The Financial Reporting Manager (#315)

In this episode, we discuss the nature of the financial reporting manager position, and how it varies for public and private companies.

The Financial Reporting Manager in a Public Company

What the financial reporting manager does depends on whether the company is publicly-held or privately-held. Let’s start with a publicly-held company. This business has to submit an extremely detailed quarterly report to the Securities and Exchange Commission, which is called a Form 10-Q, as well as an even longer report after the end of the year, which is called a Form 10-K.

The information required for these forms is so massive that it’s nearly impossible to do the job without a financial reporting manager. This person has to make sure that the presented information conforms to what the company has put out in the past. And, assemble a lot of footnotes. We’re talking about dozens of pages of footnotes. Which have to match the information in the financial statements. So if there’s a change in the financials, you have to comb through the footnotes to make sure that the change is reflected there.

This is an incredibly nit-picky job, and it requires a lot of experience in doing these public filings. A fair number of financial reporting managers come out of the Big Four audit firms, since they pick up the experience there when they audit publicly-held clients.

It’s an odd job. When it comes time for the quarterly reports, you work long hours. And if senior management wants to issue the financials earlier than usual, then you’re really going to be working long hours. And on top of that, the auditors will review the filing documents in detail, and if they see mistakes, they will tell the audit committee about them, so you may be looking for a new job. In short, this is occasionally a high-pressure, insanely detail-oriented job.

A really small public company might hire a part-time contractor to be its financial reporting manager, who basically only works for the company once a quarter, to complete these filings. That’s not the case for a larger public firm, where this is a multi-person team.

The Financial Reporting Manager in a Private Company

Now, let’s talk about what the job looks like in a privately-held firm. It’s completely different. What I just described for a public firm was really financial accounting – all about making sure that what you report follows the accounting rules. In a private firm, the emphasis is on management accounting. In this case, the goal is to get targeted information into the hands of the people who really need it.

This can involve a lot of things. For example, if it helps decision-making to get financial information to employees really fast and with a lot of frequency, then the reporting manager might get involved in creating data collection systems that collect just the information needed, as well as information aggregation systems to massage that incoming data and spit out reports as needed.

Now, the reporting might only be needed for a short time. If so, the reporting manager just has to cobble together some fairly rudimentary data collection systems. But, if the reporting is needed over the longer term, then it’ll be necessary to work with the IT staff to design a more automated system. Which means that some systems development expertise might be in order.

Let’s take that automation concept a bit further. What if management wants to access a dashboard of information on their computers, or phones? In that case, the reporting manager will need to get involved in the selection of an off-the-shelf software package that can handle dashboards. It’s not something you want to develop from scratch.

And another point. The information needs of a company change all the time. This means that the reporting manager should make the rounds of the management team pretty regularly, to talk about how the reporting system is working for them now, and what they want to have changed.

Part of those discussions need to address which reporting is no longer needed. In a lot of cases, managers request a report, so the accounting department keeps running the report – maybe for years – and operates the data collection system associated with it. In reality, the people who requested it quite possibly got the most benefit from it after just a couple of reports, after which no one took any additional action – which means that the subsequent reports were a waste of money.

A good way of looking at this is that the reporting manager has a certain budget for collecting data and issuing reports. And that’s it. If someone wants a new report, that’s only going to happen if the budget for issuing some other report is transferred over to the new project. Which means that the reporting manager is in the middle of the process of deciding which reports are the most cost-effective, and which ones are not. And if they’re not cost effective, then they’re gone.

So, what you’ve really got in a private company reporting manager is someone who’s comfortable talking to senior management, who knows how data collection and reporting systems work, and who understands how to configure report presentations to make them as usable as possible. Someone who can do this job should be well compensated, because they spot issues and bring them to management’s attention – which results in fixes that can improve profits.

So, what size private company hires a reporting manager? Keep in mind, this position can help to generate a profit, so the question is whether there are enough opportunities in the business to support a reporting manager’s pay. And that’s more a function of opportunities for improvement than the amount of revenue generated by the business. Nonetheless, I would guess that $50 to $100 million in revenue would be a good threshold for hiring a reporting manager.

And yes, this management accounting role for a reporting manager can certainly be used in a publicly-held company, too. After all, it’s really useful. It’s just that the emphasis in a public company is far heavier on the financial reporting side of things.