Record to Report Process

Record to report (R2R) is a finance and accounting management process that involves collecting, processing, analyzing, validating, organizing, and finally reporting accurate financial data. R2R process provides strategic, financial, and operational feedback on the performance of the organization to inform management and external stakeholders. R2R process also covers the steps involved in preparing and reporting on the overall accounts. 

1. General Ledger Accounting:

The processing cycle is where the majority of data required for the Record to Report process is generated. The R2R process begins when recording occurs in a general ledger singly or jointly on Management GAAP and Statutory accounting basis. This step happens once the maintenance and closure of sub-ledgers are completed. Recording transactions includes documenting revenues (by invoices or sales receipts), and entering purchases (in the account payable account) and expenditures (in the check register). This step sometimes also involves high-level accounting tasks, such as recording sales orders, tracking prospective customers, and projecting sales opportunities and cash flow.

To record and classify a transaction to appropriate accounts, a proper understanding of the accounting equation is and accounting standards and practices is a must. Calculating and summarizing transactions in a traditional accounting system is a tedious process and automated accounting frees accountants from these repetitive tasks by calculating and summarizing hundreds or thousands of individual transactions and generating reports to satisfy a variety of stakeholders.

2. The Closing Cycle:

Once the processing cycle is complete, the next cycle is to close the books. Closing of Management GAAP books is done following the common R2R Organizational Global Closing Calendar along with the closing of statutory accounting books. Close Cycle is the elapsed time for posting transactions to the general ledger and financial reporting systems through locking down the general ledger.

3. The Consolidation Cycle:

The consolidation cycle is the next pivotal step in the Record to Report process and this step allows companies to perform eliminations, reconcile intercompany balances and produce the data required to generate financial statements by entities. The consolidation cycle must address both internal and external reporting needs. Consolidation and elimination include completion of within and outside own Business eliminations, intercompany reconciliations, and other post-close activities leading to final financial statements at the consolidated “Consolidating Entity” segment level.

4. Reporting Cycle:

The reporting cycle is the formal process of data gathering, assimilating, performing analysis, and distributing the results. Throughout a leading practice close and consolidation cycle, management is receiving reports that address key indicators and statistics. The key to this process is the flow of the information necessary to provide accuracy in an efficient manner. This would include information from all source systems and sometimes requires a support process to accomplish it. Reporting cycle includes submission of financial data and commentary to the Organization’s Corporate Headquarters, external reporting, and government reporting.

The accounting system records the economic data about business activities and events, the next logical step is to prepare the business reports and provide them to the stakeholders according to their informational needs. The double-entry system enables accountants to prepare some standard reports like trial balance, profit and loss account, and balance sheet. Accounting reports are based on generally accepted accounting standards and these reports are powerful tools to help the business owner, accountant, banker, or investor analyze the results of their operations.  Stakeholders use accounting reports as a primary source of information on which they base their decisions. They use other information as well. For example, in deciding whether to extend credit to a company, a banker might use economic forecasts to assess the future demand for the company’s products. The banker might inquire about the ability and reputation of the managers of the business.

Importance of Record to Report:

The accuracy and integrity of the financial statements largely depend on the efficiency of transactional bookkeeping activities. People with extensive training/experience with knowledge of client/country-specific requirements are important for building an effective “Record to Report” process.  This function helps to assist the companies in the preparation and submission of various statutory reports that require in-depth and specialized domain knowledge. This process enables companies to consolidate global performance across various channels and create global income statements and balance sheets. This provides visibility to various channel heads to understand and comment on the key variance drivers with reference to plans and past years' performance.

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