Transforming data into insights for finance leaders
The application of advanced technologies used to perform financial statement audits can deliver new value to audit clients, unlocking the potential efficiencies and strategic opportunities that can enhance the finance function at organizations large and small.
Advanced technology-driven ledger analysis techniques assist audit clients in identifying manual tasks that could be automated and find anomalies that need further investigation. This helps finance personnel focus on higher-value activities using insights derived from the audit.
“Auditors get all this data as part of your audit. It can be used to create real value and insights for clients.”
"Auditors get all this data as part of your audit,” said John Howell, Principal, CFO Advisory for Grant Thornton. “It can be used to create real value and insights for clients — uncovering things that they would not have known otherwise thanks to the power of the audit technology and all the information it pulls in.”
Companies benefit from ledger analysis techniques that are continually improving and adding new capabilities. Analytics techniques enable auditors to test entire datasets rather than sampling, uncovering strategic opportunities and efficiencies.
Through dashboards built on analysis of the company’s entire ledger, insights that were unavailable to finance leaders in the past come to life. Ultimately, the dashboards help management identify opportunities to improve their finance and accounting processes.
The dashboards can also validate and quantify previously known pain points and allow companies to compare their own processes with best practice benchmarks.
The concept sounds great in the abstract. But it’s even better once you examine the real improvements that whole ledger analytics is permitting audit clients to make.
Scrutinizing manual journal entries
One significant source of wasted effort in finance departments is the performance of manual journal entries when technology systems are capable of entering them automatically. An audit client might know that, for example, 60% of its journal entries are manual but it might need insight into which entries could be automated.
Ledger analysis technology tools provide the capability to efficiently identify which journal entries are done manually, which are automated, and how many manual journal entries each employee is performing.
“Finance teams appreciate the value of metrics and having access to insights on how to improve their own functionality, especially when it can be built on work they’re already doing in preparation for the audit,” Howell said. “The key is giving them actionable opportunities that they can independently address in bite-sized chunks.”
For example, because fixed assets is a common module across most major enterprise resource planning systems, it would be reasonable to anticipate that the integration between the fixed asset module and the general ledger would result in all depreciation expenses being recorded in an automated fashion throughout the year. Analytics can quickly show which of those entries are not automated, as well as who made the manual entries.
When audit clients can decrease their number of manual entries, they create opportunities to reduce headcount or provide staff opportunities to perform more valuable tasks. This automation may also increase satisfaction among staff who don’t enjoy the tedious job of booking manual entries.
“If you’ve got people that are being paid a high salary and they book 1,000 entries a year, is that really what you want them doing in today’s work environment?” Howell asked. “How much longer are they going to tolerate the job, right? They want to be doing higher-value-added things.”
“Ledger analytics generates value creation opportunities for the organization using data obtained during the audit. When presented in a digital dashboard, the analytics provide the CFO with a direct line of sight into inefficient processes, lagging areas of the financial statement close, and automation opportunities. The dashboard then becomes a means to measure finance function performance and to ensure people, processes and systems are continually optimized,” said Grant Thornton Partner and Private Equity Audit Leader Mike Notarangelo.
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Other applications
Ledger analytics can also be used to:
Discover duplicate payments. In a large and complex organization, the risk of duplicate payments to vendors — even if inadvertent — is very real. A whole ledger analysis can help the organization discover duplicate payments. Duplicate payment tests can search for variations in the vendor number, invoice number, invoice date and invoice amount fields. While this is not a preventive control, it can lead to cost recovery, and sometimes the duplicate amounts can be substantial.
Accelerate the financial close process. Dashboards based on the analysis of a whole ledger can provide a detailed analysis of when entries were booked after a closing period and by whom. This analysis can be compared with the close calendar to see which functions were late booking entries and which entries were early or on time.
Performance improvement opportunity spotter. Dashboards can be designed to pinpoint immediate opportunities, reveal underlying pain points, and identify key trends and areas for optimization in a low-cost, expedited manner. For instance, a particularly large concentration of reclass entries may be felt individually by the accounting team, but the quick, quantified aggregation of those reclasses and root cause resolution can unlock process efficiencies otherwise overlooked.
Build out your pre-ERP business case. Ledger analysis can provide the KPIs and metrics needed to build a business case for a company to invest in a new or upgraded ERP. The dashboards can be run to establish baseline metrics today and then re-run in the quarter, year or two years after go-live to verify that the entity is measuring and realizing the efficiencies it invested in.
Scorecard and track your finance transformation. Governing committees and management are now provided the opportunity to have a transparent view of the finance organization, while also being provided key performance metrics to track efficiencies and effectiveness. Given that these dashboards provide historical data and trends, audit clients are able to track the lifespan of their journeys and use the data to benchmark for future “go-get” goals.
CFOs and controllers should expect actionable insights from the data in their financial statement audits. Today’s audit technologies can create additional value and opportunities to improve efficiency and effectiveness based on the work finance teams do in preparation for the audit.
Analytics lead to savings
Grant Thornton auditors using the firm’s technology have identified numerous opportunities for savings. Here are just a few.
Double payments
Separate, otherwise identical entries were found showing the vendor’s name with and without “LLP” at the end, leading to a $200,000 cost recovery.
Manual journal entries
Unnecessary manual entries can be automated, saving staff time. In one case, a large portion of an accounting team was simply not utilizing their system’s ability to auto-reverse accrual entries.
Misallocation of resources
One whole ledger insight data conversation revealed that a director of finance was among the highest contributors to creating manual journal entries, performing low-level tasks at a high salary.
Contacts:
John M. Howell
Principal, CFO Advisory Services
John has over 25 years of professional consulting experience and has significant experience assisting clients with Financial Management and Reporting related process transformation initiatives.
Charlotte, North Carolina
Industries
- Asset management
- Insurance
- Banking
- Construction & real estate
- Manufacturing, Transportation & Distribution
Service Experience
- Advisory
- Audit & Assurance
- CFO advisory
Michael L. Notarangelo
Partner, Private Equity Audit Leader
Mike Notarangelo is an experienced partner with a proven track record serving our firm’s largest clients. He is currently an audit Partner based in the Northeast Region that extends from New York to Boston and is Grant Thornton’s National Private Equity Audit Leader.
New York, NY
Industries
- Insurance
- Manufacturing, Transportation & Distribution
- Retail & consumer brands
- Technology, media & telecommunications
Service Experience
- Audit & Assurance
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