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Improving Your Financial Statement Close Process

10.16.2018

Timely and accurate financial information is the foundation for companies to grow and thrive in a fast- paced, highly competitive environment. Interestingly, accounting close, consolidation and reporting processes are frequently identified by management as pain points and impediments to growth and profitability. APQC (American Productivity & Quality Center), an organization that provides benchmarking data “to help organizations work smarter, faster and with greater confidence, “indicates that top performing companies are able to wrap up a monthly closing process in 5 days, while lower performing companies take 9 days or longer.

Effectively managing accounting close, consolidation and reporting activities provides opportunities to streamline processes, increase visibility, leverage technology and reduce risk while supporting a company’s business goals and objectives. A Fast Track Assessment is one way management can shine a light on immediate and long-term fixes and opportunities that can add value. The assessment provides a clear vision of current risk and efficiency and formulates a plan to improve problem areas while leveraging strengths.

Overview

A Fast Track Assessment of a company’s accounting close, consolidation and reporting processes can be used to evaluate how it is preforming by taking a comprehensive look at the design and operation of an organization’s people, processes and systems. The goal is to maximize accuracy and efficiency while reducing cost and cycle time to create the most efficient and effective closing process. This includes transaction systems such as accounts payable, billing and inventory, as well as the financial closing cycle and internal and external reporting. Through an assessment, companies are provided with the necessary information to understand where they are running effectively, as well as where they can improve. This information can be used by management to develop short and long-term action plans to realize improvement opportunities.

Getting Started

Companies should begin these initiatives by defining the goals and objectives of the assessment and setting forth a clear scope of what it will cover. Once the scope is established, begin by gaining an understanding of processes being evaluated, obtaining and reviewing background information on current processes, systems and organization structure. This will help direct additional data gathering efforts, including performing interviews, conducting walkthroughs and obtaining data to understand and evaluate process design, performance metrics (benchmarking), pain points and internal strategy.

Accounting Closing Maturity Model

A maturity model is a tool you can use to evaluate different dimensions of your financial close, consolidation and reporting processes, providing a framework to assess overall performance.

The maturity model, pictured below, reports on various dimensions in Basic, Established, and Leading categories, providing a continuum upon which companies can focus their improvement efforts. Dimensions include: Cycle Time, Preparedness, Productivity, Value, and Procedures.

(figure: Example of Accounting and Reporting Maturity Model, Brown Smith Wallace LLP)

Benchmarking

Benchmarking is often used to evaluate a company’s progress in the dimensions found in the maturity model. These metrics allow organizations to compare their performance against other, similar businesses to identify potential underperforming areas. Benchmarking data can come from both internal (e.g., comparable business units) and external (e.g., APQC) data sources. It is important to understand the benchmarking data being utilized, as it can have limitations in terms of comparability and relevance. Comparable, relevant data can provide direction to dig deeper and allow for insights into potential areas of improvement.

Analysis

The last step is to analyze information gathered and leverage methodologies such as process mapping and value stream analysis to focus on identifying and eliminating waste and improving business processes. This information can be used to develop an action plan to implement short and long-term improvement activities and initiatives.

General Accounting Close Preparedness

One often overlooked aspect is general accounting close preparedness. This can be a catalyst for a successful monthly accounting close. Accounting resources are at peak demand during the closing process. Proper organization, prioritization and preparation keeps resources focused on scheduled tasks and activities rather than being diverted to other issues. All efforts can then be focused on the remaining critical tasks, significantly reducing time from period-end to closing the books.

General accounting close preparedness can be tracked through another maturity model, focused on planning, execution, and strategic dimensions, and follows the closing maturity model’s ranking of basic, established and leading.

What Companies Get Out of It

A Fast Track Assessment provides an overarching and cumulative look at a company’s accounting close, consolidation and reporting process, with information available in a single report that enables you to:

  • Close faster with fewer adjustments
  • Save time and money because of increased efficiency and clear description of tasks
  • Encourage intra-company cooperation
  • Apply automated workflows
  • Audit without surprises
  • Measure efficiency and gain understanding of processes being measured              
  • Clearly define internal reporting and make support data readily available
  • Enhance efficiency of value delivery
  • Develop roadmap for improvement

These reports can also provide a basis for leveraging automation to help promote standardization, reduce redundant activities, and improve timely access to information while reducing error rates.

Today’s fast paced and evolving world requires companies to have accurate and timely information to compete and grow. Efficient and effective financial close, consolidation and reporting processes provide a foundation for a company’s success and should be part of your business improvement efforts.  A Fast Track Assessment is a great way to begin your journey to optimize these processes so that management can focus on executing the business strategy and helping the company realize its potential.

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