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A Comprehensive Guide to RPA Implementation in Financial Reporting

Last updated: 27 Mar, 2020 By | 6 Minutes Read

Have you ever imagined what would happen if robots could handle your journal entries, reconciliation processes, and financial reporting? If not, this is the time to know all about RPA and its effectiveness in financial reporting. Robotic process automation is performing at its best in most business industries, and to finance and accounting industry, it is no less than a boon.

“Although only 29% of corporate controllers are using it for financial reporting processes, Gartner predicts that by 2020, 88% will use RPA.”

For any company, financial reporting is a vital function, but preparing and submitting such reports requires a skilled and experienced workforce. However, these days, RPA powered software can do the reporting work accurately in less time. This allows your finance and/or accounting team to get more time to focus on improving your company’s financial performance.

How Does Automation Add its Value to Finance & Accounting Value Chain?

Do you want to get the most out of implementing automation in your finance function? To use it to your advantage, you may want to start with:

  • Financial close: It collects data from multiple sources and posts it to sub-ledgers.
  • Risk management: It combines current transaction data with the previous one to detect possible frauds.
  • Reporting: It gathers data from multiple sources such as computers, databases, and emails, and (as per the standard rules) it generates reports automatically.
  • Payment processing: It automatically validates and reconciles pre and post-payment statements, monitors duplicate payments, notifies exceptions, and makes pending payments.
  • Collections: It receives payments automatically, generates reminder reports & sends dunning letters, creates a list of customers with due payments, and allocates work to payment collectors.

RPA Can Bring Quick & Accurate Results While Being Inexpensive

Many companies are digitalizing some of their business aspects by implementing RPA, using computer-coded software bots to automate functions that have generally been handled by humans. Unlike AI and machine learning, RPA is not capable of making judgments by learning data patterns.

A bot simply performs actions that a human does to complete an accounting task on a computer. Bots can automate processes without requiring top-notch IT infrastructure. Bots can follow procedures that are mostly strictly prescribed, leading to solid compliance and cost-efficiency.

If compared with other accounting automation technologies, it may be inexpensive to make use of RPA. Adding to that cost-saving, it can deliver financial as well as non-financial benefits in less time. Many companies these days even hire outsourcing companies to get financial reporting services as most of these companies make use of RPA to help their clients improve operational efficiency and enhance business performance.

The Role of RPA’s in Financial Reporting

“According to Deloitte’s 2017 RPA survey, market trends are indicating near-universal adoption of RPA in the next five years. Average spending among companies surveyed was $1.5 million for RPA pilots and upwards of $3 million for full-scale programs.”

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Departments that are using RPA along with their varying percentages:

  • Internal audit – 2%
  • Tax – 5%
  • IT – 6%
  • Human resources – 8%
  • Operational – 25%
  • Accounting & finance – 54%

Accounting & Finance is a business area that utilizes RPA more than other departments for operational improvement. The use of RPA in accounting and finance is the most due to several reasons, some of which are mentioned below.

  • The requirement of high accuracy and long-term consistency.
  • It handles repetitive and manual transaction processing tasks easily.
  • It does data entry & manipulation efficiently and generates accurate reports.
  • Due to such characteristics, companies are automating numerous back-office operations such as accounting, including AR & AP, financial reporting & financial close. 

Risks Related to the Utilization of RPA

Using RPA technology for financial reporting may bring certain risks that companies need to become aware of and address. In fact, failing to identify and tackle the RPA risks properly might restrict the benefits it can actually deliver.

Companies should consider the effects of ‘improper usage of RPA’ on operations and finance that are explained below:

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  • A bot that can manage the work of multiple accounting professionals is prone to OPRC – operational risk concentration.
  • Failing to have complete control over RPA mechanisms might cause operational inefficiency, especially when the algorithms need to be changed.
  • Improper or incomplete implementation of RPA might lead to financial loss.
  • Bot-functioning errors might affect the quality of financial reports.
  • Automation algorithms that are poorly designed might lead to costly errors.

Therefore, companies need to have a solid governance model in place to keep the RPA accountable throughout its lifecycle.

How to Make Efficient Use of RPA and Prevent Potential Risks?

Companies must implement policies defining the selection, use, and development of RPA. It is also vital to educate and train the employees before using RPA in any business operation.

RPA implementation phases

  1. Development: Developers need to perform activities to have complete control of RPA functioning, preventing risks such as the ineffective design of the bot, or it becomes unable to meet the defined objective or deadline.
  2. Implementation: It is vital for companies to deeply consider the effects of automation on IT risk assessment and get deep insights into the IT aspects designed to support RPA-powered processes.
  3. Monitoring: Monitoring is the continuous process of controlling the effective use of automation in processes. Moreover, having monitoring and supervision programs are critical to assess the functionality of bots.

Functions that RPA Might be Unable to Perform

Though RPA proves to be very helpful in certain cases, it is not a solution to all operational issues that often arise in a company. Tasks with which RPA might not suit:

  • Complex accounting tasks such as due diligence before the acquisition, preparing and distributing investment portfolio, etc.
  • The technology is unable to make significant decisions.
  • Tasks that are performed annually or have an uncertain frequency.

While RPA is not the ‘one-size-fits-all’ approach for all operations, it is a brilliant tool that can make most of your financial accounting & reporting processes more productive and efficient. After considering the benefits of ARP in financial reporting, it is recommended to adopt this technology to improve the overall accounting performance of your company. However, you should also know some of the barriers that might arise while you’re on the road to RPA implementation.

Barriers to Implementing RPA for Financial Reporting

Barrier 1: Bots or Humans – A Big Dilemma

RPA is not able to make judgments by learning data patterns. Companies remain skeptical about not having humans for financial reporting as for them; there are many other steps that strictly require human intervention.

Tip: Remove human interaction points that are not required and, instead, focus on the value delivered by RPA. For a limited period, have both humans and bots to complete the finance and accounting processes. With this, you will have humans to understand and analyze the bot’s performance so that to ensure the automated processes are getting completed accurately & consistently.

Barrier 2: Limited Resources

Accounting professionals often compete for resources that are already limited in their company. Though automation is proven to be helpful in financial reporting, its benefits should also be acquired by other business aspects.

Tip: Prepare an effective ROI formula and include quality based measured apart from including cost-effective measures. The objective is to obtain a comparable and accurate measure. Also, consider minimizing employee turnover, reducing rework, allocate higher-value tasks to the workforce, and improve their technological learning.

Barrier 3: Standardization Delays Implementation of Automation

It requires standardization to implement any new IT system, and many companies do the same for RPA. But, this may take a lot of time and can result in operational disruptions and delay in RPA implementation.

Tip: You can standardize the process as you start making use of RPA. This will save time and prevent the operations from getting disturbed. However, you need to be aware because, in some instances where the result will be different from the result delivered by humans, you should automate the process only after standardizing it.

Let’s now get further to some of the benefits RPA can deliver if implemented properly.

The Value Points of RPA

RPA is capable of improving the productivity, accuracy, and accountability of the finance and accounting functions due to the following reasons:

1. It eliminates operational inconsistencies and reduces human errors.

RPA eliminates the inconsistencies that often occur due to human performance and delivers accurate outcomes consistently. “According to Gartner research, human error within the finance function produces, on average, 25,000 hours of avoidable rework at a cost of $878,000 per year.”

2. It Improves the quality of governance and the controls environment.

RPA can keep track of each bot’s actions, every access, everything it does, and stores all this information in a centric database for further review. The capability of the audit trail allows auditors to define accountable parties for the bot’s actions as they can review the consistency and accuracy of the transactions and view log details to flag unauthorized or potentially-risky access.

3. It handles repetitive work so that the workforce can focus more on higher-value business aspects.

Bots can increase productivity to the fullest, especially as compared to full-time workers, and can work 24X7 throughout the year. Most companies use RPA to manage tedious and mundane finance and accounting tasks. RPA allows companies to reduce their employees’ workload and utilize their skills and expertise for other high-value business activities.

Conclusion

To reap most benefits from using RPA in financial reporting that might also enhance operational efficiency and allow you to redeploy resources for other vital parts of your business, you must ensure the wise use of RPA. More importantly, as you now know how to have control over RPA implementation and utilization and risks related to this excellent technology, you can rest assured knowing that RPA powered software will take your business ahead and not put it in jeopardy.

Related Articles:

Why Spreadsheets aren’t the Best Fixed Assets Management Tool?
Top 5 Picks for Best Accounting Management Software for Small & Mid-Sized Businesses
Four Managerial Accounting Principles Every Business Must Comply With

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