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How to uncover inefficiencies in your finance organization

Inefficiencies easily creep into your finance organization when you’re looking the other way. New hires, changes in the company’s direction, advances in technologies, the passage of time, and meetings, meetings and more meetings all take a toll on the organization’s ability to run as efficiently as possible. Before you know it, you have redundancies, blocked process flows, outdated systems and employees who are either bored or overwhelmed with their jobs.

Whether you’re new to your role and you’ve been asked by management to uncover inefficiencies or you’re taking initiative to find them on your own, consider taking the following steps. You have some hard questions ahead of you, plus some homework, but the results will be rewarding.

1. Know the status quo

Your routine may be so tied up in meetings and issue resolutions that you may have lost a hold on what all your employees do for their day-to-day activities. It’s understandable—passing time, shifts in direction and modifications in roles, plus an increasing number of staffers can make any manager distant from everything that goes on under his or her watch. For the purposes of uncovering inefficiencies, though, you have to figure it out. Learn what everyone in your organization does and how they get it accomplished.

You can go about this in several ways: One approach can be to ask your employees to write out their own job description for you. The caution with this method is that many staff members may not give themselves full credit for all the considerable work they do.

Another, somewhat easier approach is to have the staff interviewed by an impartial third party. That way, you’ll be documenting all the tasks and how they are completed, along with inquiries from the interviewer about why each task is relevant and how it connects to other processes or tasks. You’ll also be getting a sense of the time it takes for each task plus a clear sense of who you are most dependent on. Take the time to also understand the process flow—how exactly all these things get done.

2. Understand your organization’s skill sets

After you have conducted your interviews, you will have a better understanding of what tasks are getting done, what’s working well and what could be improved. It may become apparent to you that you need an analyst with stronger Excel skills or your project manager is not really gaining cooperation from others and consequently a particular project isn’t moving along as quickly as you would like.

As you review the jobs and the staff assigned to them, explore whether some people have room for improvement within their current roles or whether they would be better suited for a different position. Some of the telltale signs that you need to make a change: when a staffer is continually late to work, has a disgruntled attitude, or misses deadlines on assignments or does not complete them at all. Such issues commonly arise when a smaller company grows to a larger size. Some people outgrow their original roles, they haven’t been trained to take on the new skill sets that are required, or they may lack the experience necessary for what has become a global or public company.

3. Get a handle on the systems

Anyone who works in finance lives and dies by their data. But having data does you no good if you can’t access it. If you have lost touch with how your own team deals with and processes data, make sure that you understand the systems that are holding your critical data along with the processes to update it. Check that your process flows are complete and include what systems are used and whether any tasks are getting done manually. If you see that systems are down more than up, this should be an indication that something is not right. Do the users have trouble using the system, and how often?

This is an instance where you don’t need to be an expert yourself. You can rely on outside expertise to advise you on systems for your industry and size (based on the number of transactions). These experts will be able to make you aware of new advances in technology, to ensure your team has access to the most efficient tools that can give all of you the most up-to-date information possible.

4. Record your observations

As you go through tabulating the people, the processes and the technology at your disposal, keep track of anything that could be redundant. Can that redundancy be streamlined with process changes or system updates? You may discover that critical data is held captive in your current system and many work-arounds are required to obtain this data, not to mention manual labor. Or do you need a process change?

Process changes sound easy, but you and I both know that getting people to change can sometimes be a challenge. Be sure to outline goals for any changes that you want to implement, while it’s top of mind, and think about the “what’s in it for me” that you can tell your staff when it comes time to request the change.

5. Make your list of recommendations

Whether you’re making a list of recommendations for yourself or a list you will be sharing with others in management, tier them by most critical, essential and nice to have. This will help you prioritize and give others a clear indication of the impact to the organization.

This entire process is a lot of work and may require some tough decisions. But it’s an opportunity that should be embraced. The types of improvements you’ll uncover will only make the overall organization stronger.

Salena Oppus has been a member of the RoseRyan dream team for over 15 years. Her specialties are system planning and implementation, cost accounting and forecasting.

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Why getting the right finance team in place is essential after your IPO

Look at that new public company over there with its carefully chosen ticker symbol, brand-new source of capital and sense of relief among its senior leaders. They have finally achieved the milestone of going public that they worked months to reach. Take an even deeper look, however, and you’ll see that relief will be short-lived if they do not have a robust mix of talent and resources to handle the rocky transition ahead. They are setting themselves up for a stumble.

For companies that have just gone IPO, staying upright is “about efficient staffing and it’s also about the right staffing,” said Senior Consultant Diana Gilbert, who leads the Technical Accounting Group at RoseRyan.

During a recent RoseRyan-hosted seminar, co-sponsored with Fenwick & West LLP and BayBio, Gilbert laid out the big trouble spots between the first day a company’s stock gets traded and a year or two later when it can claim to be a bona fide, mature public entity. During this transitional period—a time that RoseRyan calls “Day 2”—the company has to adjust to a plethora of new rules, shrunken turnaround times and a stream of inquiries by investors and analysts who are watching every move and reading every 8-K. “You have a whole new audience you have to answer to,” Gilbert said. “You have quarterly filings. You have reporting deadlines. While 45 days to file may seem like a lot of time, when you back into it, it’s not a lot of time.”

There’s no going back now
Within that time crunch are layers of reviews that didn’t apply when the company was privately held. The audit committee, the company’s lawyers and auditors all get a say on what the finance team prepares. This will slow down the process and adds to pressure on finance to be even more buttoned up than before. The stakes are higher. “You can’t compromise the quality of what you’re doing,” Gilbert said. If you do, she noted, it could result in a restatement. As it is, about 31 percent of new public companies restated their financials between 2004 and 2012, according to Audit Analytics data. That is a woeful statistic.

To take on the higher load of compliance requirements, post-IPO companies should have access to technical accounting expertise, with people who are on top of the latest changes and leanings by standard-setters and regulators. And they need people who have actual public company experience. Most new companies do scale up in some way: Nearly 85% of CFOs surveyed by PwC said they hired one to five staffers after going IPO solely to meet the new reporting requirements. It is essential to have the right team in place.

Additional help is more than just handy to have—it can be a necessity in the eyes of the auditors. Even though companies that are considered “emerging growth companies” (those with less than $1 billion in revenue) do not need their auditors’ signoff on their internal controls over financial reporting just yet, auditors do want to know that management’s review is occurring. And they want evidence that it’s happening.

Fortunately, most companies wending their way through the early part of their post-IPO life have “relaxed” rules until they lose the ECG status, noted Dan Winnike, a partner at Fenwick & West. The longest a company can have these looser restrictions (including fewer compensation disclosures and no say-on-pay votes) is five years, but that could be shortened if it becomes a large accelerated filer or meets other criteria.

For companies going through the tough transition from getting public to being public, any break surely helps.

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What every good controller should be up to this December

As the temperatures start to cool (even in California), the leaves on the trees are turning beautiful colors. And we’re also turning the corner to the new year. I believe December is our most important accounting month of the year. It’s a fast-paced, in-between month where we all have a short window for getting retrospective while also setting up goals for the year ahead. This is especially true for small businesses.

No matter how resource strapped a company may be, there’s a need for finance and accounting teams to pile on thoughtful planning this time of year. And they have to do it while also keeping a tight ship and taking care of routine tasks. Any cracks will show: The smaller the organization, the more of an impact each person has. After all, the accounting departments in smaller companies set the tone and structure for the rest of the organization to follow.

Hit all the must-do activities below, and you’ll be able to leave the year behind with a clean slate. Then you can toast to the finance team’s move toward a successful run next year.

1. Huddle with other department heads

This is the time of year when you need to get a grasp on budget management and plan accordingly. It’s that tense time when what has been spent or not spent comes to a head. Have a meeting of the minds with other leaders in the company after running reports that reflect actual expenses thus far, review the results, and see what the immediate plans are for keeping within the budget.

Most companies still have a “use it or lose it” approach to their budgets, which can lead to a mad scramble by anyone who has been slow in launching their programs until this point. If you get the sense that anyone is madly spending money just to spend money before the year closes, consider offering to freeze the unused budget so the funds can be used wisely next year. Consider sending out a reminder to employees to submit expense reports on-time, too—that’s a surefire way to spur an increase in activity.

Also ask all key vendors for up-to-date statements to see that you have accounted for all the billing activities. Nothing is more depressing than having a department head hand you a large invoice in January that you should have received in December. Make this time even more efficient by double-checking that you have all W-9 information from vendors that will receive a 1099 from your company—why wait until the next year if you’re contacting them now anyway?

2. Get in cleanup mode

It’s time to dust off all those maintenance projects you meant to do as the year progressed. The time for excuses is long gone! Turn your files upside down and shake them around until the cobwebs fall out. Are there old customer accounts clogging up your system? Dormant bank accounts? Redundant information for vendors? Before you close the year, you’ll also need to review your chart of accounts. And you’ll want to put any finishing touches on the annual budget and any strategy you have for how your team will carry it through in the new year.

3. Touch base with your auditors

We know it is tempting to procrastinate, but anything you can do to prepare for your upcoming reviews ahead of time will save you grief later on. All too often, auditors arrive expecting to see the schedules and files they expected and requested but their client is still in the process of completing schedules and gathering information. Be an exception and start the audit off on the right foot. Check in and see if you can get the client assistance schedule ahead well in advance and mutually agree to fieldwork dates. Also take a look at any deadlines you may face for reports that are due to lenders. (For more about prepping for your year-end audit, check out this blog by my colleague Monica Zorn.)

4. Review your staffing levels

December tends to be a rather inactive month for hiring, but it’s a time of year when finance could certainly use some extra hands. Who has time for sorting through résumés right now? With the holidays looming, hiring managers and potential employee candidates have a tough time getting on each other’s schedules, and most just aren’t into it at the moment. For now, plan for the holes ahead, including the busy times and vacation periods, by looking to outside consultants to help fill the gaps. You don’t want to burn anyone out and have to look for yet another job candidate when the new year rolls around. That wouldn’t be a fun way to kick off 2015.

5. Love the ones you’re with

December is filled with holidays and the natural push and pull between work and family life. As employees reflect back on where they’ve been and where they’re going in their professional and personal lives, take a moment to thank them for their hard work and their dedication. The majority of employees—nearly 80 percent—said they would work harder if they got the appreciation and recognition they think they deserve, according to a survey by Globoforce, a human capital management company. Another reason to extend recognition this time of year (or anytime for that matter): It’s the right thing to do.

Get through this list, and you’ll be starting 2015 off right!

Steve Jackson, a member of the RoseRyan dream team, has expertise in the areas of revenue recognition, SOX, systems implementation, budgeting, financial analysis, and process improvements, among others. He has worked at public accounting firms and corporate finance departments for over 30 years. 

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What makes a winning finance and accounting team: Look to the Giants for inspiration

Any fan who watched the San Francisco Giants win their third World Series title in five years could see why this team pulled off such a feat. Throughout the season, the Giants overcame adversity, they acted cohesively, and the star players came through whenever necessary.

While marveling at the Giants’ success, we also saw a parallel between their latest title run and what makes a great finance and accounting team perform their best. After serving clients in Silicon Valley for over 20 years, we have great finance teams on the brain and lots of insight to go with it. Imagine if you had a team like this:

Bruce Bochy as CFO – Every strong team needs a strong leader. As manager, Bochy helped steer the team through the typical ups and downs of a long season. CFOs similarly have to keep a steady ship while navigating their team around the challenging business climate that changes on a quarterly basis. How consistently they lead determines whether they have an average year or can win it all.

Gregor Blanco as VP Finance – All teams need a leadoff hitter who sets the tone, from his first hit, to his strong patrol at center field and his ability to get on base when it’s needed most. Finance teams need this position too. The VP of Finance manages the breadth of the staff functions and provides strategic and tactical support for everyone in the organization. That was why Gregor stood out: He provided key offense and the defensive plays that backed the Giants all season.

Hunter Pence as Director of Finance – Most teams have that Energizer Bunny type—the one who tends to make the big plays at critical times or gets everyone around them pumped up even during tough times. Hunter is that guy as he patrols right field. He’s like the Director of Finance, who helps ensure timely and accurate financial statements and reports that fall under GAAP. Just like Hunter’s key hits, the Director of Finance must deliver in high-pressure environments.

Buster Posey as Controller – The catcher provides the foundation for the team, working with various pitchers and watching out for baserunners. Like most Controllers, Buster keeps the operations of his team rolling along smoothly. He makes sure that all records (and performers) are in order. Without Buster’s steadiness and leadership, the Giants probably wouldn’t have won the trophy.

Pablo Sandoval as Chief Operating Officer – The third baseman has to hit for power, field his position well and handle the “hot corner” with precision. He could have been a COO, known for keeping a steady hand across multiple areas of the business to ensure smooth interdependence between various disciplines within the company. It helps to have someone as popular as the “Panda” in this role to work out the inevitable tough issues that arise.

Michael Morse in an SEC Reporting role – The left fielder hits for power.  Those who have experience and knowledge of SEC reporting are similarly playing with power against unwanted intrusions (inquiries by regulators). They do this by always making sure filings are timely, accurate and compliant.

Brandon Belt in the Accounts Receivable/Accounts Payable team – The first baseman is the rock of the infield, by handling difficult throws, holding runners on base and backing up outfield throws. We saw this time and again with Brandon. He could be trusted to give a consistent performance and to keep members of the infield informed on what he needed from them. A true team player, Brandon would fit right in as part of an AR/AP team, which always needs to be diplomatic and post payments and receivables in a timely manner.

Brandon Crawford as a Technical Accountant – The shortstop has to cut off throws from the outfield, handle difficult grounders in the gaps and turn the double play. Brandon is an inspiration for technical accountants who must deal with the ever-changing world of revenue recognition, equity compensation and audit requirements. They are masters at pivoting when necessary and so was Brandon, who gave top-flight defense throughout the season no matter what was thrown his way.

Joe Panik as an Accountant – Every team has that solid go-to guy. Joe was as steady as they get at second base in the World Series, delivering the key play that helped drive the Giants to the final game win. If he ever needed a second career, he could be an accountant, who supports everything from journal entries to supporting audit requirements. They will do anything to support the team, just like Joe.

Madison Bumgarner as the finance org’s Hero – Every team has a hero, and this is a star pitcher who delivered the key leadership, skills and attitude that delivered a heroic series for the Giants. Accounting teams have similar “heroes” who seem to do the impossible on a regular basis. They meet audit deadlines, get SEC reports out on time and support key accounting projects with quality work. They are the true heroes that help their team win!

We hope you are as excited about the Giants’ World Series champs as us. Their talent, determination and great teamwork made it all possible. Let’s revel in this inspiring win.

Chris Vane is a director at RoseRyan, where he leads the development of the finance and accounting firm’s cleantech and high tech practices. He can be reached at [email protected] or call him at 510.456.3056 x169.

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4 things no one’s telling you about SOX compliance

The JOBS Act granted some relief from the burdens of SOX for emerging growth companies, and while any relief was most welcome, the changes brought on some confusion. And it hasn’t abated even three years later. There’s so much for newly public companies to do as they gear up for their intro on the markets and so much they have to do afterward to be in compliance with the new overseer in their life (the SEC). Working in the middle of an active IPO market, we often get questions about what a newly public company actually needs to take care of to be in compliance with SOX under the JOBS Act.

I’ll get to that in just a moment. First, here’s a quick refresher. The JOBS Act granted a temporary exemption (generally five years, depending on certain factors) from SOX 404(b)—the requirement for external audit attestation on internal controls over financial reporting for so-called emerging growth companies (i.e., practically any Silicon Valley company that’s on the go-public track). There is no exemption from SOX 404(a)—management’s report on internal controls over financial reporting. For any new public company, regardless of size, management is responsible for designing effective internal controls over financial reporting, for testing the effectiveness of those controls, and reporting their take on them beginning with the company’s second 10-K.

There’s a good intent behind all this: Whether you are exempt from audit attestation or not, you still need to report accurate financials. Internal controls over financial reporting should prevent material misstatements in your financials. A restatement of financials would be disruptive to your business, demoralizing to your team and very expensive. Where compliance become a hairy endeavor is in the details. It’s not something you want to put off until the 11th hour before that second 10-K is due. And you don’t want to be blasé about the whole matter just because the auditors won’t be looking at this area until the five-year mark goes by.

After working with companies for years on their internal controls, we have some practical advice that’s useful for both newly public and soon-to-be public companies:

Expect a culture shift. The typical entrepreneurial mindset that pits “nimble, innovative and responsive” as the polar opposite of “discipline and documentation” should change. The attitude that helped create your success needs to evolve to a more disciplined state for this next phase of your organizational development. This, more than anything, can be the biggest challenge of SOX compliance. Approach it as a “check the box, bureaucratic nightmare” and that is what you likely will end up with when you’re done. View and treat SOX as a value-add contribution to the success of your business and you may be surprised by the value you get.

Map out your SOX timeline before you go public. The second 10-K sounds so far away, but it will sneak up on you. You’ll need to ideally have your first round of testing finished in the first or second quarter of the year prior to your second 10-K—that gives you time to remediate and retest before the end of the year. Work backwards from there, keeping in mind other business priorities, such as new system implementations, audit timelines, vacation schedules and other deadlines. Your SOX timeline needs to build in the design, testing and reporting aspects—and you need to manage all that while the business evolves and your first rounds of SEC reporting deadlines create their own challenges.

Design your controls. Take advantage of the processes you already have in place, and identify your existing controls (you might be surprised at how much you already have in place). You’ll need to map to the COSO framework, identify where you already have strong controls and where you need to shore up others. You can develop a “gap list” of controls that need to be implemented and prioritize them so you can work on them over time. Your IT controls and entity level controls need to be addressed as well. The twist for SOX compliance is that not only do you have to have controls, you have to be able to demonstrate that you perform the controls. Reviewing the payroll register isn’t sufficient; documenting your review becomes just as important.

Time to start testing—assume the best but plan for the worst. First-time SOX testing typically has a high failure rate, unfortunately. Most everyone is learning the ropes and still operating under the entrepreneurial mentality of “Let’s get things done fast, and don’t worry about the paperwork.” People may be performing the controls that you have designed but failing to document what they did. For that payroll register review, if the sign-off is missing, it’s hard to demonstrate the review actually happened. On the other hand, some controls may be new, and they may not get done reliably at first; it may take a while for new habits to take hold. “Trust, but verify,” and “test early” will be your mantras, so you can find out who may need more training and which controls are not workable in your environment and need to be redesigned. Remediate and retest. As often as needed.

For more hints on making the transition to a compliant, well-oiled organization, check out our intelligence report on Ensuring a smooth ride as a newly public company.

Pat Voll is a vice president at RoseRyan, where she mentors and supports the dream team, and heads up client management, ensuring all our clients are on the road to happiness. She previously held senior finance level positions at public companies and worked as an auditor with a Big 4 firm. 

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The big impact of small business fraud, and some smart steps to prevent it

We often hear more about fraud at large companies because of the hefty price tags involved and the large number of investors who may be affected. But the sad fact is that when small businesses experience a fraudulent event, they may be hit much harder and have more difficulty absorbing the losses. Innocent employees may lose their jobs, personal investments may be lost, and creditors may be wary of helping out the victimized business in the future. And smaller companies are more likely to experience a fraud than large ones.

In the past two years, nearly 30 percent of reported organizational fraud cases occurred at companies with fewer than 100 employees, and 24 percent of cases occurred at companies with between 100 and 999 employees, according to the Association of Fraud Examiners (ACFE) 2014 Report to the Nations.

And from a loss-to-revenue standpoint, their impact hurt more. Organizations with fewer than 100 employees had a median loss of $154,000, while those with 100-999 employees had a median loss of $130,000. The victim organizations with over 10,000 employees made up just 20 percent of the reported cases, experiencing a median loss of $160,000. (Keep in mind while all those median losses are at the six-figure level, one-fifth of all reported cases involved losses of over $1 million.)

The problem for many of these companies is they didn’t realize that fraud could be instigated by their most trusted employees.

A common thread
Smaller companies may underestimate their risk, thinking “it can’t happen to me.” And yet small organizations are disproportionately harmed by fraud losses, often due to employee misconduct, a lack of internal controls and segregation of duties.

And what kind of fraud is most prevalent? The fraud schemes most common in small businesses include corruption (33%), billing fraud (29%) and check tampering (22%). Embezzlement happens, particularly in organizations with inadequate controls or segregation of duties.

Awareness can reduce the risk
There are inexpensive and tangible actions that even the smallest of companies can take to reduce the risk of fraud:

  • Implement a code of conduct, and have employees acknowledge their compliance annually.
  • Perform supervisory or management reviews, particularly of complex, unusual or non-standard transactions.
  • Segregate duties that involve payments (e.g., adding vendors and employees to systems vs. paying them).
  • Separate cash handling, including bank deposits from bank reconciliation activities.
  • Hold employees accountable for the completeness and accuracy of financial statements (e.g., certification).
  • Provide a whistleblower hotline, keeping these points in mind:
    • While 68% of companies with over 100 employees have fraud hotlines, they are found only in 18% of companies with fewer than 100 employees, yet these simple tools reportedly reduced the median duration of fraud from 24 months to 12 months!
    • Posters improve hotline awareness within a company, and when the hotline can be accessed through the company extranet, customers and vendors have a vehicle to report potential fraud if necessary.
    • Educate employees on how best to raise flags and report suspicious activities.

The fact is that resource-strapped companies can prioritize activities that are proven to effectively reduce the risk and duration of frauds. For example, consider the feasibility of the following:

  • Fraud risk assessment: Identify your company’s fraud risks and brainstorm how a fraud might occur within company boundaries. If an insider wanted to do something inappropriate, would anyone take notice? Does the company have adequate controls to mitigate these potential risks? A formal fraud risk assessment tailored specifically to your company might be just what the doctor ordered and may help your organization avoid becoming the next victim.
  • Fraud training: Do employees know the warning signs of fraud? Teaching them the basics about fraud risks, red flags and the procedures for reporting suspicious activities may empower your team members to speak up or raise a concern.
  • Regular and surprise audits: Consider asking an internal auditor to conduct an occasional deeper dive audit in areas of potential risk. Should this include financial, cash handling processes, inventory or related party transactions?

It has been reported that companies lose 5% of their revenues to fraud. You don’t want your company to be the next one victimized or to be known for ineffective controls and management.

Alisanne Gilmore-Allen is a recent addition to the RoseRyan dream team. She is a Certified Fraud Examiner as well as a Certified Internal Auditor, Certified Information Systems Auditor, and she has a Certification in Risk Management Assurance. Alisanne spent over seven years helping Big 4 clients with enterprise risk management, and she has consulted for and headed the internal audit departments at Bay Area technology companies.

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New discontinued operations guidance de-clutters reporting

While large valuation acquisitions of entire companies (for example, Facebook acquiring WhatsApp for $19 billion) grab the headlines, the majority of the acquisitions are for just a division or segment of a business, and they have much smaller price tags and light media coverage.

Some of those deals are notable. Earlier this year, Nokia, which was once the dominant mobile handset maker in the world, sold its handset division to Microsoft for $7.5 billion. But most of them fall under the radar, justifiably. Each month in Silicon Valley, hundreds of high tech and biotech companies are making business and market decisions about when to sell off or close operations of a segment of their business. Reporting on these divested businesses is a time-consuming task that results in information that is often of little value to investors and can actually be confusing.

In response, the Financial Accounting Standards Board (FASB) recently updated guidance to strike a balance between the materiality of a discontinued operation and the details that companies need to provide about it. This revised standard (Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity) is expected to result in fewer disposals being presented as discontinued operations. To qualify as a discontinued operation, a component or group of components must represent a “strategic shift” that has (or will have) a major effect on an entity’s operations and financial results. These can include the following:

  1. A major line of business
  2. A major geographical area
  3. A major equity method investment
  4. Other major parts of the entity

The guidance is to be applied prospectively to all new disposals of components and new classifications as held for sale beginning in 2015 for most entities, with early adoption allowed in 2014.

In the regular course of business, companies frequently evaluate how all their brands and segments align with their strategic plan. They may find some acquisitions that did not pan out, or segments or product lines that are being deemphasized or no longer fit with the strategy of the company. Closing or selling off such a division lets the company mitigate losses or accumulate additional capital that can be invested in its core businesses.

The same logic happens at your favorite neighborhood restaurant. Customers’ food preferences shift over time and items disappear off the menu when seasonal specials or improved offerings are available. Why keep an item on the menu that hardly anyone buys? Restaurant owners know they have to constantly improve operational efficiency and decrease their food costs associated with waste.

When companies in any industry give a contemplative eye to their own menu choices, so to speak, they may see how a paring down could lead to improved operations, lowered expenses, and greater efficiencies. The FASB’s new guidance uses the same definition for a component of an entity as before. That is, a component comprises operations and cash flows that can be clearly distinguished—operationally and for financial reporting purposes—from the rest of the entity. However, the new guidance requires that, in order to be reported, a disposal of a component represents a strategic shift that has or will have a major effect on an entity’s operations and financial results. This is a key distinction.

What this means is the new guidance provides a lighter financial-reporting burden when small divestitures occur. This is a rare “phew” finance teams rarely feel after seeing new accounting guidance.  Another significant improvement in the new guidance is the timing of disclosure—just because a company has continuing involvement with a disposed component doesn’t mean it has to put off reporting it as a discontinued operation. This change could result in easier negotiations for the company that is in the process of divesting a piece of its business but has a need to assist in the transition (for example, if the acquiring company still needs a manufacturing facility for a period of time).

Of course, companies should be mindful that new disclosures are required for disposals that don’t meet the new definition of a discontinued operation if they are material. And companies still have to give thoughtful consideration to what the FASB means by “strategic shift.” Does the company’s board view the disposal as indicative of an overhaul? Would giving it the heave-ho signify a big change in the direction for the company and be something investors would really want to know about? Would the marketplace care? Those are some key questions to ask. While the answers are going to vary from company to company, how any one company interprets the guidance should be consistent and well documented.

With the new guidance, companies can properly manage their business by shedding previously acquired companies and fine-tuning their operations without the clutter of reporting these activities if they are not material to their operations.

Steve Jackson, a member of the RoseRyan dream team, has expertise in the areas of revenue recognition, SOX, systems implementation, budgeting, financial analysis, and process improvements, among others. He has worked at public accounting firms and corporate finance departments for over 30 years.

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Master these 6 things after your IPO and you’ll have a well-oiled public company

Talk about hype. There’s so much hoopla surrounding the decisions and details that go into the initial public offering and day of the offering itself. Just consider how much we all heard about Chinese e-commerce company Alibaba before its $25 billion IPO. But what about the day after, when the bankers and advisors have gone back to their offices and those hotly debated predictions about the first day of trading no longer matter?

That’s when the real work truly begins. The company has to keep that momentum of the IPO going and keep moving forward, moving on from the dotting of the I’s and crossing the T’s of the S-1 to carefully crafting the first rounds of quarterly and annual filings, proxy statements, the earnings releases, not to mention those first discussions with investors and analysts. These firsts will hone in on the fact that the discussions have shifted, the tone has changed, and the scrutiny is heightened for the new public company.

In a new RoseRyan intelligence report, Ensuring a smooth ride as a newly public company, technical accounting guru Kelley Wall outlines six key finance areas these post-IPO businesses need to conquer. These are the spots that can get overlooked in the rush to go public, without as much thought put into actually being a public company. Here are those actions these businesses should be taking during this transitional time:

  • Gathering the right resources: The financial-reporting workload has multiplied and so have the coordination efforts that make it all possible. “Even companies that had a rock-star finance team as a privately-held company need to scale up for public life so they don’t go flying over the handlebars,” Wall writes.
  • Having disclosure committee members who understand their contribution to the process: Unfortunately, we have seen firsthand committee members who are unsure of their roles and have a focus that is too narrow minded. The effective ones know to ask about information they may not be seeing in regulatory filings. They don’t just take a check-a-box approach to their reviews of SEC filings.
  • Ridding the SEC filings of red flags: Internal reviewers may miss questionable spots that would catch the attention of the SEC staff, which often looks not just at 10-Qs and 10-Ks but what is getting said on the company website, in analyst presentations, earnings releases, and, in particular, non-GAAP figures.
  • Ensuring the tight financial-reporting schedule has minimum risks: A big change for public companies is the turnaround times for reporting, and in the move toward efficiency, problematic areas can creep up. With more eyes watching what the company is doing, cutting out key processes and oversight may create a big risk for a restatement.
  • Meeting investor and analyst expectations: This is often new territory for many newly public CFOs. Executives who are speaking to the public will need to be evermore careful and thoughtful in what they say, and care should also be taken to limit surprises to the Street.
  • Making sure the finance team has an eye on outside happenings: There’s always a mix of proposed rules and regs that could affect companies greatly if they go into effect. They can have accounting implications and could lead to restatements if companies are not prepared.

New public companies face a whole new world that is watching their every move. To minimize any missteps, you have to know what they are. Download Ensuring a smooth ride as a newly public company to learn more.

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Revenue recognition: Are you in denial?

After more than a decade in the making, the FASB and the IASB finally issued new revenue recognition rules. Now if the boards needed that kind of a runway, how hard will it be for companies to implement? This is what management should be asking themselves.

But I get a sense that some are just in shock and aren’t asking the questions that need to get asked — maybe because they thought the guidance would never be issued or maybe because it’s just one more thing on the corporate plate right now. I get it. When anyone is in a state of shock, they tend to adopt a couple of go-to coping techniques — denial and procrastination. It’s been just over three months since the rules have been issued, and I have been witness to those coping techniques as companies battle implementation shock. What’s developed is a culmination of misconceptions, which we dispel below.

6 common misconceptions about the new rules

#1 The new rules don’t impact my business.
The new rules will apply to all entities that enter into contracts with customers, including long-term contracts and licenses. You cannot determine the impact until you truly evaluate each of your revenue models under the new guidance. Companies should also look ahead to how their business is growing and changing, and consider the new rules in connection with possible changes in their sales models between now and the adoption date. And, at the end of the day, even if your conclusion is “no impact,” you’ll also need to document your evaluation, vet it with your auditors, and update your financial statement disclosures and policy documentation so that they coincide with the new guidance.

#2 The implementation date is far away, so I can afford to wait.
While the standard is effective Q1 2017 for calendar-based public companies, the guidance does not allow for prospective adoption. You have some choices in terms of adoption methodology, but no matter what you decide you’ll still be looking back to 2016 and possibly 2015 if you choose full retrospective adoption…and 2015 is just around the corner. As a result, you will need to assess current contracts and those that commenced several years before the effective date. Then, when you begin to consider systems, processes, financial planning, investor communications, that date will no longer look so far off — especially when you know implementation duties will be in addition to your day job.

#3 Implementation of the new rules is just an accounting exercise.
So many people believe that it’s something that their accounting department will handle. Quite the contrary! Consider the following: debt covenants (treasury), sales incentives (HR), customer contracts (legal), investor communication (IR), systems (IT), and internal controls (internal audit). Companies big and small will need to think operationally where these rules are concerned. A successful implementation should be a collaborative effort across the organization.

#4 The standard only impacts the timing of revenue.
The fact is the new standard is comprehensive and changes the way we look at contracts with customers, the concept of delivery as well as many other aspects of the revenue process. For example, some of the collaboration revenue of life science companies may be excluded from the revenue guidance if the other party to the deal is not considered a “customer.” The new guidance also considers whether there is a financing component when an arrangement extends beyond one year. And any company opting for the modified retrospective adoption approach may have to record a cumulative effect of a change in accounting principle, which means it goes into the “black hole” of retained earnings, skipping the P&L, never to be seen again.

#5 My financial systems are savvy and can handle the rule changes.
With the complexity of contracts, there is no simple “flip-the-switch” scenario that can be employed. All types of revenue models will need to be evaluated. The new standard utilizes estimates and judgments, which can pose challenges in terms of automation. Companies may also want to look at additional reporting functionality to support their estimation process. And with all of this, internal control processes both in and around their system capabilities will need to be reviewed and updated.

#6 These changes always get delayed.
While some of us remember fondly the days when the internal controls part of SOX kept getting delayed, keep in mind that SOX was a U.S.compliance initiative. The new revenue rules, on the other hand, were developed in collaboration with the IASB in an effort to move closer to a single set of global accounting standards. The boards took great pains in developing the new standard and laying down the transition date so that reporting of revenue would be consistently applied on a global basis. So while companies may continue to lobby for postponement, this could result in nothing more than wishful thinking. Investors are going to want their companies to plan ahead — the “wait and see” approach will put delayers at high risk for financial misstatements and delayed filings.

In the face of a sweeping standard that could have extensive implications, it’s easy to understand why anyone would deploy coping strategies and try to look the other way. But as you can see from this list, there’s a lot to be done and only a certain amount of time to get it done right. The best approach is to tackle one step at a time. Start with assessing the impacts to your business — financial, operational and external. Then develop a plan. Knowing what needs to happen and how you can get there is certain to to take you away from the depths of denial to a clear path to compliance.

Kelley Wall leads RoseRyan’s Technical Accounting Group, which provides technical accounting and SEC expertise to public and private companies on complex accounting matters and implementation of new accounting pronouncements.

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Red flags in the finance org: The one simple question every new CFO should ask

So you just walked through the doors as the new CFO. You’ve already met the key players, you understand your role, and you have a pretty good understanding of the company. Only when you become part of the company can you get a real picture of what goes on in the finance organization.

While you have many responsibilities in front of you — which can include IT, facilities and possibly HR — your primary focus should be on the finance team and getting to know its inner workings. This is the team that is vital to the greater organization, and you need to understand its ins and outs.

Here’s how to get a grip on your new finance organization without wasting another minute. Ask this question: How long does the finance organization take to close the books? The answer reveals a lot.

Seems like a simple question, right? But there will be no simple answer, despite what the first person you come across tries to tell you. Most likely, after some digging, you will discover some issues related to the close process. A slow-to-close team will reflect poorly on your leadership if you don’t find a way to speed things up, but it’s also a key way for you to see where the skills deficiencies lie within your new team. They could be with just one person or a few, or there could be something that needs to be fixed — or significantly updated — within the systems and processes the organization has been using. The real answer to the question — based not only on what people tell you but what you can see for yourself — will go a long way toward letting you know exactly how strong a team you have, their ability to get things done and their level of commitment toward getting things done right.

Ask for details
Let’s say you have a five-day close, but your team is working 18-hour work days to get it done. That’s a  clear warning sign something is amiss. Or you have a 20-day close, and you wonder what the heck everyone is doing all day. Under either scenario, you may discover inefficiencies related to process flow, duplication of effort or lack of skills. Just one person who doesn’t have the requisite training to execute a task can make the entire team suffer from this inefficiency, either because of effects of dependency or errors that need to be fixed.

Your discovery of deficiencies should also have you looking down the path of technology. Are the current systems effective for the task, do they help the team or hinder the team in getting the job done? Your team may be suffering with a system that is older than they are. Or your team may have the latest and greatest but still don’t know how to use it effectively one year after the go-live date.

Use your early days in the new job to interview the team members individually, to get to know them and the details behind how the books get closed. As you listen to others walking you through the process, you will likely hear inconsistencies and questions about who is responsible for what. Ask about when things have gone right and when they haven’t, and how issues get resolved. Who is monitoring these issues for resolution? Are the issues being resolved based on how critical they are to the organization? Someone needs to be accountable, and if it’s not you, then who should it be?

Beyond helming the finances, your role as CFO includes the staff’s morale and motivation. It’s not always top of mind, but when it’s done well, you will see the effects. If you can get the month-end close process down to a well-oiled, repeatable process, then you have created an environment where the day to day becomes smooth sailing and the adventure of growing the business can then be enjoyed by all finance employees as they become true business partners within the company.

Salena Oppus has been a member of the RoseRyan dream team for over 15 years. Her specialties are system planning and implementation, cost accounting and forecasting. 

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