Reporting for Duty

Moving to more efficientfinancial reporting

www.pwc.co.uk

November 2013

PwC

Agenda

The pressure to move to more efficient reporting

Where do you start?

Where does it get tricky?

How can financial reporting teams add value?

Cultural challenges

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The pressure to move towards more efficientreporting

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What’s the rush?

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Time Cost Value

BoundariesEmployee

needs

Where do you start?

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Decompose a “year in the life” of the reportingfunction

Consider what youdo, and challengeyourself as to:

• Why you do it?

• When you do it?

• How you do it?

For all the finance functions (accounting, actuarial,tax, investments), map out exactly what happens andwhen.

In particular, focus on the handovers between teamsand generate a realistic view of what activities areundertaken and when.

Aim to find the critical path and dependencies.This critical path should be the foundation of yourproject plan for the reporting period.

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Why do you do it?

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Understand why you are producing the reports, and how additional value can becreated at each stage.

Analyse the reporting requirements

Agree the format

Understand the customer

Harmonise activities

Ensure accuracy through controls

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When do you do it?

What tasks can you move out of the busiest times of the year?

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When do you do it?

What tasks can you move out of the busiest times of the year?

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How do you want do it?

Set some principles and articulate clearly what you believe in as an organisation

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Efficient process

Roll forwards?

Approximations

Clear timeline

Multi-disciplinary team

Materiality calls?

Manual vs modelled

Controls

Late adjustments

Communication

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Plan for success

Treat every reporting cycle with the robustness of a project and produce

an robust plan, shaped around the critical path, ensure it is:

• Comprehensive - one plan to cover all teams

• Understood, shared and agreed

• Identifies handovers

• Talks a common language

• Has a contingency margin and time for reviews and sign off –

including your auditors!

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Where does it get tricky?

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Let me count the ways…

Handovers

Closing down models

Manual calculations (spreadsheets)

Tax calculations

Investment yields and data

Late adjustments and posting changes

Stakeholder management and sign off

Controls of systems

Analysis of results (spreading the load, work as a team)

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Handovers

Handovers between teams must be smooth and have a “no surprises” approach.

It is important to agree:

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• Be specific on when items get passed between teams – not justthe day, but also the time (morning, evening etc)

• Agree when deliverables are passed to the auditorTiming

• Prepare the data in a format that allows immediate processingby the receiver

• Be clear on the content and interpretation (e.g. are yieldsexpressed as an absolute, relative or ratio)

Contentand

Format

• An appreciation by the team of how deliverables link todeliver the end reports helps the error management andensures the right priority call is made to quickly resolve issues.

Work asone team

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Closing down models

Models (including spreadsheets) should be worked on off the “critical path” and

be ready prior to year end reporting:

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• Lock down models early. You don’t want to be makingchanges live in a year end. This includes spreadsheets.Timing

• Quantify, understand, justify and review the impact ofmodel changes well ahead of final year-end runs. Thisfrees up model capacity.

Understand

• Think about when to set assumptions.• There is more flexibility in long-term assumptions

(demographic) in terms of setting the basis early.Parametrise

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Manual calculations

Spreadsheet calculations are not necessarily a bad thing if used proportionally,

but they must be treated with rigour.

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• Make sure you know what each spreadsheet does and why itdoes it

• Lock it down so it can’t be corruptedControl

• Consider the materiality level to validate the need for amanual adjustments

• Be proportionate to get a fair balance between accuracy andprocess efficiency

Materiality/

accuracy

• Ensure there is a robust control over the aggregation processto show that manual results are properly added to modelledresults

Aggregation

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Tax calculations

Life tax calculations can be complex and the data sources are not always readily

available from the systems for the reporting team.

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• Ensure that definitions are clarified, agree the datasources and approximations for any systems gaps

• Agree the format of the inputs and outputsFormat

• The tax team should be part of the analysis of results.• Investment should be made to understand the drivers of

the tax movements.

Analysis ofresults

• Understand the drivers of the tax balances• Know how sensitive results are to tax

Clarity andapplicationof impacts

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Investment yields and data

This is a common source of delays.

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• The close of the investment data is an early milestone in the criticalpath. Any delay can affect the entire timeline.

• Make sure the plan is realistic and the controls effective.Timing

• Be specific on format and agree any change ahead of the close.Work on the ‘no surprises’ for the receiving team.

• Work effectively and regularly with any third party providers ofdata to anticipate and control any change.

Contentand

Format

• Understand in advance how sensitive actuarial liabilities are to theyield data, and consider adding prudence if data is unreliable.Sensitivity

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Late adjustments and posting changes

Inevitably, there will be late adjustments and changes. A good project plan will

allow you to take these in your stride.

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• Have windows set aside to bring in late changes, and loadthem in batches.Timing

• Have a robust process for tracking what changes were broughtin, including why and when, between successive draft results.

• Hold debrief reviews post the close period to target areaswhere data and process improvements are required.

Changecontrol

• Ensure good communication between the multi disciplinaryreporting team so that late changes can be understood andevaluated with materiality in mind

Talk

How can financial reporting teams add value?

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Adding value through the reporting team

“No surprises” approach topublished numbers

An efficient reporting function ensuresnumbers are reported accurately and ina timely manner.

In the current climate, restatements areheavily scrutinised and immediatelyattract negative press.

“Insights into the business”

Strong analysis of the company’sfinancial position means management:

Know where the progression of thebusiness is at any particular time

Can make considered decisions (e.g.about which products to sell, whichmarkets to target)

Can secure a better return on capital

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“Reputational risk is without doubtthe key area that will threaten theinsurance industry in the

foreseeable future.”General Manager of Australian Insurer,Insurance Banana Skins Survey 2011

Adding value through the reporting team

Clear communication with themarkets

The more clearly you can articulate yourstrategy and financial position to themarkets, the better the support offeredfor the share price.

This becomes increasingly importantwhen investors and analysts need toreconcile and understand therelationship between IFRS, emergingSII, FSA reporting etc.

Meet the pace of regulatorychange

An efficient reporting team means thatthere is more time to invest in meetingthe pace of regulatory change.

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“The biggest risk is the sheer level ofregulatory change that is convergingat the same time – a changeprogramme no sane companydirector would take on in that periodthrough choice”CEO, Partnership UKInsurance Banana Skins Survey 2011

Cultural challenges

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Cultural challenges

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Team structure

• Working together as amulti disciplinaryteam helps theefficiency of thereporting.

• Consider the merits offorming a ‘virtualreporting team’ undercommon governanceand management tobreak down barriersbetween the financedisciplines.

• Keep the reportingteams close together.

Education

• Making people awareof what happens in theentire reportingprocess increasescollaboration,prevents tension andassists greatly in errorhandling.

• This can be achievedthrough appropriatetraining andeducation.

Communication

• Probably the mostimportant part ofany reportingprocess.

• Keep an opendialogue betweenkey individuals andteams.

• Aim to smooth thetransitions betweenreporting teams.

Cultural challenges

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Updates

• Track progressagainst plan. Somecompanies havebenefitted from daily“war rooms” in keyperiods, with keypersons from eachteam meetingtogether.

• Address issueseffectively, makepriority calls andkeep the processmoving

Cross training

• Consider crosstraining betweenindividuals andteams. It reduces keyman risk, and givesindividuals a betterappreciation forwalking a mile intheir colleague’sshoes!

Reward success

• The motivation of theteam will significantlyimpact theeffectiveness of thereporting process.

• A system whichcelebrates andrewards success willact as an incentive forindividuals toperform at thehighest level.

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Summary

Not rocket science, but easy to overlook

Consider the basics: what, when, how and why

Work collaboratively and get people engaged

Find the critical path, smooth the handovers and manage the dependencies

Build a credible plan and track against it

Leverage your knowledge of the business to avoid pitfalls

Recognise and celebrate your own success

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This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publicationwithout obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to theextent permitted by law, PricewaterhouseCoopers does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance onthe information contained in this publication or for any decision based on it.

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