A survey by the Institute of Management Accountants found that the financial close is a significant challenge for most accounting and finance organizations.
It’s easy to see why, considering the financial close isn’t a single process, but the distillation of many interrelated and often interdependent processes, each with its own stages.
Optimizing the financial close requires a concerted effort aligning systems, people and processes to make the close more efficient.
Protiviti, a global consulting firm and wholly owned subsidiary of Robert Half, published a white paper outlining five steps to help with this effort. By following these five steps, organizations can assess the current state of their financial close process, categorize and resolve the root causes for issues, identify automation opportunities, and improve efficiency.
Here’s what Protiviti recommends:
1. Assess inefficiencies
Disjointed systems hosting various accounting transactions can result in difficult and time-consuming reconciliations. Multiple and redundant managerial reporting packages used at various stages of the close may require extensive data manipulation and several different spreadsheets. Often, these manipulations and workarounds are poorly documented, creating gaps in the audit trail.
Foreign subsidiaries can further complicate matters with poorly documented intercompany transactions, currency conversion errors, and inappropriate eliminations and consolidations of financial statements.
2. Align systems, people and processes
Easy to say, but often devilishly difficult to practice, this second step involves getting everyone in the financial close process committed to the change process.
The challenge, of course, is bringing together dozens of people from revenue, operations and services, accounting and finance, treasury and cash management, payroll, legal, and IT and moving them away from their traditional functional silos. And everyone must set aside their deadline anxiety long enough to focus on big-picture goals that are ultimately more important to the organization over the long term.
3. Determine dependencies
Identifying key processes that depend on each other helps the organization set realistic deadlines and eliminates unnecessary stress and conflict. By understanding the critical path, everyone can clearly see the steps involved and where they fit into the big picture.
Determining dependencies also helps to reveal potential bottlenecks that may serve as good starting points for process improvement.
4. Resolve constraints having the greatest impact
Once the critical path and potential bottlenecks have been identified, the organization can begin to clear the path by resolving potential constraints before they become deadline-breakers. Defining root causes allows organizations to determine what solutions to apply and where.
For example, contract management inefficiencies may cause the revenue team to spend several business days during the period-end cycle identifying and investigating contracts that require different processing, revenue adjustments and deferrals.
In designing systems to remove constraints, it is important to start with a clear and accurate description of the constraint, the appropriate category — people, process or system — the root cause, the impact of the constraint on the close, and the expected benefits of resolving the constraint.
5. Optimize financial close process administration
The last step, logically, is the implementation of the people, process and system changes identified in the previous four steps.
There are several solutions that can provide support over financial close and reconciliations and can automate, monitor and control financial close activities and their dependencies. Some of the most common include: Oracle Hyperion Financial Close Suite, BlackLine Systems, Cadency (Trintech) and SAP Financial Closing Cockpit.
Automation of administrative tasks and control of their dependencies can help reduce wasted time, decrease manual errors and increase efficiencies. By moving away from the commonly used Excel task list, organizations can optimize the number of tasks and their assignment to different people involved in the close process.
The end result will be a faster, smoother and more-efficient financial close.
This post was authored by Siamak Razmazma, Managing Director, ERP Solutions, for Protiviti.
For more on variables that can affect the speed of the closing process, and why it’s important to improve financial close efficiency, download the latest Benchmarking the Accounting & Finance Function report from Robert Half and Financial Executives Research Foundation (FERF), the research affiliate of Financial Executives International (FEI).
This post was originally published in August 2015 and has been updated to reflect more current information.