When the next draft of financial statements is due, how quickly can you update your cashflow statements?
Anders Bergman, Business Development Manager at Thomson Reuters highlights the challenges in getting the process right – fast.
“Preparing cashflow statements for statutory reporting can be very time consuming, as you calculate balance sheet and P&L movements then allocate these movements to a cashflow line item – especially as trial balance data is always changing during year end!” explains Anders in the Thomson Reuters webinar Statement of Cashflows Automation.
The webinar addresses the challenges of preparing cashflow statements manually and highlights the benefits of automating the process.
Pitfalls of preparing cashflow statements manually
While demonstrating a high-level sequence of cashflow statement preparation in Excel, Tash Martin, Consultant for Direct Tax solutions at Thomson Reuters shares the pitfalls in this manual delivery.
“At any stage in this process there are a couple of potential weaknesses when it comes to how the data is handled and how the cashflow movements are being derived.”
Right from the moment the trial balance is input into the Excel workbook, potential errors could result from copying and pasting the balances into the wrong columns.
While completing the look-up process to balance sheet and P&L, there’s a risk of misallocating accounts to the balance sheet or P&L line items, Tash explains.
When calculating the movements and assigning those to the cashflow line items, there’s a potential for formulas to be wrong when deriving the cashflow movements.
“If manual cashflow adjustments are required, hard keying the figure in a cell within Excel is very easy with a limited audit trail, but how do you trace that back quickly, and confidently explain that adjustment to the auditors?” Tash asks.
Finally, when collating the final cashflow statement, movements are assigned manually to cashflow line items and that transposition window between an Excel and a Word document exposes more opportunity for mistakes.
“And we haven’t even started looking at things like rounding or adds checks yet on the cash flow statement itself, as well as reconciling the final cash flow position back to the balance sheet to check that your ending cash position is correct,” adds Tash.
Manual vs automated cashflow statements
So how can automation overcome these weaknesses?
In drawing on client insights Tash explains here how they have transformed their cashflow preparation process using automation.
“As trial balance accounts are mapped directly to cashflow line items, streamlining this process – by mapping the balance sheet and P&L straight to the cashflow line items they relate to – reduces the double handling of data.
For non-cash adjustments, the journal functionality in an automated process can provide a clear audit trail of any additional adjustments made to the cashflow statement.
Tash adds that cashflow movements pre-fill the cashflow statement in the financial statements with validation checking to other points in the financial statements, such as balance sheet or cashflow reconciliation note.
Finally, a detailed Mapping Report can be generated showing where trial balance accounts have been mapped to in the cashflow statement, along with any additional adjustments made via journals which can be provided to auditors for ease of review.
There’s a lot to be said for standardising the process for statutory reporting!
Watch our Key Challenges: Answered webinar to find out how you can automate the preparation of your cashflow statements for statutory reporting – and watch others in the series!