What Is Record to Report? (With Benefits, Steps and Tips)
Updated March 10, 2023
Organizations often use several types of financial data to assess their performance. One of these methods includes record to report, which involves recording and reporting financial transactions and data. Understanding the record-to-report process can help you assess an organization's financial performance and gain essential insights to help you develop improvements and strategies to optimize operations and performance. In this article, we discuss the record-to-report process and its importance for organizations, typical steps and several tips you can use to optimize it.
What is record to report?
Record to report (R2R) is a process finance and accounting (F&A) professionals use to collect, process and present financial data. The record portion involves documenting an organization's financial transactions, and the report component involves creating financial documents, including balance sheets, profit and loss statements and budget reports. Leaders and stakeholders of organizations use this data to understand and assess their financial, operational and strategic performance. They can then use these insights to identify different functions of the organization that are meeting or exceeding expectations and areas that need improvement.
R2R also involves the steps required for preparing and reporting the organization's accounts within its general ledger and is sometimes called the "general ledger process." For each account, the finance and accounting team records the transactions within them during an accounting period. The team posts transactions or journal entries as debits or credits, and their totals must balance to make the organization's debits and credits equal. The information recorded in a general ledger often gets organized into the following categories:
Why is record to report important?
Record to report is an important process for organizations because it provides an accurate, efficient financial reporting method. This process offers several benefits for organizations, including:
Improves decision-making: The final step of the R2R process involves creating financial statements for the organization's internal and external stakeholders that outline its financial performance. Leaders can use this data to assess whether the organization's meeting its finance and performance goals and develop strategies as needed, and other stakeholders may use it to make more informed investment decisions.
Helps ensure compliance: Organizations often must follow strict regulations for financial reporting and accounting activities, which can vary depending on their location or industry. The R2R process provides organizations with a consistent method for gathering, validating and reporting financial data that can help them maintain compliance and accuracy in these activities.
Supports tax reporting: Besides making performance decisions, organizations often use the information held in financial reports to perform tax calculations. The accurate, organized data gained through the R2R process can help finance and accounting professionals assess tax liabilities and develop relevant tax strategies to save money as needed.
What are the steps involved in record to report?
The record-to-report process typically involves the following four steps:
1. Transaction recording
In the first step, an organization's finance and accounting professionals record all of its financial transactions. The recording process involves documenting revenues, purchases and expenditures for business units throughout the organization. They gather all data required for creating financial statements and management reports from various sources, including journal entries, general accounting activities or procure-to-pay cycles.
This step is sometimes called the data collection and management stage. It's essential that the data the team collects is accurate, so its members follow established guidelines set by the organization or industry. For example, the generally accepted accounting principles (GAAP) represent a set of financial reporting rules and standards that public companies must follow in the United States. During this step, employees also process the data and transactions, compiling and indexing them to ensure their accuracy and completion.
2. Closing cycle
After recording and processing financial data, the finance and accounting professionals lock the general ledger at the end of a specific accounting period. This period can vary depending on the organization's reporting needs, such as monthly, quarterly or annually. The team receives a deadline to ensure that they posted all the transactions during that period to the organization's general ledger and financial reporting systems. They also ensure that the postings are comprehensive and accurate.
During the closing process, the team transfers balances from temporary accounts to permanent accounts. Temporary accounts may include revenues, expenses or dividends paid, and they look at a specific period. Meanwhile, permanent accounts help display the organization's long-term financial performance or standing. Balancing temporary accounts to zero prepares the organization for its next accounting period.
After the finance and accounting team closes its books, it can begin the consolidation portion of the R2R process. Sometimes called the reconciliation and validation stage, this step involves reviewing the recorded transactions and sorting them into appropriate categories. Because the team may gather financial data from various sources, this step enables them to organize similar information together and ensure they have everything they need to develop reports for stakeholders.
For example, when compiling data from several business units or subsidiaries, the team may perform intercompany eliminations or reconciliations during this step. These processes occur for transactions between two entities within the same organization. The finance and accounting team identifies such transactions and removes them from financial statements. They may eliminate loans or sales made from one entity to another or ownership interest from the parent company in its subsidiary entities.
In the final step, the finance and accounting professionals create financial reports about the organization. After reviewing the data for completion and accuracy, these professionals can develop insights into the organization. Then they can create various reports, such as income statements, balance sheets, profit and loss statements and other documents related to profitability, performance or compliance.
The team typically delivers these reports to the organization's leaders, including members of the C-suite, senior management staff and business unit managers. They can use the insights gained from these reports to make forecasts for the future or make strategic changes to improve operations or financial performance. External stakeholders may also receive these reports, such as investors or regulatory bodies, to assess the organization's financial activities.
Tips for the record-to-report process
The following list represents some best practices you can use and implement to help optimize the R2R process within an organization:
Create standardized processes and procedures
One of the core components of performing the report-to-record process is having accurate financial data. Organizations can make this process more effective and efficient by establishing standards for accounting processes and procedures. For example, leaders may develop standardized naming conventions for accounting files or criteria for journal entries. They may also assign specific roles and responsibilities for each step, helping hold the team members accountable for completing tasks and meeting organizational goals. Some of the standards implemented may come from industry regulations, such as GAAP.
Establishing standardized accounting processes and procedures helps keep the team focused and on track. They also ensure consistency each time the team performs R2R. With these rules, the team can understand what information to include and how to gather and present it. To establish organizational standards and criteria, consider meeting with the finance and accounting team to identify and discuss stakeholders' needs. You can set specific criteria for different audiences and their needs if necessary, such as internal vs. external, helping keep the process even more organized.
Consider implementing automation programs or tools
You can find numerous tools and software that enable your accounting and finance team to automate processes. For example, you may seek tools to automate tasks related to recording and consolidating transactions, closing ledgers or analyzing data. Automation often helps manage basic activities, allowing employees to save time and focus on more complex tasks.
If the automation tools can gather and organize data, the employees can read it easily and turn it into meaningful insights for their stakeholders. Automation can offer additional benefits, such as creating more consistency than manual work and limiting the risk of human error. Some programs identify and flag inconsistencies and errors, signaling users to review the data or its source. Even if the program doesn't offer such flags, it's a good idea to double-check automated work to ensure its accuracy.
Promote communication and collaboration
A larger organization may have multiple locations or many departments, and leaders can promote cross-functional collaboration and communication to support the R2R process. Cross-functional collaboration involves bringing different teams together to achieve common goals. If you're in an organization with a similar situation, establishing and communicating standards for compiling, organizing and reporting financial data can help maintain consistency across all departments. This consistency makes it easier for the finance and accounting professionals to collect accurate data and perform their record-to-report duties.
You can also encourage more collaboration within the finance and accounting department itself. Using cloud-based platforms, for example, enables professionals to share and edit documents with one another regardless of their location. As a result, everyone can remain on the same track and see changes as they occur and discuss them as needed. Encouraging collaborative work also provides other benefits because it helps employees build connections with one another. When they build stronger, more trusting relationships, they feel more comfortable seeking help and may find opportunities to complete tasks more efficiently by working together.
Host regular reviews with stakeholders
One way to continue optimizing R2R is to perform reviews and gather feedbacks about it and its results. Before finalizing financial reports, seek input from relevant stakeholders to ensure that the document includes relevant and accurate information. These reviews can help establish best practices, allowing the finance and accounting team members to note any details they may have missed and avoid similar mistakes in the future. When this team understands stakeholders' interests and needs, they can develop more effective reports that address them.
Similarly, gather the team's feedback about the process itself. Because the team members perform each step and associated tasks, they may have a stronger understanding of what does and doesn't work. For example, they can discuss which processes take significant time to complete and may benefit from implementing automation software or hiring new team members. Their insights are valuable and can help ensure the organization's finance and accounting functions continue to operate efficiently and effectively.
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