Practical Tips for Financial Reporting Process

This post provides practical advice on how companies could automate financial reporting processes using various solutions available on the market today.

Today I will share practical tips about managing financial reporting from someone who actually prepares financial statements.

Image Credit: ChatGPT

CONTENT

Question 1. Where should I start when preparing financial statements for an organization for the first time?

Question 2. What are useful applications of AI in financial reporting?

Question 3. How can I apply alternating row shading automatically in Excel?

Question 4. How do I determine whether all required disclosures have been included?

Question 5. How can I make financial statements in Word update from Excel?

Question 6. How should financial statement rounding differences be handled?

Question 7. Why do free-form drafting prompts produce weak footnotes?

Question 1. Where should I start when preparing financial statements for an organization for the first time?

Begin by defining the reporting requirements and structuring the process accordingly using the following resources:

• FASB ASC Codification

• Disclosure checklists

• Illustrative financial statements

• Peer filings

Illustrative financial statements published by accounting firms provide a useful starting point. Deloitte, for example, publishes sample US GAAP financial statements and disclosure language for emerging companies here.

As an alternative, you could find several 10-K Filings from public companies with similar businesses and use them as a point of reference. Peer filings may be used to understand common styles, common formatting techniques, and table design. For the best experience, you could use the Microsoft Word application to open an existing filing of a peer company saved as an “.html” file as follows:

1. Save the filing as a file with an .html extension.

2. Open Microsoft Word

3. Chose “File” > “Open” > “Browse” > Select the file > “Open”

4. Click the “Enable editing” button.

5. Save the opened file as a new Word document. Choose “File” > “Save As” > Select File Type as “.docx”

Use these materials to build an initial structure of your financial statements. Once requirements are defined, select a reporting tool appropriate for the complexity of the organization’s operations:

• BalanceWare and TickMark can support smaller teams that prepare complete financial statements and footnotes for private companies. These tools help transfer information from the trial balance and supporting schedules into publication-ready financial statements.

• The ACRA XBRL Tool addresses a different regulatory environment. It can help users become familiar with XBRL tagging and prepare filings required by Singapore’s Accounting and Corporate Regulatory Authority.

• SEC registrants generally require more advanced enterprise disclosure-management capabilities. ActiveDisclosure and Workiva are examples of platforms designed to support public companies.

Question 2. What are useful applications of agentic AI in the financial reporting process?

Agentic AI is most effective when the work can be decomposed into defined steps and evaluated against explicit requirements.

• Annual risk assessment documentation drafting.

• Drafting a summary of SOC reports of service providers relevant for financial reporting.

• Improvement of existing processes and workflows, including finding automation opportunities.

• Reviewing draft financial statements. For the initial review of footnotes, you can use my custom GPT here (requires a ChatGPT Enterprise or ChatGPT Pro subscription to run as intended). This agent can perform an initial review for:

  • Mathematical inconsistencies.

  • Missing or incorrect references.

  • Inconsistent use of terminology.

  • Undefined abbreviations.

  • Differences between tables and narrative disclosures.

  • Items with unclear period changes that cannot be easily rolled forward that could prevent investors from properly understanding the financial position and results of the business.

Question 3. How to apply alternating row shading automatically in Excel?

Use conditional formatting rather than manually filling every second row.

For a statement occupying cells {A8:K200}:

1. Select the range A8:K200.

2. Click Home > Conditional Formatting > New Rule.

3. Select Use a formula to determine which cells to format.

4. Enter:

=MOD(ROW()-ROW($A$8),2)=0

1. Open the formatting settings and select the required fill.

2. Apply the rule.

The formula shades every second row beginning with row 8. When rows are inserted or deleted within the range, Excel automatically recalculates the pattern.

A light fill, such as #CCEEFF, can improve readability and matches the color scheme traditionally used for alternative row backgrounds. The final color should align with the organization’s branding guidelines.

Question 4. How to determine whether all required disclosures have been included in the consolidated financial statements prepared under US GAAP?

Disclosure checklists are available through accounting research platforms such as CCH® Accounting Research Manager® and Thomson Reuters. Preparers can typically request their external auditors to provide the disclosure checklist applicable to the industry in which they operate. It is advised to always use the most recent version of the disclosure checklist for the applicable accounting framework and reporting period.

This process turns the checklist from a reference document into a completeness control.

Peer benchmarking provides a useful second layer of review. Services such as Active Intelligence by DFIN or Intelligize from LexisNexis allow users to search public filings and compare disclosures made by similar organizations.

Peer filings can help identify relevant market practices but should not determine accounting conclusions. Applicability must remain grounded in the governing accounting and regulatory requirements.

Question 5. How to make financial statements in Word to update directly from Excel?

A basic solution available to Microsoft Office users is to link Word documents to supporting Excel schedules. This approach can support both tabular disclosures and individual numbers pasted within narrative disclosures.

Linking an Excel table to Word

1. Copy the required table or range in Excel.

2. In Word, select Home > Paste > Paste Special.

3. Select Paste Link.

4. Select Microsoft Excel Worksheet Object.

Linking an individual amount

1. Copy the relevant Excel cell.

2. Position the cursor in the required Word paragraph or footnote.

3. Select Home > Paste > Paste Special > Link & Merge Formatting

   

   Microsoft Word - Link & Merge Formatting

Refreshing the report

Linked amounts can generally be refreshed by:

• Right-clicking the linked object and selecting Update Link; or

• Updating links when the document opens.

The process may vary depending on a specific version of Microsoft Office you use. Although this method can reduce manual data entry, it comes with significant limitations. After adding references to an Excel file, editing becomes difficult because continuous updates in the Word file can consume a significant portion of processing capacity. Besides that, this approach makes it difficult for multiple people to work on the same file without breaking links.

As the organization moves to a greater level of enterprise complexity, a transition to Workiva or another workflow solution is recommended.

Question 6. How should financial statement rounding differences be handled?

A useful approach is to address rounding differences on the balance sheet by adjusting a line item other than Retained Earnings, preferably one that does not require roll-forward schedules.

Rounding issues can be handled as follows:

1. Split the trial balance to include all splits that will be disclosed. So if we have service revenue from a single largest customer, the respective revenue account should be split into 4 lines:

   1. Service + Largest customer (Q1)

   2. Service + Others (Q1)

   3. Non-service + Largest (Q1)

   4. Non-service + Others (Q1)

In practice, use an MTD or QTD trial balance to split balances by period and establish separate accounts for all amounts presented in the footnotes. Amounts that are never disclosed should be categorized accordingly.

1. Retained earnings should be split into beginning retained earnings, P&L for the current year, dividends, and reclassification/amortization of AOCI.

2. Aggregate accounts based on the full mapping path.

3. Order so that the last item is designated for rounding.

4. Calculate the extra column needed for the cumulative balance technique.

5. Change the presentation unit in the second extra column and round the cumulative balances accordingly.

6. Add a final column in the unit of presentation and replace the cumulative basis with an individual balance basis denominated in the unit of presentation.

7. Compute values that show periodic changes in BS and periodic P&L balance for the specified period, by deducting a similarly computed number for the previous period.

8. Repeat the exercise with the cumulative technique.

9. Aggregate rounded numbers in the presentation denomination that pertain to the same item.

10. Use these numbers to populate periodic financial statements. All roundings should be handled.

This technique controls the total because each displayed amount is derived from the rounded cumulative series.

Periodic changes should be calculated from full-precision balances before rounding. Using rounded source balances can create avoidable inconsistencies.

One useful tip is not to use retained earnings to balance the balance sheet. Where a residual allocation is necessary, use a designated financial statement line that does not distort the results or interfere with any roll-forward accounts.

Question 7. Why do free-form drafting prompts produce weak footnotes?

Free-form prompts asking AI to draft footnote content for financial statements often produce unsatisfactory results. The excessive discretion afforded by these prompts increases the ambiguity of the active environment in which the agent operates. A free-form request gives the model too many opportunities to make unsupported choices. As a result, this causes low-quality output.

Better results come from constraining those choices. This can be achieved by reminding the model that financial statement footnotes exist within the rigid requirements of an applicable reporting framework. These requirements must be applied to entity-specific facts and circumstances to include all necessary material facts and circumstances while also maintaining universal presentation. This reporting framework and entity-specific facts both need to be defined and applicable provisions referenced in the inputs provided for the inference.

Examples are particularly important. The instructions should explain which elements of the examples may be adapted. However, suitable examples may not always be readily available, so users may rely on a chatbot to collect examples as needed.

Overall, providing examples of required footnote disclosures and detailed guidance on how to custom-tailor those to your case is the most effective way to ensure that the output is appropriate.