given financial accounting period. Finance and accounting professionals have a specific window during this time to complete all necessary postings in order to ensure the general ledger can be safely closed and reconciliation and validation/confirmation of financial information can be completed in a timely manner. As with data entry and collection, speed, accuracy, and completeness are of paramount importance in achieving a positive result without wasting time and resources.
    This may prove difficult, however, for companies still relying on analog techniques and manual workflows, which can slow the overall process through delays due to human error and oversight. Even companies using more modern approaches may face difficulties if they’ve inherited a complex closing process due to acquisitions, integrations, and their attendant intercompany accounting.

Increasingly, these companies are seeking to walk the line between speed and value during the close process. They do so by finding ways to remove needless waste and delays while increasing speed and accuracy using tools such as process automation.

  1. Reconciliation and Validation. When closing ends (with the close of the general ledger), the accounts team reviews intercompany accounting to validate all the financial information entered and organized. Ensuring the information is both accurate and comprehensive is crucial for the financial team, who must use it to prepare the financial statements (including your balance sheet) and reports for internal and external stakeholders, who will in turn rely on those documents for decision support and financial planning.
  2. Analysis and Reporting. Once the data’s been verified, it’s analyzed and used to generate a wide array of financial reports that include exhaustive detail regarding the company’s performance, profitability, and process and project management. Typically, these reports are sent to a range of stakeholders, including:
  • The C-Suite
  • Senior Management
  • Division Heads/Business Unit Heads
  • Investors
  • Regulatory Organizations (Industry and Governmental)

Common Record to Report Challenges

As with many other complex processes, R2R can present a number of challenges for companies. This is especially true for large multinational companies with very intricate intercompany accounting workflows, but the truth is that any business can run into a number of issues when transforming their data into financial reports and insights.

Master Data Management Headaches. Incomplete and inaccurate data, as well as inefficient workflows and staff struggles with data management can lead to problems with the master data you need for decision support, reporting, and planning.

Without clear and formalized workflows for data collection, organization, and analysis, the entire process can be fraught with errors that lead to costly delays or increased risk exposure.

General Ledger Woes. From closing to reconciliation and validation, the general ledger is only as useful and reliable as the data that feeds it. Errors caused by upstream inefficiencies may not become apparent until the general ledger is being reconciled and verified. This can create additional expense, stress, and frustration as journal entries must be investigated and analysis put on hold.

Increasingly Complex Reporting and Compliance Standards. Meeting the expectations of not just internal and external stakeholders, but the regulatory bodies that manage financial compliance, can be a tricky business in the modern marketplace. This complexity is arguably the primary driver in the push toward adopting fast, accurate, and complete data management solutions by companies eager to achieve not just compliance, but competitive advantage and a healthier balance sheet through lower risk and greater performance.

Putting R2R Best Practices to Work

Despite all the potential frustrations that can make record to report such a stressful and expensive time, you can still find ways to streamline it and overcome the challenges it brings.

  1. Invest in Automation. Every single best practice you can use to optimize your R2R process will perform more reliably, efficiently, and effectively with support from advanced data management and automation tools supported by artificial intelligence. A procurement solution like PLANERGY, for example, makes it easy to automate all your data collection, capturing all information and activity across your procure-to-pay process and supply chain management workflows, while providing seamless connectivity to your accounting, marketing, ERP, customer resource management (CRM), and other software solutions.

Cloud-based data collection and organization means nothing is left out or overlooked. Process automation takes the human element (and error) out of transaction processing, as well as data entry and verification. This speeds workflows, reduces closing times, and ensures your finance and accounting staff have everything they need for real time data management processes, including analysis and both internal management reporting and preparation of reports for external stakeholders.

In addition, advanced analytic tools take your complete and accurate data and grant leveled access to all appropriate stakeholders. Dashboards make it easy to generate reports on the fly, and slice and dice all data to reveal hidden insights and opportunities to further optimize processes, pursue new market opportunities, or work with suppliers to achieve greater value for every dollar spent.

  1. Standardize and Simplify. Your general accounting process sets the stage for quality data that drives all your financial reporting and strategic decision making.
  • Standardize naming conventions.
  • Establish criteria for standard and non-standard journal entries.
  • Formalize, document, and automate your approval workflows.
  • Establish and document roles for every accounting process to ensure accountability and adherence to internal controls.
  1. Tighten Up the Month End Process. Every month-end close is a building block for year-end close. Keep your financial reporting edifice from crumbling with a few best practices.
  • Consolidate your software environment.
  • Automate and optimize all workflows.
  • Ensure all relevant stakeholders have full access and transparency to all data.
  • Develop, implement, and monitor KPIs for accurate and complete workflows and reporting.
  1. Optimize Intercompany Accounting. If your business has multiple locations and subsidiaries, making sure every part of the body corporate is communicating accurately with the others is essential.
  • Standardize and document all workflows, roles, KPIs, and processes.
  • Automate wherever possible, including account reconciliation.
  • Develop and implement contingencies workflows to protect the speed and accuracy of all processes.
  • Monitor KPIs and adjust workflows as necessary to ensure optimal performance and data integrity across business units.

Streamline Your R2R Process for a More Agile and Competitive Business

When you understand how the record to report process affects the success of all your company’s initiatives, it just makes sense to invest in the tools and techniques required to optimize it. With help from best practices and a switch to process automation, you can be sure you’ll have the most accurate and complete data available to achieve accurate financial reporting and strategic decision-making while reducing costs and building long-term value.

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