Optimizing the Financial Close Process Through Smart Reporting02/24/2020
There are many ways to manage the financial close process; it’s certainly not a one-size-fits-all approach. What is uniform in most cases, however, is that a sophisticated reporting tool can significantly improve the process to verify data and make it easier.
A Common Accounting Scenario
Because oil and gas accounting involves many partners and wells, there are typically large sets of data. Companies don’t often have reporting systems that give all stakeholders direct reporting access to the transactions systems. IT often provides a “data dump” into Excel which is used by stakeholders to understand revenue, cost, and profitability of their wells. If there are errors in the data, or the data is updated, then people are using outdated data to make decisions and errors trickle back into accounting at a later time.
Additionally, if there is not a single system of record for well setup or other master data, there is high potential (and risk) for master data to be different across systems and out of sync.
This means accounting may be processing data that is obsolete.
Diversity in Financial Reports
There is significant diversity in financial reports, and every accounting group manages them differently. The most common reports are usually:
- Operating statements
- Income statements
- Balance sheets for specific operating accounts, usually focusing on revenue, expenses, and deductions
Balance Sheet Conundrums
Each line item on a balance sheet contains a reconciliation back to the source data, which must be validated, i.e. accuracy ensured for each line item. Sounds simple, but a manual reconciliation process can get complicated. Let’s take a look at the steps involved:
- A line item is generated that represents the amount of money spent on operating expenses for the month (fairly simple to produce).
- Operating expenses then must be broken down into sub-categories that detail exactly where that money was spent.
- In addition to summary reports, oil and gas accountants must break out expenses by account or account group, which aids in the grouping of expenses into meaningful categories.
- Further classification ensues: operating area, specific properties, or geographical locations.
This process can be challenging for oil and gas accountants because they need real-time, master data and an easy way to cross-reference it. Most importantly, they must ensure that the “data dump” mentioned earlier properly reflects all the data points they need to see.
As an oil and gas accountant, there's a cost no matter what. You’re either spending time waiting for a large amount of data to pass through, followed by updating a myriad of spreadsheets, or you’re working from a static data set, and while yes, this method might be faster in the short term, it only represents a mere snapshot of the data.
Optimizing the Financial Close Process Through Smart Reporting
The good news is that you don't have to be disconnected from your data. When you integrate a sophisticated reporting tool alongside your everyday accounting functions, your data becomes a living, breathing entity. It’s always accurate and up to date. There are no missteps to be corrected. No lag time. No version control needed. No superfluous staff time required to manually manage all of this. An automated, intelligent reporting tool allows you to manage the financial close process on a scheduled basis so you can focus on getting real value out of the work you do, which is noticing irregularities or focusing on areas where you can improve efficiencies.