The adoption of financial statement production solutions is increasing as more firms seek to automate their postconsolidation reporting processes and as vendors bring more technologies to market. This Case Study discusses the adoption of this technology by a leading Fortune 100 company, United Technologies Corporation (UTC).

• The deployment of a financial statement production solution enabled UTC to concurrently improve the core external reporting process and integrate eXtensible Business Reporting Language (XBRL) tagging, using a single solution.
• UTC was able to reduce its hours to consolidate and prepare financial reporting from 845 hours per quarterly period to 700 hours.
• Tools that can help coordinate the financial statement, regulatory reporting and investor report production activities in one central product that can provide a collaborative environment for all contributing parties can reduce process costs, in UTC's case, by 20%.

• Financial statement production solutions provide visibility and governance of XBRL and statement production, reducing the need for management and supervisory hands-on oversight. Leverage these solutions to align the organization around a single approach for financial report generation.
• Publicly traded companies in the U.S. that have or will soon have XBRL disclosure requirements should evaluate the financial statement reporting offerings, as should any enterprise that wishes to close the control gap in financial reporting.
• Taking back in-house the current XBRL outsourced approach will be cost-effective for many firms. This will also help organizations develop a strategy for future increased disclosure requirements.

This document was revised on 10 November 2009. For more information, see the Corrections page on gartner.com.

The emerging financial governance market provides a set of applications that can improve financial management efficiency and reduce costs for the processes that it targets for improving governance. Financial statement production is part of the solutions covering financial governance that provide post-financial consolidation tools to manage the workflow and collaboration in the finance organization to the financial statement publisher. UTC, a U.S.-based conglomerate (see Note 1), is an early adopter of this new technology. It has automated its manual, multistaged process for collecting and organizing financial information to produce quarterly and annual financial statements (e.g., Form 10-Q and Form 10-K). The process to produce these statutory reports was proving to be unwieldy and error-prone. To address these issues, UTC implemented a single solution to automate its external reporting process that worked in conjunction with its corporate performance management (CPM)-based financial consolidation solution. As a result, UTC was able to increase efficiency, reduce risk and provide greater oversight of the external reporting process.

At quarter end, each of the divisional locations at UTC would upload trial balance data into their financial consolidation application, Hyperion Financial Management (HFM). This information would be organized according to UTC's major business segments: Carrier (heating, refrigeration and air conditioning systems), Hamilton Sundstrand (aerospace and industrial systems), Otis (elevators, escalators and moving walkways), Pratt & Whitney (aircraft engines), Sikorsky (helicopters), UTC Fire & Security (fire safety and security products and services), and UTC Power (fuel cells and power systems). UTC's Financial Reporting & Analysis group would then consolidate the numbers from the major business segments, as part of its traditional financial consolidations process.

This financial consolidation process provided basic financial statements for the organization. However, much more information was required to complete the external reporting process and comply with the U.S. Securities & Exchange Commission's (SEC's) reporting requirements.

To complete the external reporting process, UTC relied on manual processes to gather the supplemental data required to populate the management discussion and analysis (MD&A) report, and to create the notes and other commentary required for its statutory and regulatory filings. Numerous Microsoft Excel (Excel) and Microsoft Word (Word) documents were e-mailed to a specific e-mail "control" box. From that address, data would be pulled out manually and entered by a single user into a master Word document — the format used for UTC's Form 10-Qs and Form 10-Ks prior to conversion to HTML for filing.

Despite the enormity of collecting information from dozens of general ledgers and assembling it without errors and with sufficient commentary and notes attached, the corporation had always filed its results within 21 days of any given quarter closing — no matter how many long hours were involved. However, UTC executives and its financial office agreed that it was an inefficient method, which took too long and required too many manual interventions, inviting the risk of errors in numbers and commentary. UTC estimated that it took about 845 person-hours to execute that whole process, and consolidate and prepare a single quarterly report for filing.

Furthermore, 20% of the 845 hours was devoted to low-value clerical activities, such as manually pulling data from numerous sources (HFM, Excel, Word and PDF documents) and then having to manually check the data, trace back mistakes and changes, and add commentary/footnotes.

UTC produced its reports in a variety of output formats, including HTML for filing through EDGAR with the SEC and in XBRL format — first as part of the SEC's VFP, and later in compliance with the SEC's regulations for mandatory filing, announced in 4Q08.

UTC wanted to improve its processes, eliminate non-value-added tasks for its six-person external reporting group and continue to file its results within 21 days from quarter end, without fear of having to amend or restate a Form 10-Q or Form 10-K. It also wanted to free up time during this 21-day period for more-detailed analysis and resulting commentary on "the numbers," which meant reducing the clerical activities involved in creating and formatting the reports. Days that began at 8 a.m. and ended as late as 1 a.m. or 2 a.m. the next day were not conducive to producing error-free line items and incisive analysis, in addition to being debilitating on the staff.

There were technical challenges as well. The process to move data from HFM into the master Word document was manual. Only one person could work on the master Word document at any one time. And the interfaces between the Excel files and Word weren't optimal.

The company recognized that it needed a way to integrate the source data directly into a reporting tool and not have to rework data pulls and reformatting. UTC began to look for another solution to solve its external reporting inefficiencies and reduce its compliance risks.

UTC purchased a unified external reporting solution — Clarity Systems' Clarity FSR — in mid-2008 and began connecting its myriad data sources, including HFM, with Clarity FSR. Clarity FSR connected to HFM data repositories, as well as to Excel spreadsheets. This created a "single version of the truth," which was dynamic in nature. Any UTC staff making changes, whether entering new data or correcting errors in HFM data or in Excel spreadsheets, knew the most current data would be updated and included in the reports created by Clarity FSR.

Furthermore, UTC formerly had to create supplemental accounts in HFM and use them as text accounts, since HFM lacked a Word interface. Clarity FSR has a Word interface already integrated into the application, so staff could continue to work in Word, creating footnotes and MD&A in a vehicle that employees were accustomed to.

Clarity FSR's overall ability to assemble, create and file the regulatory documents, connect to HFM to eliminate manual data transfers, and flow Excel spreadsheets into the application assisted the UTC financial staff. Clarity FSR's collaborative features support multiuser input and editing, which ended the inefficiency of only one person being able to work on the master document at one time. Workflow features together with a tight audit trail provided UTC with greater oversight and control of the external reporting process.

In keeping with its reputation and preference for leading rather than following in all matters financial, UTC joined the U.S. SEC's XBRL process a few years ago. It was the ninth firm to participate in the SEC's VFP. It completed 14 XBRL furnishings within four years, and was the only entity to submit these furnishings to an actual audit. Achieving these milestones was challenging, as it used bolt-on XBRL solutions that were not integrated into the external reporting process.

UTC's initial foray into XBRL publishing began with Rivet Software's DragonTag. UTC later switched to Fujitsu's XWand. These products were both bolt-on solutions, in that the XBRL tagging process would begin only after the external reporting process had been completed. UTC was looking for a more integrated XBRL solution.

With the new solution, UTC can now perform its XBRL tagging process as an integrated part of the external reporting process. Plus, with Clarity FSR's tag capability, once an XBRL tag has been defined, the tagging is remembered for all future reporting periods — greatly increasing the efficiency of the overall filing process.

Overall, the new solution enabled UTC to concurrently improve the core external reporting process and integrate XBRL tagging, using a single solution. UTC now has faster cycle times, reducing the staff hours required during the close period. The software product helped the Financial Reporting & Analysis staff work more effectively and quickly. The risk of factual errors was also reduced, as staff members were fresher and more alert. Time saved was then allotted to a more detailed analysis of the numbers. Overall, UTC has been able to reduce its SEC reporting process time by approximately 10%. Further savings will be achieved when the SEC allows submission of the XBRL document only, and does not also require the HTML version to be submitted.

Use of Clarity FSR to produce an XBRL report and an HTML version fit with UTC's philosophy, which is to own the XBRL process internally, rather than outsource it. UTC has stated that the benefits of XBRL are best achieved by keeping the process, including taxonomy creation, editing, formatting and production, in-house. UTC also benefits from the workflow, audit trail and validation rules integrated into Clarity FSR, as the company introduced systemic controls into the reporting process, providing a significant benefit.

By providing a single source of information, the new solution ensures that the reported numbers will be the same in HTML, XBRL, PDF and Word outputs. This single version of the truth is not limited to financial reporting. UTC is finding other uses for the application at the corporate office and among the business units.

Factors critical to the implementation were to:

• View the external reporting process as a unified continuum, and make your end-goal the automation of this process.
• Integrate XBRL tagging into the external reporting process.
• Appoint the finance organization to manage the project; however, IT support is required to integrate a financial statement production solution into the financial consolidation process.
• Understand opportunities in the software that can be leveraged to improve the overall strategic objectives of improved efficiency, reduced risk and greater control of the external reporting process.

The following are some lessons learned that other organizations should consider when selecting an automated external reporting solution:

• Bring XBRL tagging in-house for more control and oversight of the process.
• Look for a solution that leverages Word and Excel, to minimize the learning curve and facilitate end-user adoption.
• Understand how the deployment of an automated external reporting solution integrates with other key initiatives, such as International Financial Reporting Standards, business intelligence/CPM, and the financial close process.
• Look to leverage your external reporting solution for other areas well beyond SEC reporting, such as Internal Revenue Service (IRS) reporting in the U.S. and other regulatory reporting requirements.