Auto spreading of financial statements

  • Updated

Auto spreading of financial statements

Financial statement spreading is the process of transferring information from a borrower’s financial statements and feeding it to the bank’s financial analysis spreadsheet. It can involve inserting the borrower’s financial statements and tax documents that go back years into a special credit spreading software, thus helping the analyst spot trends over the years and understand the borrower’s financial condition. Capturing and analyzing a borrower's financial statements can be a time-intensive process and lead to lengthy underwriting and processing times.

Currently, the bank officials refer to multiple tax documents to populate the "Income" statement for the borrowers. For example, financial data from Form 1040 + Schedule C's are used to generate the income statement. If the borrower owns multiple businesses, there are multiple schedule C's (one for each company). 

Q2 Origination extracts the data automatically from these financial statements by leveraging optical character recognition (OCR). With automated spreading, financial institutions can streamline the underwriting processes, increase efficiencies, and improve data quality. Q2 Origination is enhanced with the following changes to support the auto spreading of financial statements:

  • OCR of financial statements

Note:

In the Spring'22 release, Form 1040 and Schedule C of the year 2020 are supported for auto spreading to create income statements.

  • Extract data from Form 1040 and Schedule C by invoking the ABBY OCR adapter

  • Configuration tool to map the fields from extracted data to the financial statement template

  • Create financial statement

Prerequisites

Before you begin to use the auto spreading feature of Q2 Origination to analyze the financial data, ensure that the following prerequisites are met:

  • Document definition of Document Type = 'Personal Tax Statements' is created in ABBY.

    To OCR any document from ABBYY, document definition for the respective document should exist in ABBYY.

    Note:

    To define a document definition, see Q2 Integrations Documentation > ABBYY OCR - Installation Guide > Document definitions setup.

  • The integration object model is ready

  • OCR Enabled flag is true

  • The following financial statement templates are configured for the income statement and are available post-installation of Spring'22 packages:

    • Personal Statement and Tax Return

    • Sole Prop Schedule C

    • S-Corp Schedule E

    • Rents & Royalties Schedule E

    • Farming Schedule F

    • Partnerships Schedule E

    • Estates and Trust Schedule E

Steps

To use the auto spreading feature of Q2 Origination to analyze the financial data:

  1. Log in to your Salesforce account.

  2. Go to  (App Launcher) > Applications.

  3. From the list of applications, select the required application id for which you want to analyze the financial data. 

  4. Go to Documents and upload Form 1040 and Schedule C for the year 2020.

    Note:

    • If the OCR Enabled flag is enabled and OCR Status is not Donefor the documents, these documents are sent to ABBYY to extract data and store it in the integration object model.

    • The extracted financial data of Form 1040 is stored in the intdm__tax_form_1040__c integration object and of Schedule C is stored in the intdm__schedulec_tax_form_1040__c integration object.

    • To know how OCR works, see Q2 Integrations Documentation > ABBYY OCR - User Guide.

  5. To create financial statements, the extracted financial data needs to be mapped with the Q2 Origination's financial statement template. To know how to perform the mapping, see Auto Spreading Mapping Configuration.

  6. Execute the following two APIs to create a financial statement for a particular year:

    • createUpdateOCRFinancialStatement API to create the income statement for the borrower

    • addUpdateOCRFinancialSpreadSchedule API to create the additional schedule c statement for the borrower

      Note:

      To know more about these APIs, see Q2 Origination Global Methods > FinancialStatementOCRActions.

Example

To generate an income statement, perform the following steps:

  1. Upload the documents for the following document categories on the Documents page of Q2 Origination's application dashboard:

    Personal Tax Return (Prior Year 1) Upload the signed federal income tax returns from the previous fiscal year.
    Personal Tax Return (Prior Year 2) Upload the signed federal income tax returns from two years prior to the current fiscal year.
    Personal Tax Return (Prior Year 3) Upload the signed federal income tax returns from three years prior to the current fiscal year.
    P&L Statement/Schedule C (Prior Year 1) Upload the P&L statement from the previous fiscal year.
    P&L Statement/Schedule C (Prior Year 2) Upload the  P&L statement from two years prior to the current fiscal year.
    P&L Statement/Schedule C (Prior Year 3) Upload the P&L statement from three years prior to the current fiscal year.

    OCR is triggered when Documents' Status = APPROVED. And the financial data are extracted and stored in the integration data model.

  2. Go to Q2 Origination > Origination Configuration > Financial Spread Mapping.

  3. Select New.

  4. Perform the following actions as described in the following table, and then select Save:

    Field Name Action and Information
    Financial Spread Mapping
    From Object Select Tax Form 1040 for Form 1040 and Schedule C Tax Form 1040 for Schedule C.
    Financial Statement Template

    Select the search icon to select Personal Statement and Tax Return for Form 1040 and the following for Schedule C:

    • Sole Prop Schedule C

    • S-Corp Schedule E

    • Rents & Royalties Schedule E

    • Farming Schedule F

    • Partnerships Schedule E

    • Estates and Trust Schedule E
    Additional Schedules Mapping
    Parent Template Select the search icon to select Personal Statement and Tax Return. 
    This section is displayed if you define the mapping for any Schedule C template.

    Financial Spread Mapping Details (Select to add new mapping)

    From Field

    Select the field from the integration object that you want to map with the financial statement template details.

    This drop-down lists all the fields stored in the integration object.
    Financial template Details

    Select the financial statement template details to which you want to map the selected field of the integration object.

    This drop-down lists all the line items configured for the financial statement template.

    A message is displayed on successful mapping of integration object and financial statement template details, "Success: Saved Successfully".

  5. The createUpdateOCRFinancialStatement API is executed and the income statement is created for the borrower based on the mapping defined in the above step.

  6. The addUpdateOCRFinancialSpreadSchedule API is executed and the additional schedule c statement is created for the borrower based on the mapping defined in the above step.

  7. Once the financial statements are created, the financial statement summary is generated and these values are used in scorecard evaluation to arrive at an overall risk score.