Fast Close

“It’s All About Fast”
Accelerated SEC Reporting
Requirements
SAP Functionality to
Support Fast Close
PwC and SAP
Sarbanes-Oxley
Web Conference Series
April 2004
Stephen Eddy, Partner,
Advisory Services,
PricewaterhouseCoopers LLP
William R. Shipley, Partner,
Advisory Services,
PricewaterhouseCoopers LLP
David Nelson, Product Management
mySAP ERP Financials,
SAP

Agenda
Fast Close – Overview
Process Management and
Changes
Fast Close with
mySAP Financials
Summary

Current Environment
The market and regulatory bodies are demanding quality, thorough, and
transparent financial information faster than ever before.
• SEC accelerated reporting deadlines
– 35 days to file 10-Q, 60 days to file 10-K
• Sarbanes-Oxley Act
– Sec 302 – formal certification requirement – executives are demanding more
time to analyze financial results
– Sec 302 “sub-certification” process requires more timely and accurate reporting
and clear accountability at business unit / regional level
– Sec 404 drives need for improved documentation and control
– Sec 409 Material changes must be disclosed within 48 hours
• Increased stakeholder scrutiny of financial data
– Corporate failures, challenging business climate
– Demand for a “no surprises” financial reporting environment
• International reporting complexities
– Movement towards IFRS (2005)

Recent Market Survey
• 40% Of U.S. Multinationals Must Adjust Corporate Reporting
to Meet SEC’s Accelerated Reporting Requirements
•To meet the new regulations,
• 59 percent will use their existing reporting systems more effectively;
• 29 percent will upgrade their reporting systems; and
• 8 percent will make significant investments in new information technology.
•Executives also cited potential benefits to achieve from improvements
to their closing and reporting process:
• More time for analysis and review of reported information 67%
• Increased quality of financial information 55%
• A more timely and accurate decision-making process 48%
• Better information from existing systems 35%
• Process alignment and improvement 24%
• Improved credibility in the market and within the organization 18%
• Improved staff awareness and satisfaction 14%
• Improved shareholder confidence 6%

Fast Close: Definition and Business Drivers
Fast Close contains Procedures to
• Optimize and accelerate the closing process
• Streamline financial operations
• Increase timeliness of information
• Get better data quality and more transparent information
Business Drivers for Fast Close
Core business requirement
Maintain accuracy and control of business
operations
Business opportunities
Approach
Reduce the cost of finance
Gain competitive advantage
Integrated finance and accounting systems
Best practice financial processes

World-class Closing Principles
Fast Close requires
Integration
Harmonization of system landscapes
Standardization of operational Systems
Central sources of information and analysis
Standardized reporting tools
... and will cause changes
Organization System
Methods Employees
Standardization
Processes
Chart of Accounts
Reports
Key Performance Indicators
Automation
Work Flow
Collaboration
Web-Access
Portals
Auditability
Document principle
Drilldown

Typical Closing and Reporting Activities
1. All transaction
based activities
complete
2. General
ledgers
finalized
3. All data is
final for
reporting
4. Reports
completed &
distributed
Sub-Ledgers
Month-End
Accounting
Financial
Consolidation
Reporting
TRANSACTION DATA
REPORTING
Sales and Billing
Financial Statements
Accounts Receivable
Management Reports
Inventory and Cost of
Sales
JUDGEMENTS &
ESTIMATES
CONSOLIDATION
ACTIVITIES
External Reports –
(10K, 10Q)
Asset Management
Payroll
Accounts Payable
Treasury/Cash
Management
Account Reconciliations
Intercompany
Accounting
Accounting Adjustments
Accruals and Reserves
Intercompany
Eliminations
Equity Accounting and
Eliminations
Top-side Adjustments
Currency Translation

Business Days after Period-end
0-7 8 -12
13-18 19-22
“Old School” Close Process
Characterized by rigid hand-offs between organization layers and multiple
consolidation systems.
Sub-
Consolidation
(Region/
Product Line)
Operating
Operating Unit
Unit Operating
Unit Unit / Legal
Entity
Corporate Parent
Consolidation
Sub-
Consolidation
(Business Unit)
= Data approved and submitted to the next level.
Sub-
Consolidation
(Region/
Product Line)
Operating
Operating Unit
Unit Operating
Unit Unit / Legal
Entity
Consolidation Tool
Consolidation Tool
Consolidation Tool
“Old School” Characteristics
‣ Close process is comprised of
multiple sub-consolidations
‣ Each management level has its
own accounting organization
that completes all aspects of
the close
‣ Financial applications are
autonomous and customized
‣ Roles and responsibilities
overlap among accounting
layers
‣ Heavy reliance on “top-side”
corrections with push-down
entries
‣ Stand-alone reporting packages
prepared, reviewed, and
submitted upwards
‣ Significant effort to reconcile
data transfer and coordinate
any chart of account or
application changes

Common Issues and Actions
Issues
– Non-standard policies,
terminology, and account
classifications
Potential Actions
‣ Implement consistent policies and procedures and chart
of account descriptions
‣ Employ continuous monitoring
– Intercompany accounting
– Foreign exchange
‣ Develop and implement standard accounting policies
with detailed procedures and examples
‣ Monitor compliance
– Business reorganizations ‣ Establish policy and checklist for the transition of
accounting responsibilities
– “Top side” adjustments ‣ Establish policy to record in general ledgers
‣ Analyze root causes and eliminate
‣ Continually track and monitor
– Statutory versus US GAAP ‣ Establish US GAAP reporting as priority
‣ Train local resources on handling local and US GAAP
differences

Common Issues and Actions
Issues
– Purchase Accounting
– Accounting for Investments
– Complex Accruals
Potential Actions
‣ Develop clear polices and accounting guidance
surrounding these complex areas
‣ Align complex tasks with qualified resources
– Overlapping roles and
responsibilities
‣ Define governing, monitoring, validating, executing
tasks
‣ Clearly assign tasks and time-lines to organization
levels
– Non-integrated systems ‣ Develop a standardized reporting package with clear
standards for chart of accounts, accounting policies,
materiality and reporting formats
‣ Review utilization of consolidation software

Benchmarks and Better Practices
PwC Global BestPractices ® Survey Results – 2002
Manufacturing
Consumer
Products
Energy &
Telecom.
Others 2
Metrics Median Best 1 Median Best 1 Median Best 1 Median Best 1
Days to close
the books
8 1-5 7 1-4 10 1-9 6 1-4
Work hours to
close
200 8-45 52 1-32 553 72-
231
159 1-22
Earnings
release
48 15-17 27 18-25 37 20-27 40 15-33
Form 10Q 45 30-43 45 45 40 30-40 45 40-44
Form 10K 75 30-58 90 74-90 75 45-75 90 60-83
Annual Report 75 40-61 90 22-82 90 60-90 90 90-90
1
Depicts the range of responses in the upper quartile - top 25% of the industry group
2
Others includes – commercial services, financial markets, real estate, insurance, healthcare, and
nonprofit/government industry groups

Experience - Better Practices
Timing of Close Activities
Day Activity Completed
Close Activity
Best Practice*
A/P
-1
Payroll
-1
Fixed Assets
-1
Intercompany
-1
A/R
.5
SG&A Accruals
1
Revenue
1.5
Inventory / COGS
2.5
Corporate Ledger
3
Consolidation Activities 3-4
Management Review
5
Qualitative Attributes
• Intelligent use of accruals and estimates
• Investigate and resolve errors and rework
• Automate or eliminate manual entries
• Identify and eliminate non-value-added
activities and duplicate data entry
• Utilize materiality thresholds
• Move work away from month-end
• Streamline transaction processes
• Optimize existing system capabilities
• Clear accountability, enforced deadlines
• Close performance metrics reported
• Clear and regular close communication
• Cross-trained finance personnel
• Continuous process improvement
*Best Practice is based on PwC experience with successful Five Day Closes at large multi-national companies
using legacy financial information systems.

Another Lever for Success - Standard Chart of Accounts
Benefits of a SCoA:
Set Up:
• Standard set of rules
Collect the Data:
• Make data entry as fool-proof
as possible
Possible Obstacles;
• Inflated CoA
• Flexibility
• Local “musts”
• Local experience
Data Transfer
• No map & merge
Together with process reengineering,
a standard chart of accounts reveals its full potential.

Benchmarks and Better Practices
Characterized by real-time approvals and hand-offs of data between
organizational layers via a single consolidation system.
Best-in-Class Characteristics
‣ Operating units submit into single
application for consolidation
Corporate
Consolidation
‣ Accounting layers are
coordinated among tasks that
govern, monitor, validate, and
execute
‣ Financial applications support
management information needs
while efficiently compiling data
between levels
Consolidation System
Review &
Oversight
Business
Unit
Management
‣ Top-side entries are used
sparingly and not to correct
source data
Data Upload and
Consolidation
‣ Data is immediately available for
analysis and review by the
appropriate group
‣ Centralized oversight over
changes to chart of accounts and
application maintenance
Operating
Operating Unit
Unit Operating
Unit Unit / Legal
Entity
Review &
Oversight
Regional
Product Line
Management

Quick Wins
Days
To
close
Team
Process
Technology
Process
management
Many
companies
are here
Process
changes
Technological
changes
Lower
effort

Agenda
Fast Close – Overview
Process Management and
Changes
Fast Close with
mySAP Financials
Summary

Quick Wins
Days
To
close
Team
Process
Technology
Process
management
Many
companies
are here
Process
changes
Technological
changes
Lower
effort

Efficient Use of Resources
Set
Up
Collect
Data
Close
Sub-
Systems
Close
The
Books
Data
Transfer
Consolidate
Analysis
Adjustments
Reporting
Communicate
Define critical
path
Enhance collaboration between
group and subsidiaries

Move Timeline for Critical Activities
Receivables
Payer
Financial Supply Chain Management: Biller Direct
Create
Bill
Send
Bill
Create
Paym.
Remind.
Send
Paym.
Remind
Dunning
Reconcile
A/R
• Faster invoice receipt
• Better statements for accruals
Biller
Receive/
Download
Bill
Check
Bill
Dispute
Bill
Payment
Order
Archive
Bill
Payer

Beyond Budgeting: Complete or Relevant Data?
Set
Up
Forecast
Collect Data
Close
Sub-
Systems
Reporting
Policy
Close
the
Books
Data
Transfer
Communicate
Consolidate
Analysis
Reporting
Reporting
Policy
• Earlier and more accurate figures for reporting policy
• Allows accruals with better approximate values
• Informs Management
• Informs stakeholder
Information Supply Chain Management
• Allows you to close the books sooner
“There‘s almost nothing you can‘t fix
if you know about it far enough in advance.”
(J. Chambers, CEO, Cisco)
t

Rolling Forecast – Timely Information from Source
Shortened Planning Cycles by
Easy adjustment of financial plans to changes in
business environment
Efficient coordination of planning process via
top-down and bottom-up planning
Integration: aggregated planning for affiliates
Customer Quote
“Considering the fact that most companies close only on a monthly basis,
that means a problem can exist within a company for nearly 40 days, possibly
bleeding resources before the problem can be identified and fixed.”
Richard T. Roth, The Hackett Group

Intercompany Reconciliation – An Ongoing Activity
Reductions in Time and Effort
Option to move this activity off the critical path in
local close
Reconciliation across multiple SAP or
even to 3rd party system
Easy and successful collaboration
• Automatic assignment of IC postings
• User-specific settings
• Follow-up functions
Customer Quote
“The time required for IC reconciliation could be reduced by 50% although
the volume of IC transactions increased significantly.“ SAP AG

Stepwise Success
Efficient Changes in Process Management
• Common Chart of Accounts
Set up standard set of rules
Make data entry as fool-proof as possible
Data Transfer: No map & merge
• Common set of basic data,reports and KPIs for
Multiple local accounting principles
Local information needs
• Move Timeline for critical activities
Make them ongoing activities
• Efficient use of resources
Enhance collaboration between subsidiaries
Develop closing manual

Agenda
Fast Close – Overview
Process Management and
Changes
Fast Close with
mySAP Financials
Summary

Financial Portal Solutions – A Collaborative Platform
Efficient Collaboration by
Streamlining Processes and Information Flow
Up-to-date, role-specific information and
personalized views
Independency of time and geographical zones
Integration of diverse systems, applications
and services
Customer Quote
“We wanted to establish a state-of-the-art communication forum for finance
and accounting to improve performance and quality of financial processes,
increase knowledge sharing in the corporate finance function, and strengthen
the group’s financial community worldwide”.

Portal – New Information from Headquarters

Rolling Forecast – Timely Information from Source
Shortened Planning Cycles by
Easy adjustment of financial plans to changes in
business environment
Efficient coordination of planning process via
top-down and bottom-up planning
Integration: aggregated planning for affiliates
Customer Quote
Planning has become simpler and more effective, inconsistencies can be
spotted earlier and more easily, and evaluations and comparisons can be
undertaken any time without any problems.
Henkel KGaA

Rolling Forecast (Sales Manager of SBU Software)

Schedule Manager – Automated Process Flow
Acceleration by Enhanced Process
Management
Standard closing template: do the right things
everywhere
Minimize errors and reduce time delays by
bundling / automation of closing activities
Doing things right: Automated collaboration in
workflow and interactive processing for
quick error correction
Customer Quote
“We decided to use SAP because our controllers can execute the period-end
closing within the SAP R/3 environment more efficiently. We achieved a time
reduction of 25% in the closing process.” Zeiss Optronik

MyClosing Schedule – Local

Easy Flow Definition for Complex Process Steps

Intercompany Reconciliation – An Ongoing Activity
Reductions in Time and Effort
Option to move this activity off the critical path in
local close
Reconciliation across multiple SAP or
even to 3rd party system
Easy and successful collaboration
• Automatic assignment of IC postings
• User-specific settings
• Follow-up functions
Customer Quote
“The time required for IC reconciliation could be reduced by 50% although
the volume of IC transactions increased significantly.“ SAP AG

Intercompany Reconciliation

Speedy Accruals
Automation Increases Data Quality
Adapt recurring postings easily due to new
requirements
Calculate accrual amount for multiple GAAPs
Various accrual types: Stock options (integration
with HR and CFM), Insurance, Invoices
Consultant’s Quote
“Where quick wins can be found to immediately improve cycle time:
Make subjective judgement decisions, such as provisions and accruals,
prior to the month end.” PWC, 2002

Accrual Engine – Preparations I
1. Invoice
to be
accrued
2. Selection
Screen:
Upload (Trans:
ACACDATATR
ANS)
3. Results List
after Upload Run
4. Accrual Object
after Upload Run
5. Accrual Engine:
Opening Posting
after Upload

Selection Screen – Start Periodic Accrual Run

Results List of Periodic Accrual Run

Accrual Object after Upload and Periodic Posting

Business Consolidation
Integration of Statutory and Management
Consolidation
Timeliness and quality assurance
• Local data perfectly prepared for consolidation
• Streamlined data collection
• Direct access by subsidiaries and subgroups
• Automatic postings
Collaboration in one graphical monitor:
User-friendly, efficient control of progress
High degree of transparency: complete audit trail
G1
A G2
B C D
A
80%
75%
B
60%
C
D
Customer Quote
„ SAP SEM-BCS enables you to load data from all kinds of legacy systems.
This minimizes the amount of manual adjustment postings, and thus
shortens the overall closing process considerably. After implementing SAP
SEM-BCS, we now need eight days for our monthly close (incl. two days for
the corporate closing.“
Degussa AG

Data Transfer to Consolidation (Local Accountant)

Validation of Reported Data (Local Accountant)

All tasks Are Completed (Local Accountant)

MyClosing Schedule – Corporate

Financial Statements and Management Reporting
Consistent External and Internal
Reporting – out of One Data Base
Financial Statements and Notes
Drilldown from group results to local details
Optimal decision support
• Alert-driven view of key success factors
• Graphic-driven performance analysis
• Actual performance, trends, and forecasts
• Alignment of strategy with operations
Customer Quote
„The SEM Solution is the foundation for management reporting and our
quarterly and annual reports. It ensures that our managers have access to
consolidated results and planning information based on the same, accurate
data.“ The Coca-Cola Company

Management Cockpit – 4 Walls

Management Cockpit – 6 Views

Management Cockpit – 6 Frames

Agenda
Fast Close – Overview
Process Management and
Changes
Fast Close with
mySAP Financials
Summary

Fast Close – Powered by mySAP Financials
Functionality for Fast Close
Collaboration via Financial Portal Solutions
Enhanced Process Management
Accelerators such as IC reconciliation
Business Consolidation
Highly-integrated, powerful reporting
Integration
Standardization
Automation
Collaboration
Auditability
Benefits of the SAP Solution
Speed and transparency
Better decision support
Competitive advantage

Q and A
Questions?

Instructor Contact and Additional Information
SAP Solution Management
• David Nelson – david.e.nelson@sap.com
• Andrea Anderson – andrea.anderson@sap.com
PwC
• Stephen Eddy – stephen.d.eddy@us.pwc.com
• William Shipley – william.shipley@us.pwc.com
• Brian Parker – brian.parker@us.pwc.com

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