Maximizing Efficiency in Financial Statement Preparation with Automation
A survey completed by the technology review platform Capterra reveals that 72% of businesses plan to spend more on software in 2024 than in 2023.
Companies that automate their financial statement preparation processes often benefit from improved accuracy, near real-time data, and increased efficiency.
Fact: Companies that automate part of their financial statement preparation process reduce time-to-Close by 33% or more.
If you are wondering how to maximize efficiency in financial statement preparation with automation, this article reveals:
- The need for automation
- The financial reports you can automate
- The benefits of automating financial statement preparation
What is Financial Reporting Automation?
Financial reporting automation uses technology to automate tasks involved in preparing and analyzing financial reports.
The purpose of automating financial reporting is to increase efficiency and accuracy by reducing the number of repetitive and manual tasks.
Why is Automation Needed in Financial Statement Preparation?
While we’ll discuss this more later, the need for automating financial statement reporting revolves around saving and freeing time for other, more meaningful strategic activities.
For example, grocery technology company Instacart moved from using Google Sheet checklists for month-end Close to an automated system that provided a complete audit trail of changes. This was something Google Sheets couldn’t do effectively.
Automation reduced the chance that changes in Instacart’s revenue numbers wouldn’t flow through to a consolidated income statement.
With automation, managers no longer have to review multiple versions of consolidated trial balances.
How Does Automation Differ from Traditional Methods of Financial Reporting?
Traditional financial statement preparation and reporting methods involve manually tracking expenses, capturing and verifying financial data, and generating and analyzing financial statements.
Using the traditional financial reporting method means accounting staff spends most of their time manually inputting data into software or spreadsheets with little opportunity to provide real-time data.
The traditional method also has a lot of paper documentation to use as an audit trail.
On the flip side, in automated financial reporting, many manual tasks are left for the software to handle.
Bank statements can be automatically matched against the cash ledger, leaving only the exceptions to be investigated by staff.
What Financial Reporting Functions Can You Automate?
From financial statement analysis to bank reconciliations, the range of functions you can automate is diverse.
Consider the following examples:
Financial Statement Analysis
While accurate preparation of financial statements is important, the juice often lies in the analysis of financial statements. Financial statement analysis is where you find crucial insights regarding key financial markers, assess trends, and compare company metrics with industry averages.
In automated financial systems, the accounting software auto-generates key ratios and compares them to previous periods, highlighting noteworthy changes based on your chosen criteria.
Financial Statement Reports
Automated accounting software can help generate various financial reports, whether monthly, quarterly, yearly, or even on a whim.
If operating in multiple locations or selling multiple products, the software can disaggregate your report, giving you a clearer picture of each segment’s performance. This can go a long way in improving management reports.
Examples of financial reports that can be generated by automated accounting software include:
- Balance sheet
- Income statement
- Cash-flow statement
- Statement of changes in equity
Automated accounting software can perform both bank reconciliations and intercompany reconciliations.
For bank reconciliations, the accounting software will automatically match the corresponding entries (between the bank and the cash ledger), remove duplicate transactions, and identify outstanding transactions.
Intercompany activity can be automatically reconciled with differences reported in an exception report.
Automating the calculation and reporting of taxes ensures the company remains compliant. And automation software automatically updates with the latest tax laws and rates.
Functions like budgeting and financial forecasting are best performed by automated accounting software that can pull historical data to make reasonable future projections.
By using historical data, automated software can complete variance analysis to highlight significant deviations from forecasts.
Plus, some accounting software programs can perform scenario modeling functions, including what-if analysis.
With automated accounting processes, you can automatically calculate employee salaries and deductions, including bonuses and overtime.
Companies that use automated financial systems can track invoices by status (whether paid or due), validate invoices against purchase orders, and schedule payments to suppliers.
What Are the Benefits of Automating Financial Reporting?
According to a report highlighted by Bloomberg, 96% of surveyed accountants consider automation important for the accounting profession’s future.
So why are accountants bullish on automation?
The answer lies in the benefits automation gives.
Automation Frees Up Time
As we mentioned earlier, the automation of manual tasks allows team members to focus on valuable strategic assignments that require human judgment or creativity.
Automation Improves Efficiency
Aside from saving and freeing up time, automation can improve efficiency. We’re talking about faster processes and workflows instead of lengthy and tiresome manual processes.
When Berlin-based GetYourGuide automated large chunks of its closing process, it went from a 20-day close to 7 days.
Automation Leads to Better Productivity
This should be obvious. With improved efficiency, productivity often sees an uptick.
According to a recent study, 70% of companies that automated at least a quarter of their accounting functions report either moderate or substantial return on investment (ROI).
Automation Improves Data Accuracy
Accountants are human. They get fatigued. They misread figures. They make typos.
Because automation reduces or eliminates human involvement, it often guarantees more accurate data.
Of course, a human is still needed to verify the accuracy of the system’s output.
Automation Improves Data Retrieval
Physical journals are printed out and filed in storage rooms in non-automated systems.
These storage rooms quickly get filled up by heaps of files. Looking for a journal entry or reconciliation to find supporting documents usually mirrors a hunting expedition.
However, in automated systems, you can retrieve any journal entry in seconds. And the audit trail is also attached and quickly recovered.
Automation Improves Data Security
Companies must often keep financial records for multiple years, depending on whether they are private or public.
This often comes with a challenge. In manual systems, invoices and journals can get lost or defaced.
However, digital copies of documents can instantly be retrieved in automated accounting reporting systems.
How to Select the Best Tool for Automating Financial Reporting
Choosing the best automation software requires carefully evaluating your company’s needs, resources, and goals.
Assuming you’re working within your budget, here’s how to select the best tool for automating accounting reporting.
- Data integration: The accounting automation software you pick should collect and integrate data from multiple sources, whether Slack, Teams, Excel, the ERP, or the CRM.
- Transparency: The software should provide easy-to-access dashboards to check the status of all workflows to ensure you are always audit-ready.
- Quality reports: The tool you choose should help you get a high-level view of all entities on a single page or drill down for granular performance data and deeper analysis. Reports should be customizable and provided in real time.
- Security: To guarantee security, your automation tool should have features such as two-factor authentication, data encryption, and regular backups.
- Scalability: The tool you choose should be able to keep up with the increased demands of your business and meet its ever-changing needs.
- Customer support: You don’t want to deal with a company known for terrible customer service. To be on the safe side, always read company reviews.
How Can FloQast Help Implement Financial Reporting Automation?
Increasingly becoming the gold standard in ease of use, effectiveness, security (FloQast’s tool meets compliance standards such as GDPR and CCPA), and flexibility, FloQast’s financial reporting tool is worth scheduling a demo.
You’ll be joining over 2,500 customers, including Zoom and Shopify, who rely on FloQast’s guidance and expertise to take their accounting operations to the next level.