FP&A and Accounting Must Speak the Same Language09.14.2020
If accounting and FP&A teams don't work in concert, they will waste valuable time each month trying to reconcile numbers, finance leaders said in a recent CFO Live virtual conference.
Inconsistencies between the two teams typically start with where they focus their attention, said Nayab Siddiqi, CFO and head of strategy at travel technology company REZY360.
Accounting teams, which are responsible for controls, compliance and reporting — traditionally backwards-looking functions — tend to focus on the balance sheet, while financial planning and analysis (FP&A) teams, which are responsible for forward-looking budgeting and forecasts, tend to focus on the P&L. FP&A teams typically account for a transaction one way — as an investment, for example — while the accounting team accounts for it as an expense.
"Once FP&A classifies something in their forecast in a certain way, and the accounting team doesn't know the nature of that transaction, they might classify that [as something different on] the balance sheet," Siddiqi said. "So, when they're comparing these, they won't find those numbers on the P&L, even though the transaction has already happened. Now, it takes a lot of time to find out where the transaction has been reported."
Process organization is the key to team communication, but, ultimately, coordination falls to the CFO, said Mirek Purpura, head of finance for Central Europe and Israel at Baxter International.
Purpura resolved a coordination problem by having the FP&A team look at the books while the accounting team was still in the process of closing them, rather than waiting until they closed.
"If an issue is spotted, it's a two-way street," Purpura said. "They can inform accounting if something happened correctly or not, and accounting can course-correct immediately. It's the role of CFO to enforce that kind of behavior between the two."
Siddiqi created a position between the two teams to ensure FP&A didn't spring any surprises on accounting after the books were closed, and vice versa.
"That person's responsibility is to keep coordination between the two functions by picking up the phone, calling them, and telling them what was going on in each of their functions," he said. "So, when reporting time comes, there are no [unanswered] questions."
Coordination is less of an issue in small organizations, because the two teams typically sit side by side and can stay in constant communication. It's more of an issue in big organizations, particularly ones operating in multiple countries, which might have hundreds of people on each team scattered across the globe, Siddiqi said.
Focus on Drivers
Another way to keep teams working together is to train them to look at numbers in terms of business drivers. FP&A specialists tend to be better-equipped to do this, because translating business activity into financial terms is their job. But accounting staff can benefit from it as well.
"If they don't understand the levers moving the business, it can be difficult for them to connect these to financial transactions," Siddiqi said. "If that's not connected, anything they create won't be accurate, or close to accurate."
Purpura uses drivers to help speed his budgeting and forecasting. Previously, his FP&A team used more of a zero-based budgeting process, essentially starting the budget from scratch each cycle, but now, he uses historical numbers from accounting to create a baseline, freeing up FP&A staff to look only at drivers to determine which line items need changing.
"For something like travel and expenses, we automatically set a baseline for the teams going forward," he said. "That way, we're not focusing on the minutiae of details of things that are relatively consistent year-over-year. We've even started looking at baselining sales projections, based on historical information, especially in countries where they’re historically consistent, or based on leading indicator KPIs we can rely on. So FP&A can focus on the one-offs."
Siddiqi's FP&A team also uses drivers in their budgeting and forecasting. "Previously, we did roll-forward forecasting but now ... we look at different drivers, how they operate, and look at the different levers. How do they impact our numbers on the revenue or the cost side? And we translate them into their impact on our numbers."
For both teams, by improving coordination and collaboration on drivers, staff can focus more on higher value analytical work, and devote less time to reconciling differences in approach.