There’s a tension for finance organizations that go public. Throughout the year, they are faced with new rules from accounting standard-setters, new guidance from accounting firms and new direction by regulators that could affect them directly.
Last year was no different as the Financial Accounting Standards Board issued 17 Accounting Standards Updates (ASUs), up from 12 in 2013, including a real biggie (the new revenue recognition standard), and the regulators continued to be active and forceful. On top of this, privately held companies are getting more rules sent their way, and an increasing number are considering whether they too should get involved in the public markets.
No matter where your organization lies in its cycle—whether you’re in a startup or a fully fledged publicly traded company past the early, shaky days of trading—you have many issues to face in the coming year as your team puts together its financial reports and communicates with investors. Here are recent changes you should keep in mind, depending on your situation:
Taking on the new revenue recognition rule: By now companies should be past the evaluation stage and their plan to implement should be nearing completion. They should start tracking their transactions to see how they’ll play out under the new guidance.
Until formal adoption in 2017, companies must disclose the anticipated effect the new standard will have on their financials, so knowing the magnitude of the change is a critical initial step. It could lead to adjustments in processes and affect how contracts are drafted. Moreover, companies need to have this type of data around now to decide whether to adopt the standard retrospectively (which will include 2015 financials) or prospectively (beginning January 2017).
The entire endeavor will go beyond the finance department. As we saw with the implementation of the previous revenue recognition standard, possibly business practices and certainly revenue accounting processes and systems will need to adapt to record revenue transactions correctly.
Simplifying matters for private companies: The good news for private companies is FASB’s Private Company Council (PCC), now a year into its Decision-Making Framework for determining the situations when private companies can use an accounting alternative, issued four PCC-consensus ASUs in 2014. With the goal of simplifying accounting and reporting for private companies, these new ASUs should reduce private companies’ cost of compliance.
- 2014-02: allows private companies to evaluate goodwill impairment when a triggering event occurs rather than annually.
- 2014-03: provides a simpler method of accounting for derivatives.
- 2014-07: provides a simpler alternative than the variable interest entity (VIE) model for accounting for leases under common control.
- 2014-18: hot off the FASB presses in time for Christmas, this ASU simplifies private company accounting for intangible assets acquired through a business combination.
Preparing for public-company life: Depending on your viewpoint, there has been a positive effect of the reduced reporting and SOX compliance provisions from the JOBS Act in the increased number of IPOs in 2014 (a 44% increase over the number of 2013 filings). And IPO and follow-on public market financing activity don’t seem to be tailing off so far as we start 2015, particularly in the Bay Area.
But before private companies rush to Wall Street, they need to remember that despite a one-year exemption from the requirement to have their auditors sign off on SOX, management must still include their own assertion regarding internal controls in SEC reports beginning with the second 10-K and will want to have effective internal controls way before then. The auditors will still want to get comfortable in knowing management is doing what they say they’re doing. (For more about braving the new world as a post-IPO business, see our recent intelligence report, Ensuring a smooth ride as a newly public company.)
Getting ready for the audit: Finally, the auditors also received their own flurry of new rules and warnings from the Public Company Accounting Oversight Board in 2014. Companies will end up feeling the effect as those changes trickle down, leading auditors to deepen their focus as they review certain accounting methods. The PCAOB has stated the new audit requirements and alerts were issued in response to insufficient audit procedures in areas that have a higher risk for misstatements and the incidence of deficiencies.
There is a new audit requirement surrounding transactions and financial relationships with related parties, including executive officers, as well as requirements that strengthen the auditing of significant unusual transactions.
Two new practice alerts were issued in the fourth quarter of 2014. One dealt with auditing revenue, specifically testing recognition and timing, evaluating the presentation (gross vs. net), internal controls, and the risk of fraud. Additionally, the alert addresses the application of audit sampling and analytic testing procedures.
The second alert reminds auditors about PCAOB standards related to auditing “going concern” with regard to the application of updated accounting and reporting guidance. The PCAOB’s agenda for 2015 includes a project to consider updating the auditing standard.
Companies will still need to be ready for the increased scrutiny by the auditors of their 2014 results as a result of the alert issued late in 2013 that seemed to sneak up on them as they went through audits last year. Be ready for testing of review controls, controls over system-generated data and reports, and management’s evaluation of identified control deficiencies.
We all recognize that the pace of change keeps accelerating and isn’t likely to slow down in 2015. Staying on top of what’s new and what applies to our specific situation requires quite a bit of focus. It is part of what makes your finance and accounting folks such valuable members of the team.
Julie Gilson is a senior consultant with RoseRyan and a CPA (inactive) with over 15 years working in finance and accounting with fast-moving public and private technology companies.
By embracing data analytics, CFOs can keep their status as strategists
CFOs’ résumés are getting longer and more complex. Naturally they are the stewards of the company’s finances and the operator of the treasury, financial planning and analysis, accounting and tax functions. Now, they are also embracing being strategists and catalysts. This is according to Kathy Ryan, CEO and CFO of RoseRyan, and Myles Suer, senior manager, CFO solutions, at data integration company Informatica. Ryan and Suer recently tag-teamed as speakers on a webinar about “Analytics and Data for the Strategic CFO.”
“It’s increasingly important for CFOs to be strategists, who help shape the overall strategy and direction of their company, as well as catalysts, who instill a financial approach and mindset throughout the organization to help other parts of the business perform better,” Ryan said during the event. “These varied roles make up a CFO’s job today and make it more complex than ever.”
Successful senior finance executives have made their careers by embracing the tough stuff. They rose to the challenge following the regulatory reforms in the early 2000s and were really able to show off their skills during the Great Recession of 2008, when their expertise was needed to not just keep companies afloat but to get back on track.
Now that the recession continues to fade in the rearview mirror, CFOs need to keep the respect and elevated status they gained in recent years—where their opinion and insights are more valued than ever—intact. “The strategist and catalyst are newer roles that came on very strong during the recession, and CFOs, in my opinion, should not relinquish these roles going forward,” Ryan advised.
A key way to keep the momentum going? Get a better grip on the data that finance teams have at their fingertips. During the webinar, Ryan and Suer emphasized the uphill battle facing CFOs to accomplish that goal. As it is, manual processes still reign at many companies, and many finance organizations lack the skills needed to make sense of all the information. “Data collection is messy,” Ryan said. “A lot of data comes in through separate and distinct sources, in differing formats, and it requires a lot of knowledge to even know how to think about trying to organize the data, much less try to analyze the data.”
The motivation to improve is there, Suer said. He cited a KPMG study reporting that two-thirds of finance chiefs said their enterprise technology platform is duplicative, complex, and the financial information they pull from it for making decisions could be more useful. And three-fourths of CFOs want to do something to fix it.
“When we talk to CFOs, data is really at the heart of everything they do,” Suer said. “They have to be able to control better the integrity of the data. What we found is what was driving CFOs so much toward manual processes was that they didn’t trust the data from each and every source, so they would either manually pull it, condition the data and push it into the next systems if they had multiple GLs, or they’d be constantly massaging it and moving it around.”
The good news: The CFO position can be more gratifying than ever. Finance chiefs are no longer pigeonholed as narrow-minded accountants in the backroom but are more and more being included with other strategic leaders whose observations and analysis can influence future directions. The not-so-good news: it is hard work and it’s not made any easier by increasingly complex business models, changes in accounting rules and regulations, and unwieldy IT systems with data that can’t be fully relied upon. CFOs—those sticklers of data with integrity—are in a tough spot.
Suer suggested that CFOs who want to be considered “data driven” and strategic should:
“In an ideal world, data should be entered into a system only once and be accessible to address many, many different queries from many people within an organization,” Ryan said. “The more often data is entered in different ways, the more likely it is that the data won’t be consistent, and not having consistent data will quickly undermine the results.”
For more insights on the CFO role today, watch the replay of “Analytics and Data for the Strategic CFO.”
5 tips for audit prep: Set yourself up right and ace it
Getting your year-end audit completed can be an uphill slog or a fairly smooth process. Much of the outcome depends on the work you can put in ahead of the auditor’s visit. This may seem like an obvious point, but time and again we have seen companies—some that are undergoing their very first audit and those that have been through it many times—drop the ball.
They won’t have the documentation the auditor needs, and they’ll have to scramble. But the auditor may not stick around to wait for you. If you’re unprepared, you go to the bottom of the auditor’s pile. If you have to start over, the original auditor may no longer be available, and you’ll have to answer a lot of the same questions from the second one. The result: You have unnecessarily increased the cost and length of your audit—and the hassle.
Creating a collaborative relationship with your auditor early on and staying in communication are key points. The better you understand the audit firm’s approach to your accounting issues, the better off you’ll be. Help yourself and your auditor by following these tips.
1. Be a PBC list cutter
In preparation for an audit, the audit firm will typically develop a PBC (prepared by client) list of schedules and other documents the client needs to provide for the auditors. The number of items on the list depends on several factors, including whether this is your company’s first audit or first experience with the audit firm and how knowledgeable the audit firm is about businesses like yours.
To keep your PBC list as short as possible, talk with the audit firm before it prepares the list to identify and agree on which items aren’t applicable. Meeting with your auditors before the PBC list is finalized—and educating them about your business, if necessary—limits surprises and helps establish a good working relationship.
2. Be an efficiency zealot
If you’re the type of person who won’t settle for less than the very fastest route to any destination, including the dairy aisle in the grocery store, planning your audit should be no sweat. Everyone else will have to incorporate some extra effort, such as by making a point of designating one person—if possible, someone with an audit background—to coordinate the audit and liaise with the audit firm. This person doesn’t need to prepare and compile all the requested audit information; instead, the coordinator should assign those tasks to the people with the deepest knowledge of and easiest access to the relevant information. Your auditors will appreciate having a single point of contact to track the delivery and status of the audit documents.
3. Be realistic about time
The team involved needs enough time to prepare for the audit. For first-time audits or audits with unresolved accounting issues, figure on at least eight weeks. The least complex audits—for example, those in which the company has regularly maintained accounts and has resolved any issues before the audit or during previous audits—could require as little as two weeks. And keep everyone in the loop on the schedule.
4. Be ready or expect to wait
Don’t initiate the audit until the prep work is complete. Some companies prepare a portion of the audit schedules and have auditors begin the audit because they believe they’ll have the remaining schedules ready before they are needed.
But remember—your team will be busy answering auditors’ questions about the first batch of schedules. So when you fall behind on the second batch, the auditors will be sitting around your office with nothing to do, which costs you money.
5. Be your auditor’s BFF
Remember that auditors do their best work for you when you treat them as your trusted business partners. That means raising and discussing potential issues before they come on-site, and making yourself and your audit team available to answer their questions throughout the audit.
We know from experience that prepping for and completing your audit can feel like climbing Mount Everest. For more tips that will help level the steepness of the journey, download our intelligence report, Audit time? Don’t sweat it, and find out how the lack of preparation can have a direct effect on the business.
It was high time the FASB eliminated ‘extraordinary items,’ and they finally did
Companies will no longer have to call out extraordinary items on the income statement following the Financial Accounting Standards Board’s recent issuance of an accounting standards update. This change, which affects transactions that are considered both unusual and infrequent, goes into effect for fiscal periods beginning after December 15, 2015.
As someone who has been on all sides of the fence having to decide how to account for these items (I have been an auditor, CFO and investor) I must admit I am not sad to see the separate accounting of them, located after Income from Continuing Operations, and net of tax, go away. I have always felt that accounting for extraordinary items the way we’ve had to is, well, kind of extraordinary!
My reasonings for thinking this way are twofold. First, I am a strong believer in simplified accounting, and this change definitely simplifies the accounting. Second, in my view anything to do with your continuing business should be accounted for as an integrated part of your continuing business, and just because a transaction is unusual and infrequent does not give it the right to be accounted for separately.
My definition of unusual and infrequent may be different to yours, and that’s the problem—the rules that have been in place have a significant element of subjectivity to them. To me, accounting for extraordinary items has been very similar to applying soccer’s offside rule. Under that rule, you are not offside if you are not interfering with play. That’s a very subjective judgment, and your view of interfering in a situation may be different than mine. I acknowledge that I am a little extreme on this—to me if you are on the pitch, you are by definition interfering with play. That’s probably a big reason why I never became a referee!
I once had a very long debate (you could also call it an argument), with a Big 4 audit partner over whether a transaction was an extraordinary item while I was the CFO of a public company. The discussion lasted a week, and in the end the partner punted it to another partner who ended up agreeing with me. I’d like to say it was a win for me, but we had both wasted hours discussing this issue.
Adding insult to injury, I couldn’t believe it when the partner subsequently tried to bill me for the time we spent discussing it. As you can imagine, that created another discussion. I finally got the billing eliminated, but what a waste of time and effort. I am sure many others have had the same experience as me. The good news is that no one will have to again when the new rule changes come in to play, so hopefully a side benefit will be that audit costs will come down a little as well.
By the way, when this rule change goes into effect—making extraordinary items no longer necessary—US GAAP will match IFRS rules. Yes, the continuing operations section of an income statement will look more lumpy, but it will reflect better what is going on in the business, and that is what accounting should do and all we can ask it to do.
Stephen Ambler is a director at RoseRyan, where he manages the development of the firm’s “dream team” of consultants. His interim CFO stints at RoseRyan have included a social media company and the management of the financial integration process at a company acquired by Oracle. He previously held the CFO position for 13 years at Nasdaq-listed companies.
Hot topics for finance departments in 2015
There’s a tension for finance organizations that go public. Throughout the year, they are faced with new rules from accounting standard-setters, new guidance from accounting firms and new direction by regulators that could affect them directly.
No matter where your organization lies in its cycle—whether you’re in a startup or a fully fledged publicly traded company past the early, shaky days of trading—you have many issues to face in the coming year as your team puts together its financial reports and communicates with investors. Here are recent changes you should keep in mind, depending on your situation:
Taking on the new revenue recognition rule: By now companies should be past the evaluation stage and their plan to implement should be nearing completion. They should start tracking their transactions to see how they’ll play out under the new guidance.
Until formal adoption in 2017, companies must disclose the anticipated effect the new standard will have on their financials, so knowing the magnitude of the change is a critical initial step. It could lead to adjustments in processes and affect how contracts are drafted. Moreover, companies need to have this type of data around now to decide whether to adopt the standard retrospectively (which will include 2015 financials) or prospectively (beginning January 2017).
The entire endeavor will go beyond the finance department. As we saw with the implementation of the previous revenue recognition standard, possibly business practices and certainly revenue accounting processes and systems will need to adapt to record revenue transactions correctly.
Simplifying matters for private companies: The good news for private companies is FASB’s Private Company Council (PCC), now a year into its Decision-Making Framework for determining the situations when private companies can use an accounting alternative, issued four PCC-consensus ASUs in 2014. With the goal of simplifying accounting and reporting for private companies, these new ASUs should reduce private companies’ cost of compliance.
Preparing for public-company life: Depending on your viewpoint, there has been a positive effect of the reduced reporting and SOX compliance provisions from the JOBS Act in the increased number of IPOs in 2014 (a 44% increase over the number of 2013 filings). And IPO and follow-on public market financing activity don’t seem to be tailing off so far as we start 2015, particularly in the Bay Area.
But before private companies rush to Wall Street, they need to remember that despite a one-year exemption from the requirement to have their auditors sign off on SOX, management must still include their own assertion regarding internal controls in SEC reports beginning with the second 10-K and will want to have effective internal controls way before then. The auditors will still want to get comfortable in knowing management is doing what they say they’re doing. (For more about braving the new world as a post-IPO business, see our recent intelligence report, Ensuring a smooth ride as a newly public company.)
Getting ready for the audit: Finally, the auditors also received their own flurry of new rules and warnings from the Public Company Accounting Oversight Board in 2014. Companies will end up feeling the effect as those changes trickle down, leading auditors to deepen their focus as they review certain accounting methods. The PCAOB has stated the new audit requirements and alerts were issued in response to insufficient audit procedures in areas that have a higher risk for misstatements and the incidence of deficiencies.
There is a new audit requirement surrounding transactions and financial relationships with related parties, including executive officers, as well as requirements that strengthen the auditing of significant unusual transactions.
Two new practice alerts were issued in the fourth quarter of 2014. One dealt with auditing revenue, specifically testing recognition and timing, evaluating the presentation (gross vs. net), internal controls, and the risk of fraud. Additionally, the alert addresses the application of audit sampling and analytic testing procedures.
The second alert reminds auditors about PCAOB standards related to auditing “going concern” with regard to the application of updated accounting and reporting guidance. The PCAOB’s agenda for 2015 includes a project to consider updating the auditing standard.
Companies will still need to be ready for the increased scrutiny by the auditors of their 2014 results as a result of the alert issued late in 2013 that seemed to sneak up on them as they went through audits last year. Be ready for testing of review controls, controls over system-generated data and reports, and management’s evaluation of identified control deficiencies.
We all recognize that the pace of change keeps accelerating and isn’t likely to slow down in 2015. Staying on top of what’s new and what applies to our specific situation requires quite a bit of focus. It is part of what makes your finance and accounting folks such valuable members of the team.
Julie Gilson is a senior consultant with RoseRyan and a CPA (inactive) with over 15 years working in finance and accounting with fast-moving public and private technology companies.
Jacqueline Bray receives RoseRyan’s highest honor: The 2014 TrEAT Award
We are excited to share the news that Jackie Bray has received the 2014 TrEAT Award, a coveted recognition within RoseRyan. She is the fourth annual recipient of this award, which honors a guru who has best exemplified our firm’s values (Trustworthy, Excel, Advocate and Team) throughout the year.
The RoseRyan management had the tough task of deciding who out of 40 nominees made the biggest standout contribution in 2014. “Being able to juggle various deadlines and clients while always being responsive and keeping cool under pressure is a real art,” says RoseRyan CEO Kathy Ryan. “Jackie does this with reliability and grace.”
Because of the stiff competition, Jackie, who specializes in general accounting, was surprised to hear her name called at the RoseRyan holiday party when the winner was announced. “It was a nice feeling—it was humbling — that the nomination can come from anyone at the company, not just a manager,” she says. “That makes it special for me.”
When deciding whether to join RoseRyan in 2013, she was won over by the firm’s values, which the firm’s managers and consultants not only talk about but truly follow. They matched her own, and she knew RoseRyan would be a good fit.
A sweet TrEAT
The RoseRyan TrEAT award was established to acknowledge the importance of the our cornerstone values as the foundation of our business, and honor the individual who exemplifies those values. It is the highest honor we can award an individual. This year, we awarded Jackie with a beautiful, one-of-a-kind bowl. It’s perfect for displaying some treats or for admiring as is.
Jackie fulfills the trustworthy criteria by always meeting her deadlines and deliverables, even when (inevitably) something unpredictable creeps up or hot issues hit more than one client at once. She excels by meeting her performance metrics and being willing to go beyond her comfort zone to expand her skills. And she is an advocate for the firm by providing valuable feedback and recommendations to the RoseRyan client management group.
And last but not least, Jackie is a strong team player for her ability to build good relationships with clients and her colleagues as well as for the fact that she can be consistently relied upon to provide excellent work.
Indeed, Jackie manages a four-client workload with finesse, and she has the full force of the collective intelligence of RoseRyan’s seasoned pros at her fingertips. If a client has an unusual question, Jackie knows she can get the answer—she just needs to turn to her colleagues to see who has encountered a similar situation (since our dream team members have been on a wide range of assignments, usually several chime in to help).
RoseRyan has given her access to a diverse and flexible workload with the support of knowledgeable colleagues she can turn to anytime. “When one of us is with a client, we are never alone,” Jackie says. “You truly do have a whole team behind you.”
Congratulations to Jackie Bray!
Full steam ahead for 2015 and beyond
Halfway through the decade, with the Great Recession slipping farther and farther into the rearview mirror, corporate leaders are pushing onward and upward. Nowhere is this more evident than in the San Francisco Bay Area where a lot of attention has shone on activities within the tech and life science sectors. In business, there is never enough time to waste and anyone who lingers at a standstill for too long will get left behind.
In the Bay Area, we’ve seen a higher eagerness for forward movement over the past year as well as more forward-thinking actions. Small companies that had held a tight grip on lean finance teams are expanding. Larger companies are soul searching and making positive strategic changes. And to top it off, the IPO market is incredibly active (2014 saw the highest number of companies going public since 2000, according to Renaissance Capital).
We are not quite returning to a heyday and I don’t think we’re in a bubble, but it’s much easier to find bright spots than when this decade first began. As for RoseRyan, we are enjoying much forward momentum too, having made investments even during the turbulent times. The outlook for RoseRyan is a positive one for the year ahead as we continue to see opportunities for growth within our own client base as well as with potential clients.
A memorable year
One of our proudest moments in 2014 was the introduction of our RoseRyan Day 2 service, created for companies struggling to get everything done properly after their IPO. The early days of working at a publicly listed company is an exciting time, but it’s also a shaky time, as the organization has to adjust to new processes, new requirements and the constant prying eyes of investors and regulators. They need to be more careful and watch out for inconsistencies in the information they share and how they share it. This puts the onus on the finance department.
We enjoy helping finance teams power through the challenges of what we call “Day 2,” that one- to two-year stretch of time between the IPO and and when the company is actually comfortable acting like a public company. There is a lot to do.
Some companies are taking on a transition of another sort altogether, as they look under the hood and consider whether something within their infrastructure is holding them back. We expect the trend of spinoffs and splits to continue following on the heels of big changes at Hewlett-Packard, eBay (which is spinning off PayPal) and Symantec. When done with great care, such divestitures can position a business for greater mobility, innovation and growth.
Another signifier of an increased focus on the future — rather than a stuck-in-the-mud feeling wrought by the recession — shows up in the job market. People are more confident about switching jobs, and there are more opportunities for them to make the change. This development is a good sign for our local economy (as well as for our own interim finance services pipeline), but it does make the life of hiring managers more difficult. In the finance and accounting world in particular, we continue to face a tight market and we all need to rethink how we attract and keep top talent. It’s certainly a job seekers’ market out there.
At RoseRyan, our standards for seasoned finance pros continue to remain high, and we have the kind of reputation that continues to attract the talent we need. In the fall, I was honored to be recognized as one of 10 elite managing partners from around the country by Accounting Today for having the kind of “employee-friendly firm that so many leaders are struggling to build now that engaged, enthusiastic staff are at a premium.”
Over 20 years, we have set up a culture of fun-loving folks who have a passion for what they do and the means to collaborate and learn from each other. And we do it without the round-the-clock pressure that some larger firms run on. Our work shines because of our experience and our enthusiasm, and I share my inclusion on the Accounting Today Managing Partner Elite list with my RoseRyan colleagues.
Successful businesses will persevere by keeping their focus on the future, rather than lamenting on what they see in that rearview mirror. We have our eyes on the future. Will you be joining us?
Kathy Ryan is the CEO and CFO of RoseRyan. Since co-founding the firm in 1993, she has served as interim CFO at more than 50 companies.
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.
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.
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.
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.