Multinationals Need Procedural Update for SEC Reporting Change

March 9, 2004 ( - Four in 10 US multinational companies will have to do some major procedural housecleaning in order to meet new US Securities and Exchange Commission (SEC)'s accelerated quarterly and annual corporate reporting requirements.

Another 50% expect to meet all requirements without too much muss and fuss, according to PricewaterhouseCoopers’ Management Barometer. The new reporting rules, to be phased in over the next two fiscal years, will ultimately require companies’ quarterly reports to be filed 35 days after a quarter’s end and annual reports to be filed 60 days after year-end. Currently, companies are allowed 45 days for the quarterly 10-Q reports and 90 days for the annual 10-K.

To meet the new regulations, 59% of respondents reported they can just use their existing reporting systems more effectively; a third will upgrade those systems and 8% will have to sink a lot of money into new information technology.

“Companies will need faster and better-managed month-end closing procedures to meet the new timetables,” said PricewaterhouseCoopers Partner, Tom Watson. “The SEC has been pushing for accelerated filings as a way to improve investor confidence in the wake of corporate and accounting scandals. As the SEC focuses in on speed, it will also expect management to provide higher levels of accuracy in the numbers, to display a better understanding of the results, and to communicate those results in much richer detail.”

Many of the company executives said the change isn’t going to be easy. Nearly half (46%) of the 177 surveyed executives expect their company will encounter challenges, while 42% foresee no problems. The greatest concerns are:

  • 29% cited cross-company issues,  including inconsistent closing and analytic activities, 19%; lack of consistent account definitions, 12%; and lack of common financial measures, 8%
  • ineffective closing and/or reporting processes, 25%
  • ineffective IT infrastructure, 21%.

Complicating the conversion process, although 72% of respondents have standardized companywide policies and procedures for closing the books in all business units, a fifth say their policies are only “somewhat” standardized and may differ from one business unit to the next. Five percent say their policies are all over the map.

Also, 10% say roles for business units, geographic regions, and functional finance leaders are not clearly defined, while 86% cite clear accountability for financial information throughout the organization. Only about a third (28%) of large companies use a closing and reporting process that is almost entirely automated, while 45% need to manually supplement their system’s outputs, and 22% still have substantial parts of their closing process that are not automated, according to the survey.

Nearly three-fourths (72%) of senior executives say their financial information is received in a timely manner. However, 13% cite problems with timing, including 8% who would like more time to look over the numbers, and 5% who say they receive data up to the last minute. Three-fourths (75%) have formal “flash” reports to get an early heads up of performance before the closing is finalized. Another 12% see “draft” numbers at various points throughout the close, but without a formal process, while one in ten say the first number that executives see is the final number.

Executives also cited potential benefits their company would seek to achieve from improvements to their closing and reporting process:, including:

  • more time for analysis and review of reported information, 67%
  • increased quality of financial information, 55%
  • a more timely and accurate decision-making process, 48%
  • better information from existing systems, 35%
  • process alignment and improvement, 24%
  • improved credibility in the market and within the organization, 18%
  • improved staff awareness and satisfaction, 14%
  • improved shareholder confidence,   6%.