April 2016 Financial Accounting Advisory Services Improving your finance function effectiveness Establishing a Center of Expertise framework for your teams Finance functions in many companies are evolving to become more efficient, effective and a better partner to the business. At the same time, stakeholders expectations of a modern finance organization are increasing. As first generation shared service centers (SSCs) continue to mature, their teams transactional process focus is expanding to deliver more complex and technical tasks. As these teams increase their financial reporting and accounting competencies, it is efficient for them to complete these tasks across the entire group and act as a centralized capability center, often known as a Center of Expertise (CoE). The finance function is responsible for a wide range of activities from bookkeeping and technical accounting knowledge to management reporting and data analysis, providing insights for stakeholder decision-making. Each of these tasks requires deep knowledge and typically they have been assigned to a responsible person in the core finance function, leading to resourcing constraints. As companies expect their finance functions to develop to do more than just report the numbers, creating an organization to meet these needs is a key priority on the CFO s agenda. The key challenge companies are facing is realizing a functioning operating model for each area within the finance and accounting function, while ensuring process quality and employee acceptance. We can assist clients in identifying and realizing sustainable cost savings and process improvements from bundling and centralizing finance and accounting expertise processes into a CoE within the framework of a modern finance organization.
Companies can transform their financial operations by bundling processes and service Many companies will have centralized some finance and accounting processes and procedures to improve efficiency, and some of these will have set up SSCs. In more mature finance organizations, the teams in the SSCs are moving beyond their transactional focus and are bundling and centralizing complex and more technical tasks. In this next phase of development, finance organizations are looking to centralize the teams providing these essential service functions and the more complex tasks, like finance and accounting, into CoEs, aiming for substantial additional savings from economies of scale and scope. The key objectives are to reach a functioning operating model and a positive business case while helping ensure quality, employee acceptance and speed. We can assist you in developing a CoE framework to meet your organization s needs. What can you expect from our team? We can: Model and set up CoEs for finance and accounting Provide you with an experienced project management team and relevant, practical experience from CoE implementation in comparable corporate structures Provide in-depth functional and process insight, and support you to design a new, integrative CoE model and processes Identify areas for improvement that benefit the overall project and secure efficiency targets Foster stakeholder and employee acceptance, and provide implementation support Performance level Robust planning Implementation Change the mindset Stabilization 2 Improving your finance function effectiveness April 2016
Governance for the CoEs determines critical design questions As you consider the organizational design for your CoE structure, we can help you to review the interaction between profit centers, foreign entities and the central CoEs. This can be evaluated on the basis of central themes such as: Divisional integrity: balancing of division with country requirements and group targets Organizational centralization: bundling of CoE organization and resources in physical locations Business proximity: enabling business partners (BPs) working in CoEs Options include the decision to assign country-specific tasks to employees or to assign to divisional experts within your organization. Profit center-based accounting Divisional accounting platform Country accounting platform Profit center Head of accounting Profit center Head of accounting Profit center Head of accounting Profit center accounting BP Central CoE accounting Accounting platform generation BP Area 1 Area 2 Area 3 Area 4 Accounting platform Area 1 Division 1 Division 2 Division 3 Division 4 BP BP BP BP Divisional integrity Division 2 Division 3 Division 4 Area 2 Area 3 Area 4 Organizational centralization Divisional integrity Divisional integrity Business proximity Organizational centralization Organizational centralization Business proximity Business proximity Improving your finance function effectiveness April 2016 3
How can you ensure an accurate assignment of responsibilities between your CoE and adjacent functions? We apply the responsible, accountable, consult and inform (RACI) model in order to help you define responsibilities between the different CoEs, corporate functions and the SSC. Detailed CoE roles have to be defined and depend on the future accounting steering model. As a next step, process ownership and roles have to be defined, taking account of the specific financial reporting and accounting areas you are looking to centralize in the CoE. We suggest that you define the responsibilities in this model when establishing the CoE organization. In time, this can be used to review and decide upon a further shift of responsibilities to the SSC. No Process level 5 Activity level 6 Responsibilities Comments CoE 1 CoE 2 CoE 3 1.1 Local GAAP closing process Manage local GAAP closing process (closing cockpit) Local GAAP period-end activities Local GAAP closing postings Computation of deferred taxes Audit support Quality assurance C 1.2 Group GAAP (e.g., IFRS) closing process Manage group GAAP closing process Group GAAP closing postings Computation of income taxes and deferred taxes C C Audit support Quality assurance 1.3 General ledger (GL) closing provisions for local and group GAAP Regular personnel provisions (Human Resources (HR) non-ssc) Other personnel provisions Other provisions, including quality assurance C R = responsible, A = accountable; C = consult; I = inform 4 Improving your finance function effectiveness April 2016
How to streamline the CoE s organization efficiently We have developed a number of tools and enablers, which we use in delivering our services. These tools support us to help you: Reduce process time and improve data quality because of a higher degree of automation Achieve cost savings by automating processes such as validations, data entries and closing activities Improve corporate governance, compliance and transparency by the deployment of standardized tools for single and group closings IT enabler Intelligent consolidation interface Value delivered Provision of support when client validates data (e.g., partner information, transaction type) within the transactional system through validations, field status groups and a consistent design of the chart of accounts Automated data flow between the transactional system and the consolidation Multiple sub-group consolidation Advanced reporting Set up of a group-wide consolidation system that allows multiple sub-group consolidations Data package harmonization Automatic collection of quantitative and qualitative data required for financial closing Automatic creation of business reports containing all of the quantitative and qualitative information required Financial closing cockpit for single closing Planning, execution, supervision and analysis of single closings Automation links closing processes into manageable groups Automated alerts notify users for error remediation and escalation Dependency-based event chains support faster processes Files of critical close data stored for audits and reporting purposes Real-time intercompany reconciliation Direct access to open accounts and their balances No batch upload within the central system required Real-time matching possible No batch matching required Financial close management KPI-based analysis of the financial close Analysis of open, deficient and late tasks Full integration to the financial closing cockpit Improving your finance function effectiveness April 2016 5
Change and transition As the new finance organization develops, you can expect to see a more structured approach for people development with clearly defined roles and career steps. The new accounting career model consistently develops people from an accounting expert to a business partner and enables a change in your team s mindset along each step. Current accounting roles 1. Bookkeeping 2. IFRS knowledge General ledger postings Closing coordination Alignment sub-ledgers Hedge accounting Revenue recognition Asset amortization Cash management Accounting principles Property, plant and equipment Valuation of investments Financial instruments Pensions Other provisions Deferred taxes Finance activities Pricing and profitability Product portfolio optimization Plant productivity improvement Selling, general and administative (SG&A) cost management Working capital management Capital investment management Consolidation and financial reporting Root cause analysis and commenting IFRS notes Statutory reporting Management reporting Functional reporting 4. Decision support 3. Reporting and insights New accounting roles Roles Role description 4. Business partner Supports the business in the decision-making process regarding revenue management, margin management and capital management. 3. Financial analyst Focuses on financial reporting from a group and management perspective. This requires a deep understanding of statutory reporting with a close link to management reporting. 2. IFRS expert Focuses on accounting principles that require a deep understanding of specific IFRS statements and underlying evaluation guidelines. 1. Accounting expert Supports with closing procedures, financial statements, processes and basic accounting techniques. A deep understanding of reconciliation to management accounting. Accounting career model 6 Improving your finance function effectiveness April 2016
Practical experience Global network Establishing a CoE could help improve your finance function efficiency and effectiveness. EY has the experience of working with multinational groups and helping them overcome the complexities that can face their finance function. We have a global network of accounting professionals providing audits of financial statements, as well as accounting and IT process-related support, and they understand the challenges and issues you are facing. Good practices We can provide comparisons and examples of good practices to prepare and support the business case for the new structure. Tools and supporters Additionally, through our experience in supporting global businesses, we have developed a number of tools and supporters that we can use to help you to achieve your objectives from bundling and centralizing your finance and accounting teams and processes. Overall EY assists you to reach a functioning operating model and a positive business case while helping to ensure quality, employee acceptance and speed. Why EY Establishing a CoE could help improve your finance function efficiency and effectiveness. EY has the experience of working with multinational groups and helping them overcome the complexities that can face their finance function. We have a global network of accounting professionals providing audits of financial statements, as well as accounting and IT process-related support, and they understand the challenges and issues you are facing. We can provide comparisons and examples of leading practices to prepare and support the business case for the new structure. Additionally, through our experience in supporting global businesses, we have developed a number of tools and enablers that we can use to help you to achieve your objectives from bundling and centralizing your finance and accounting teams and processes. Contacts: Ev Bangemann FAAS ev.bangemann@de.ey.com +49 6196 996 2673 Myles Corson FAAS myles.corson@ey.com +1 212 773 3000 Peter Krzyzanowski FAAS peter. krzyzanowski@de.ey.com +49 6196 996 12659 Certain of our services for an audit client and its affiliates may be more limited in order to comply with applicable independence standards. Please reach out to your EY contact for further information. Improving your finance function effectiveness April 2016 7
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