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Why you should take the “Flow” out of Cash Flow Reporting

Mar. 31 2020 by Patrick Jackman, Solutions Architect - CCH Tagetik North America

Performance Management Budgeting & Planning

To this day, with several Finance Transformation projects on my shoulders, I am still amazed by how challenging Cash Flow Reporting and Analysis is for certain organizations. I am referring to the most common and standard indirect cash flow analysis on an actual basis, without taking into consideration the tremendous capability that projected cash flow could inflate into the process.

Cash Flow Reporting is probably the area where I see many of my customers historically spending a tremendous amount of time building the cash flow statement and dedicating extremely little time to its analysis and interpretation. Reason why? Usually it boils down to two aspects:

  • Lack of automation: time-consuming manual tasks consume hours of desk time.
  • Lack of proper visibility: not having the right tools in place, it is hard to properly identify and track the exact account activity to reveal why a specific account balance has moved from an initial balance of $X to an ending balance of $Y. 

Luckily enough, both challenges above can be fixed relatively easy. But there are fundamentally two approaches to help financial organizations build their dreaded cash flow statements which I divide into the legacy solution approach and the CCH Tagetik approach.

Legacy solutions, or newer generations of legacy solutions for that matter, use a dedicated “dimension” called “FLOW Dimension” to host the account activity that then needs to be reported on a cash flow statement. In other words, many legacy or legacy-inspired solutions rely on a pre-defined system dimension that is dedicated to hosting the account movement to report, for instance, additions or disposals of a balance sheet asset account in order to track its activity within a month, a quarter or whatever reporting frequency is required. While this approach sounds elegant and effective, it presents instead critical limitations and unnecessary complexity:

  • Usually the pre-defined system-dedicated FLOW dimension is very “rigid” and cannot be modified.
  • Typically to by-pass the limitation of an inflexible flow dimension, many adopters of such solutions find workarounds and get around the limitation of pre-defined activity details. But these require customized coding, which impacts maintenance and upgrades as well as data integrity and quality. 
  • Having a dedicated dimension to host the movement or activity of any account adds serious complexity at the reporting level. You are basically over complicating the build of your indirect cash flow statements by having to map multiple dimensions to a reporting line. 

At CCH Tagetik, we use a different approach that based on my experience is much easier to maintain and immediate to understand as it follows a strict “accounting-first” approach. Instead of using a dedicated “Flow” dimension, we use a sub-dimension within our main Account Dimension.

Let me explain. Suppose we have a Trial Balance Account in our main Account Dimensions called “Building”. Through our Movement sub-dimension, we are able to:

  • Create as many movement elements within the main Account dimensions to track as many types of activities as needed and support the level of detail required for your disclosures. For example, the main TB Account ”Building” could be broken into Building – Additions, Building – Disposals, Building Write Offs, etc. No Limitations.
  • Built-In Financial Intelligence: since the additional movement accounts behave as any other standard account, the system will apply its financial intelligence also to the newly created accounts including user security, currency conversion, IC details, etc. No need for any unusual combination of dimensions. Consistency of experience.
  • Strict Data Integrity: through built-in diagnostics, CCH Tagetik will always check that the sum of your Initial Balance plus all the related movements will always equal the ending balance. No need for custom multi-dimensional validation logics scripted to check what in theory should be given for granted. Data Consistency. 
  • Smooth Reporting: just like the term suggests, by treating your account activity as any another standard account, to build a cash flow statement users will simply have to map the activity account to the required reporting line exactly as they would do for any other main financial statement. In other words, simply map your movement account “Building – increase” to the “Change due Additions” reporting line of your Cash Flow Statement and that is it. No need for crazy multi-dimensional mapping! Easy Maintenance 

Using a finance-first approach makes it easy for end users while guaranteeing strict data integrity.

Cash Flow Reporting and Analysis might cause a lot of headaches but the cure is simple: bring Cash Flow out from the cold and into the realm of the main Account dimension. From a maintenance, data integrity and financial intelligence perspective you won’t look back. Not to mention the hours you’ll save…

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