How financial reporting runs, step by step

Financial reporting runs from the ledger outward. Each business unit closes its books and produces its own statements. A central team then consolidates those results into group statements and turns them into board packs, shareholder filings and regulatory returns. A review and sign-off sits at every handoff.

The steps in order

1. Close the subledgers and post to the ledger. Unit accountants. Payables, receivables, payroll, fixed assets and revenue feed summary entries into the general ledger. Anything still open in a subledger at cutoff gets chased before posting stops.

1. Book accruals and manual journals. Prepared by unit accountants, approved by the unit controller. Costs incurred but not yet invoiced go in here. So do revenue earned but unbilled, estimated liabilities and allowances for doubtful debts. Each manual entry needs supporting evidence and a named approver.

1. Reconcile balance sheet accounts. Account owners, often spread across treasury, payroll and the asset team. Bank balances are agreed to statements. Intercompany positions are agreed with the counterparty. The fixed asset register is agreed to the books. Differences nobody can explain go back to whoever owns the source system.

1. Prepare business unit financial statements. The unit controller. The trial balance is mapped to statement lines to produce an income statement, balance sheet and cash flow for the unit.

1. Review management reports with the business. Unit finance partners, sitting with operational managers. Actuals are compared against budget and forecast. Variances get explained in commercial terms. Corrections found here loop back to the journal stage, which is where many closes slip.

1. Submit unit results to group. The unit controller. Figures are loaded into the consolidation tool and certified as complete. Intercompany balances are declared at this point, and mismatches start to surface.

1. Perform legal and management consolidation. The group consolidation team. The legal view follows the ownership structure. It covers currency translation and minority interests, and it eliminates intercompany trading and investments. The management view rolls results up by segment or product line, which can cut across legal entities. The team has to reconcile these two views to each other.

1. Draft group statements and disclosure notes. Group financial reporting. Primary statements and footnotes are written up. Every figure is traced to the consolidated trial balance before anyone outside finance sees it.

1. Review consolidated cost and performance reports. Financial planning and analysis, alongside the group controller. Costs are analysed by cost centre, project and segment. Questions raised here can still trigger late adjustments.

1. Prepare statements for board review. Drafted by the CFO's office, reviewed by the audit committee. The pack pairs the numbers with commentary on performance, key judgements and significant estimates.

1. Produce periodic filings and shareholder reports. Financial reporting, working with legal, investor relations and the company secretary. External auditors review or audit. Interim and annual reports are drafted, tied out and approved for release.

1. Produce regulatory reports. Regulatory reporting or compliance specialists. Tax authorities, statistics agencies and sector regulators each impose their own templates and definitions. These returns are often extracted separately from the ledger, so they need reconciling to the published figures.

Where the documented version and the real one part ways

On paper, each step finishes before the next begins. In practice they overlap heavily. Consolidation often starts on preliminary unit numbers. Board commentary gets drafted while late journals are still arriving.

Spreadsheets fill the gaps between systems. A mapping table, an intercompany matching file or a currency rate sheet may sit on one person's drive and carry more weight than any tool in the official design.

The management and legal views also tend to drift apart. When they do, someone builds a bridging schedule, and that schedule quietly becomes part of the process.

Questions to ask the people who run it

• Which numbers do you start working with before the official handoff, and where do they come from?
• What happens when a unit submits late or resubmits after group has started?
• Which spreadsheets would stop the close if they disappeared tomorrow?
• How are intercompany differences actually settled, and who has the final word?
• Where do management and legal figures disagree, and who reconciles them?
• Which journals get posted after the unit has certified its results?
• What do auditors ask for every time that is not already prepared?
• Which regulatory returns are built outside the ledger, and how are they checked against published figures?
• What step would you remove if nobody objected?
• Who do you call when something does not tie, and is that person written down anywhere?

APQC's Process Classification Framework® (PCF) is an open standard developed by APQC, a nonprofit that promotes benchmarking and best practices worldwide. To download the full PCF or to view definitions and measures, please visit www.apqc.org/pcf.