Remove Metrics from Financial Statements

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Remove Metrics from the Financial Reporting Package

Creating metrics for the financial statement reporting package can add hours of work to the closing process, since metrics usually require some manual data gathering or calculations. Of particular concern is the amount of user feedback that can arise when metrics are issued, because recipients do not always believe the results and demand a recalculation or reformulation of the underlying equations.

There are several ways to deal with the metrics reporting problem. The simplest approach is to separate the metrics from the standard financial statements, offering to issue them in a separate report whose release is timed to be outside the core closing period. This approach will be especially amenable to recipients if the metrics are issued more frequently, such as in a weekly report.

An alternative is to still issue metrics with the reporting package, but only for a few metrics that are most crucial to driving the success of the business. This approach eliminates many metrics and the labor required to create them, while also focusing management attention on only the ones most critical to company success.

To arrive at the best possible short list of key indicators, it is necessary to conduct periodic review sessions with the management team, not only to verify the need for existing metrics, but also to see if changes in underlying business conditions will allow for the elimination of some metrics and the addition of others. The most important metrics tend to be a mix of financial and operational measures; examples include the percentage of discounts given to customers, margins by product line, scrap rates, and warranty claims as a percentage of sales.

Yet another approach to the handling of metrics is to permanently remove them from the reporting package, instead posting them on a company intranet site where users can post commentary on the metrics for later perusal by the accounting staff. Other useful features for such a site include a drill down capability to allow users to determine the detail behind the metrics, and an ad hoc query capability so they can run additional analyses by themselves. By rapidly posting and updating metrics information, management can more quickly initiate changes to improve the operating and financial results underlying the metrics.

Podcast

There are multiple discussions about the fast close in Episodes 16 through 25 of the Accounting Best Practices podcast.