Maneesh Chhabra

Trends in IT for Financial Services: Increasing Transparency and Accountability

The demands on financial institutions are two-fold: increase transparency, and do more with less. Modernizing IT systems and creating centralized accounting platforms and single sources of truth can help meet both demands.

by Maneesh Chhabra, January 2013

Financial statements of large banks are opaque and do not provide an accurate, complete picture of the business: this perception appears to be growing. Regulators are becoming increasingly active and demanding more transparency and disclosures. International Financial Reporting Standards (IFRS) for United States-based financial services entities is gaining pace. Externally focused segment reporting requirements are also likely to add to the already onerous reporting burden.

As a result, leaders in the finance function of large financial institutions are being asked to deliver on major transformation priorities. CFOs of financial institutions are focused on improving the scalability of the finance function’s systems and processes, enhancing data integrity and operational visibility for the business, and sustaining employee engagement while reducing overall operating costs. Heads of shared services and accounting operations are focusing on reducing the burden of manual and complex accounting processes such as reconciliations and intercompany transactions. IT leaders are also under pressure to do more with less by reducing system complexity and sprawl across the finance IT ecosystem.

Many financial institutions are modernizing critical parts of their financial data supply chain that originate in the source systems, travel to the corporate general ledger (GL), and then get transmuted for financial and management reporting paths. These institutions are deploying data governance initiatives and implementing next-generation finance and accounting platforms to enable their transformation journey.

Finance function challenges

Accounting operations and the financial data pathways leading into and out of the GL have grown over the years to integrate large number of source systems and accounting sub-systems in line-of-business (LOB) organizations. This ecosystem has evolved over the years to a point where a high degree of complexity drives some of the following pain points:

  • Finance systems architecture:  Multiple LOB-level accounting systems and source systems that push data into the GL, multiple data repositories, and extensive custom applications and integrations drive up the cost of finance IT.

  • Process complexity: Extensive manual processes, a large number of manual controls, and significant effort on manual reconciliations and adjustments cause upstream and downstream users of financial data to spend significant time collecting data instead of doing analysis.

  • Scalability and change management: Accounting rules are implemented in various source systems, which makes enforcing corporate accounting standards difficult and IT change management costly. This architecture reduces flexibility to respond to a changing regulatory and business environment; in addition, new acquisitions require more effort to be integrated.

  • Data granularity:  As the financial transaction data travels from upstream users (LOB source systems and division-level accounting systems) to downstream users (corporate general ledger, management reporting and consolidation platforms), it loses context and details. This lack of granularity adds to manual controls and increases error risks and audit costs.

  • Reporting and data credibility: Many institutions lack a single credible source of financial data and have limited self-service reporting capability, resulting in long lead times for new operating reports for the business. In addition, parallel data paths for finance, risk and management reporting can lead to meaningful differences in outputs that reduce data confidence and require additional work to reconcile.

There are a number of steps business and IT leaders can take to address these challenges. 

1. Establish a single source of centralized accounting truth

Thin ledger architecture at the corporate level reduces complexity and accelerates closing cycle times. However, the trade-offs involved in a thin ledger architecture can reduce flexibility and operational visibility for LOB and downstream users, who need to drill into additional details. Leading financial institutions are streamlining the data flow of financial data from source systems into the GL by deploying a single source of accounting truth that sits between various source systems and the corporate GL.

2. Reduce data breaks and improve drive transparency

The centralized accounting platform also enables drill-back from the GL to details in the sub-ledger/accounting repository to facilitate reconciliations. It should deliver enriched financial transaction with additional attributes and reference data to support various upstream and downstream consumers of the GL data.

3. Transform the reporting infrastructure

The detailed sub-ledger and accounting data repository can be exposed to business and downstream users through robust data warehouse and self-service reporting tools.

Forward-thinking managers at leading financial institutions are creating a single source of accounting truth for multiple external and legacy systems using business-user define accounting rules. These are based on a centralized accounting platform, significantly reducing manual effort on reconciliation and adjustments across the board. This will lead to improved time to market for operational reporting and enhanced data integrity, a reduced number of manual controls and error risk, and reduced IT costs. 

Maneesh Chhabra is a director of Industry Strategy and Insight at Oracle.