Note disclosures are an important part of the SEC financial reporting process. They provide mandatory information for internal and external regulatory bodies to fully understand the context behind the numbers in financial reports. For example, a manufacturing company could feature a note disclosure on how it measures the cost and value of inventory, so stakeholders looking at inventory numbers on a financial report can fully understand the breakdown of the figures they are seeing.
Footnote disclosures are often generated and updated manually, which makes creating them and keeping them up-to-date extremely time consuming, tedious and inefficient. In this blog, we’re going to explain the bottlenecks of this workflow, why this process is risky for companies and how Limelight, a cloud-based solution can help solve these issues through automation and integration.
Using Excel to Collect Notes Disclosures
External Reporting, SEC Reporting and Accounting teams strive to ensure that their SEC reporting note disclosures meet the requirements of internal and external regulatory bodies, are accurate, well written and delivered on-time within the deadlines issued. But when they are using Excel to achieve this, they often encounter significant bottlenecks that risk their ability to meet their goals.
Here are some of bottlenecks they encounter:
- Working with Multiple Excel Workbooks - When multiple people are working in silos of spreadsheets, data can easily be entered incorrectly as well as become quickly outdated. Thus, teams must continuously verify that the data used to calculate financial ratios and metrics are truly accurate.
- Using Email to Share Drafts - Having to email Excel sheets back and forth means that key information can be lost, putting the onus on the SEC & accounting team to have to double and triple check that the note disclosure information being presented is correct.
- Lack of Visibility - With Excel, there is no easy way to track when business units have started on their note disclosures or what changes have been made.
The Cost of Manually Preparing Note Disclosures for Financial Reporting
As a result of these bottlenecks, companies experience:
A Significant Time Drain on Their Team
Each and every manual step in the process takes valuable time and resources away from your accounting and SEC Reporting team. Instead of focusing on analyzing processes, these team members must devote their energy towards manually collecting, verifying, and updating note disclosures.
A Propensity Towards Errors in their Note Disclosures
A workflow that relies on human eyes & intuition in order to eliminate numerical, formulaic and formatting errors for each and every report and note disclosure, is inevitably going to lead to errors and missed regulatory requirements. No matter how meticulous your team is, employees balancing multiple deadlines, reports and regulatory requirements are not in the best position to be spending their time combing for and preventing errors.
High Potential of Unintentionally Damaging their Reputation & Corporate Standing
When note disclosures are not generated properly and mistakes are made in presenting vital information to key stakeholders, the reputation of the company and its team are placed in a precarious position. The risk of regulatory requirements not being met and stakeholders given erroneous or misleading reports is too great to overlook.
Manually performing your financial disclosures has deep, long-term consequences, as pointed out in this post by Toppan Merrill:
Delays and mistakes in SEC financial reporting can have far-reaching consequences for companies and even for their shareholders.
- SEC Enforcement reviews, actions, and penalties
- An SEC comment letter, demanding a time-consuming and expensive response
- A required filing amendment, including financial restatements
- A drop in the company’s stock price
- Complications with the company’s stock-exchange listing
- Unfavorable scrutiny by analysts
- Loss of short form (S-3) eligibility and well-known seasoned issuer (WKSI) status
A study reported by The Wall Street Journal in September 2018 shows an uptick in corporate financial restatements during the first half of 2018, the first increase in a decade. [See Companies Are Finding More Accounting Flubs, by Nishant Mohan, Sept. 20, 2018.] The article quotes an accounting expert who observes that the errors prompting restatements “can be anything from a misapplication of accounting principles to an error in inputs in accounting software or an error in [Microsoft] Excel schedules.” Those who should have caught the mistake usually feel the consequences, “particularly...the CFO and the controller.” Notorious examples of data errors in SEC filings have occurred even among high-profile companies (Netflix, for example, was adversely affected by a single data error).
How Limelight Automates SEC Notes Disclosures to Save Time, Improve Accuracy and Add Analysis
Limelight solves the bottlenecks encountered in a traditional manual Excel Note Disclosures process and prevents the risk of missing deadlines and potential errors.
1 - Data Consolidation is Automated & Fast
Templates are built on the web, which means they can be shared and worked on simultaneously by multiple team members. Instead of having to communicate through email, teams can comment directly on templates, enter line-item details and work in one unified workspace. Accountability is also built into the platform's workflow and audit trail, meaning that all changes are tracked and seen.
2 - Footnotes are Fed into the Right Reports
Those managing report building can ensure that the footnote disclosure entries are added to the right reports in the right places. Since the entries are directly editable by the users who created them, when these users change them, the footnote disclosures in the reports will be updated automatically.
Moreover, managers can add business rules and logic formulas to automatically validate information being entered or submitted. Instead of having to check and validate values one by one, Limelight will let users know whether the values they are adding balance out.
3 - Dashboards Provide Status Updates on Note Disclosures
Limelight can keep track of all the note disclosures and schedules required within a report and showcase the status of each; started, work in progress, submitted, approved or rejected. This means that the team can easily track where they are in the process of gathering footnote disclosures at all times, no email required.
4 - Reports with Footnotes are Generated and Shared with Key Stakeholders Instantly
When reports and note disclosures are finalized, you can share them with key stakeholders directly from Limelight. This makes it much faster and easier for your team to share reports to the right people and meet deadlines on time, every time.
What You Gain From Moving From a Manual to an Automated, Integrated Cloud-Based Process
Create Note Disclosures Faster & More Efficiently
With Limelight, all your data sources are directly integrated into your reporting workspace. That eliminates the need for manual exporting and processing as well as switching between applications when building your reports and note disclosures. Also, because data is aggregated in real-time, numbers never become outdated.
Collaborate with Transparency and Accountability
Let users enter note disclosures directly in Limelight and oversee approvals and validations in order to ensure accuracy and consistency. Use dashboards to see the status of each submission and track against internal and external deadlines. Manage and audit variances in note disclosures monthly, quarterly and annually so you’re always in the know.
Save Time and Meet Deadlines With Ease
Limelight makes it easy to gather note disclosures, monitor them and combine them into the right reports. Speed up the disclosure management process from start to finish with an automated and integrated workflow that makes collaboration easy and seamless.
To learn more on how you can automate and streamline your note disclosure process in Limelight, click here to schedule an educational demo.