Analyst Perspectives

The six costliest words in managing a finance department are, “We’ve always done it this way.” The record-to-report (R2R) cycle describes the process of finalizing and summarizing the financial activities of a business for a specific accounting period—typically a month, quarter or fiscal year. It is important to note that R2R exclusively covers the activities between recording (keeping the books) and reporting (publishing financial statements and management accounts). It involves completing various tasks to ensure that all revenue, expense and other financial transactions are properly recorded, accounts are balanced and accurate financial statements can be prepared.

Accounting processes are eternal, but how they are performed and which tools are used must evolve to address the opportunities and constraints of their times. Recently, executives have focused on using technology to enhance the productivity (not just efficiency) of staff, especially in this period where accounting talent is tight. The rapid introduction of artificial intelligence (AI), coupled with generative and agentic AI in R2R software, is driving accelerated change in how enterprises execute repetitive, time-sensitive and collaborative processes and tasks.

The financial records of an enterprise must be reviewed periodically and summarized to create financial statements that inform executives and interested third parties of the organization’s financial condition and performance. During the financial close, all financial transactions are reconciled, reviewed and adjusted as needed to prepare the financial statements. These include the balance sheet, income statement, cash-flow statement and the statement of shareholders’ equity. This process is essential for ensuring the accuracy and completeness of financial reporting, and it is often a critical step in meeting regulatory requirements and providing stakeholders with a clear picture of the company's financial performance.

Consolidating financial records and other departmental close processes involves intricate, repeated tasks that must be performed in a prescribed order and fashion. Consolidation software orchestrates and automates this work in conformance with accounting standards. Most mid-size and almost all larger enterprises have some degree of complexity in how books are kept, and software can cut workloads, shorten the close period and reduce the effort needed to ensure accuracy. New software will amplify this effect. ISG Research asserts that by 2028, almost all providers of consolidation software will have incorporated AI to accelerate the accounting close, reduce errors and cut staff workloads.

The financial consolidation process involves eliminating intercompany transactions and balances to provide a comprehensive and accurate view of the organization’s financial condition and performance. The consolidation process and its methods are tightly prescribed by financial accounting authorities and can be quite complex. All accounting or ERP systems will perform a statutory consolidation of the accounts handled in that system using the generally accepted accounting principles of the parent company. But this approach is inadequate for enterprises that, for example, have accounting systems from multiple providers, a web of subsidiaries operating in various jurisdictions or other complicating factors that necessitate a separate system. Typically, a dedicated consolidation application is necessary when an organization has a sufficient number of legal entities, subsidiaries, joint ventures or other forms of ownership or control of operating units.

Another part of R2R automation is close management software, applications that support the timely and efficient completion of close cycle tasks, especially automating reconciliations and performing process management functions. Reconciliation is an inherent element of double-entry accounting systems that match financial records across different accounts, such as internal ledgers, intercompany transactions and bank statements. This ensures that all transactions are accurately recorded and discrepancies are identified and resolved.

In all but the smallest enterprises, consolidation and close processes require coordination and collaboration. Software assists in ensuring that steps in the processes are handled completely and correctly. Technology supports collaboration by enabling direct communications, facilitating document sharing (where comments by participants are easily accessed) and completing necessary reviews and sign-offs. Those managing the process can monitor progress and receive alerts when issues arise.

Since the first dedicated statutory financial consolidation software in the 1980s, the breadth, quality and performance of R2R software has improved, albeit in fits and starts. There was limited change over the past decade, followed by a burst of innovation in the scope and performance of software available for this part of the accounting cycle. Systems now offer more effective collaboration features to smooth the process and ensure resiliency, including secure data sharing as well as centralized document storage for working papers and supporting evidence. For enterprises with complex structures and reporting requirements, consolidation using multiple accounting standards at different levels and branches of the corporate hierarchy can be useful. For very large enterprises with heavy volumes of transactions between business units and legal entities, there is software for intercompany financial management.

In accounting, reconciliation refers to any process that compares two sets of records to ensure their accuracy and consistency—an inherent component of the double-entry framework. This typically involves comparing financial transactions or balances from different sources, such as bank statements versus accounting records or intercompany transactions between different subsidiaries of a company. The main objective is to ensure that the books balance by identifying and resolving discrepancies between two sets of records, ensuring that the accounting data is accurate. Automating reconciliations, especially intercompany transactions, makes the staff more productive and the department a more attractive place to work.

Workflow automation is especially useful in handling the R2R cycle, specifically to manage the process in a hybrid working environment and for organizations that span the globe. As with any workflow-enabled process, administrators spend far less time ensuring individuals have started or completed their tasks, handoffs are smoother, and where reviews and approvals are required, these events are recorded and easily accessed by external and internal auditors and support assertions by executives that internal controls and procedures have been followed. Workflow-enabled systems also contribute to a smoother close because the process of consolidating and closing the books should be almost the same from one period to the next, including tasks for handling exceptions and unexpected events and managing the close calendar. With workflow, the controller and chief accounting officer can spend less time on administration while having greater situational awareness and control.

Beyond the desire for greater staff productivity, another factor driving the adoption of dedicated software is the desire to shorten the accounting close period. There is agreement that organizations should complete the accounting close within a business week, yet our research finds that only about half of enterprises can complete the quarterly close in this amount of time. ISG Research asserts that by 2027, one-half of midsize and larger enterprises will use close management software to speed the close and achieve greater control of the process.

Advances provided by AI, GenAI and agentic AI will make dedicated consolidation and close software an even more compelling choice, especially in a time of growing complexity in accounting standards and tax laws. ISG Research asserts that by 2028, all providers of close management and reporting software will use generative AI to streamline commenting and annotations in tables and exhibits to boost productivity. AI can spot anomalies in accounting at the time of entry, preventing errors and eliminating the time required to find and fix them. The technology automates relatively short, repetitive tasks, enhancing finite condition decision-making and providing personalized assistance across various business functions.

Chatbots and personal assistants are increasingly able to improve individual productivity and, by eliminating dull, repetitive work, promote individual satisfaction. Agentic AI can handle collaborative, iterative processes with complex, non-linear decision nodes, especially where the actors and the next steps in a process are defined by conditions and context that evolve over time. For example, it can automatically orchestrate and execute many tasks in the accounting close that follow iterative paths involving multiple participants requiring complex choreography of collaborative decision-making to resolve issues.

Today’s technology can help finance and accounting executives make their departments more productive in ways that improve the working environment and make it possible for them to attract and retain the best talent in a resource-constrained period. While accounting relies on doing the same things consistently, how they are done is evolving because of legal and regulatory changes, as well as a constant evolution in how accounting principles are applied. A continuous improvement mindset is necessary to have the adaptability and resilience to remain productive.

Software designed to assist in managing R2R processes is a necessary tool for financial executives. All enterprises should be able to complete the close in one business week, and technology can be the key ingredient to achieving this objective. I recommend that all organizations that do not utilize the full scope of R2R software, especially consolidation and close management, should investigate acquiring applications to gain productivity. Those with older, on-premises systems should investigate moving to the cloud since these more contemporary systems can contribute to improved departmental performance.

Regards,

Robert Kugel