Event to knowledge

Event to knowledge (E2K) is an accounting metric that measures the time from when an event occurs to when the responsible person knows about it. The shorter the average E2K time, the more timely an organization’s financial information will be.

Importance of E2K

Timeliness is one of the most important characteristics of financial information. The more timely information is, the more relevant it is to the reader. E2K helps organizations focus and improve their internal accounting processes.

E2K measures a number of events. Firstly, it considers the time for a sub-ledger or supporting system to record an event. If a sub-ledger performs no reporting on its own and it posts to the general ledger on a batch basis (nightly, weekly, monthly, etc.); then this will elongate the E2K time.

The faster the general ledger can report the impact of an event, the smaller the E2K value. Waiting for all accounting journals to be posted, balancing, reconciliation and producing paper reports adds to the E2K time.

There are two key E2K measures, the maximum and average E2K values. The maximum value is the time from when the first transaction is entered in a system during a new fiscal period to when it is reported. An average E2K time may be for an entire system or a sub-component. For example, E2K can be reported by each sub-ledger (accounts payable, payroll, manufacturing, etc.) or for the entire system.

Best E2K practice

Organizations can reduce their E2K time through a number of strategies: 1. Implementing and upgrading systems to take advantage of faster close cycles 2. Use of workflow technologies to communicate exceptions and critical events to those responsible 3. Reporting Marts and the like away from the OLTP system for internal reporting 4. Adjust accounting cycles to natural business cycles. 5. Benchmark and set targets to improve current practice.

References

Event to knowledge Frank Potter. CMA Management. Hamilton:Jul/Aug 2001. Vol. 75, Iss. 5, p. 33–37 (6 pp.)