Slide 1 – MOVARIS CONFIDENTIAL

Transforming the ‘last mile’ of financeTransforming the ‘last mile’ of financeSlide 1 – MOVARIS CONFIDENTIAL

‘Last Mile’ of Finance:

Integrating the Close

April 19, 2006

Eric Keller, President and CEO

Transforming the ‘last mile’ of finance

Transforming the ‘last mile’ of financeTransforming the ‘last mile’ of finance

Agenda

Financial close pains Regulatory guidance The ‘last mile’ of finance Checklist to ‘last mile’ success


The Financial Close

Series of interdependent tasks that a finance organization must perform on a quarterly and annual basis to produce the data and disclosures for SEC financial reports

External reporting

Compliancemanagement

Management reporting

Audit management

Analysis, Review,

Adjustments


Financial Close Process – Pain Points

Difficult to manage

Fraught with risk

Time pressures increasing

Expensive


Restatements: every CFO’s nightmare

Source: Restatements – Traversing Shaky Ground, Glass Lewis & Co., May 31, 2005 and January 2006

Increased regulatory oversight and

more complex accounting rules

Increased regulatory oversight and

more complex accounting rules


Growing Material Weakness Disclosures (MWDs)

1/3 of companies with MWDs had weaknesses in operational finance

46% of operational finance MWDs related to the close and consolidation process

Source: Movaris analysis of publicly-filed MWDs for 2004

Operational Finance Weaknesses


‘Last Mile’ Issues – Often Material Weaknesses

2005 SEC filings with material weakness disclosures

Misstated accruals and estimates made during close

“The company concluded that controls over the financial statement close process related to the determination of accrued liabilities and prepaid expenses were not operating effectively….resulting in numerous adjustments.”

Errors in intercompany eliminations

“[W]e discovered an error in a spreadsheet application, which was designed to eliminate intercompany balances. As a result of the error, amounts accumulated in the property account for one subsidiary were … inadvertently not eliminated in consolidation.”


2005 SEC filings with material weakness disclosures

“[T]he company did not maintain effective controls over the communication among operating, functional and accounting departments of financial and other business information that is important to the period-end financial reporting process, including the specifics of non-routine and non-systematic transactions. Contributing factors included the large number of manual processes utilized during the period-end financial reporting process and an insufficient number of accounting and finance personnel…”

Reliance on manual processes

Inadequate controls over non routine transactions

“[A material weakness in the] design and implementation of adequate controls over the financial reporting and close process, including controls over non-routine transactions.”

‘Last Mile’ Issues – Often Material Weaknesses


PCAOB Comments on Period End Process

“Given the high degree of risk that misstatements

could occur during the period-end financial

reporting process, significant attention to this

process is necessary in virtually all audits."

PCAOB Release 2005-023, November 30, 2005 (emphasis added)


CFO’s Operational Goals

Increase process efficiencies, devoting more time to analysis and less time to close and compliance efforts

Decrease both direct and indirect costs

Increasing financial statement accuracy while reducing risks of restatements and material weakness disclosures


Period End = ‘Last Mile’ of Finance

Audit opinion

Board book

FORM 10-K

Critical processes that bridge from transaction systems to financial statements

Typically informal, occurring outside any formal system of record Last opportunity to identify and resolve issues before statements

Financial CloseCRMERP*

SCM

Consol-idation

BI / DW

Excel


‘Last Mile’ of Finance – Disconnected Processes

Report & Disclose

Information

Enter & Process

Transactions

Evaluate& Test

Controls

Aggregate& Analyze

Results

Internal Controls

AggregateFinancialAmounts

Review Preliminary

Results

Financial Transactions

Financial Close

Report &Disclose

Information

PerformFinal

Adjustments

RemediateControls

§302Certification

ERP

Excel email Word

Consoli-dation

Excel email Word Audit Opinion

Board book

FORM 10-Q10-K


‘Last Mile’ Tasks – Many Not Automated

Mgt reports

FORM 10-K

Audit OpinionBoard book

302 Cert.

FORM 10-Q, 10-K

Report Production

Consolidation

I/C eliminations, minority interest eliminations

Aggregatefinancialdata

Enter & Process

Transactions

Financialsystems

Transaction

Systems

Reporting Entity Close

Consolidation

EnterAdjustingJournals

Provide evidencefor audit

Finalize Financial Statements

Re-consolidateto reconcile

Entertop-level

adjustmentsto reconcile


‘Last Mile’ Tasks – Many Not Automated

Mgt reports

FORM 10-K

Audit OpinionBoard book

302 Cert.

FORM 10-Q, 10-K

Report Production

Consolidation

I/C eliminations, minority interest eliminations

Aggregatefinancialdata

Enter & Process

Transactions

Financialsystems

Transaction

Systems


Consolidation

EnterAdjustingJournals


Finalize Financial Statements

Re-consolidateto reconcile

Entertop-level

adjustmentsto reconcile

Develop disclosures

Review preliminaryresults in readiness

dashboard

Determinefinal, top-leveladjustments

“Close the books”-Reconciliations- Valuations- etc.

Performcompliance activities

Create & file financialstatements

Loadconsolidatedfinancials

Assessinternalcontrols with fin accounts


Manualsteps

Review & approveconsolidated results.

Detect & resolve exceptions

Review & approve reconcilingadjustments

Review &approve adjusting journals

Financial

Analytics


Challenges in ‘Last Mile’ Tasks


Consolidation Finalize Financial Statements

Report Production

• Are all my close tasks complete?

• Did we miss any steps?

• What are my open issues related to the close?

• Did we have any control failures?

• Were all control remediation’s completed?

• Have we booked all adjustments?

• What’s the impact to my financial statements?

• Do we have documentation and approval for all top-level adjustments?

• Are all top-level adjustments posted to the system of record?

• Do we have supporting documentation for all elimination and consolidation entries?

• Is there review and approval documentation for each trial balance?

• Did each consolidation step occur?

• What are my open issues related to consolidation?

• Do we have supporting documentation for all footnote disclosures?

• Did we make all the required disclosures?

• Can we sign off on internal controls over financial reporting?

• Does the management reporting package agree with the financial statements?

• Is there consistency across all critical internal & external reporting?

x

xx x


SEC, PCAOB Call for Integration

“An integrated audit combines an audit of internal control

over financial reporting with the audit of the financial

statements such that the objectives of the two audits are

achieved simultaneously through a single coordinated

process.” PCAOB, Integrated Audit, May 2005

(emphasis added)

“We expect the internal control audit to be better integrated

with the audit of a company's financial statements….”

SEC , May 2005 (emphasis added)


From Disconnected Processes

Report & Disclose

Information

Enter & Process

Transactions

Evaluate& Test

Controls

Aggregate& Analyze

Results

Internal Controls

AggregateFinancialAmounts

Review Preliminary

Results

Financial Transactions

Financial Close

Report &Disclose

Information

PerformFinal

Adjustments

RemediateControls

§302Certification

Excel email Word

Audit Opinion

Board book

FORM 10-Q10-K

ERP

‘Last mile’ of finance

Consoli-dation

Excel email Word


To Integrated Close Solution

Consoli-dation

Integrated close

Enter & Process

Transactions

Report & Disclose

Information

AggregateFinancial & Control Results

Review Preliminary

Results

PerformFinal

Adjustments

EvaluateControls

Audit opinion

Board book

§302 Cert

FORM 10-K

ERP

Integrate internal controls, close tasks and financial reporting

in the ‘last mile’

Transforming the ‘last mile’ of financeTransforming the ‘last mile’ of financeSlide 19 – MOVARIS CONFIDENTIALSlide 19


What issues are holding up revenue

close tasks?

Slide 20 – MOVARIS CONFIDENTIALSlide 20


What is the magnitude of the

issue?

Slide 21


Estimated dollar impact is $385M.

Slide 22


What’s the problem with R&D expense controls?

Slide 23

Transforming the ‘last mile’ of financeTransforming the ‘last mile’ of financeSlide 24


What are the tax footnote issues?

Transforming the ‘last mile’ of financeTransforming the ‘last mile’ of finance 28

Generate 10K


Income Statement

Balance Sheet

Cash Flow

Tax Footnote

Slide 30


Movaris Checklist for a well-run close Integrate close, compliance task list

Automate routine business processes

Track, manage, secure, store critical documentation

Distribute tasks to the right individuals across company

Unify controls, close tasks, financial statement accounts

Apply analytics for continuous improvement

Automate creation of financial documents

Create system of record for ‘last mile’ activities



Benefits of a Well Run Close

Decrease Costs

Reduce Time

Increase Confidence


Benefits of an Integrated Close

A tight and robust financial close is the reflection of well honed

finance processes.


‘Last Mile’ of Finance:

Integrating the Close

April 19, 2006

Q&A


Slide 1 – MOVARIS CONFIDENTIAL

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