As emphasis on timely and accurate financial reporting increases, companies find themselves under greater pressure to both close the books and report results in a shorter time frame. Public and private companies alike find that a disciplined close cycle process is necessary for effective and efficient financial reporting.
Many companies struggle to execute their close in a timely manner, leaving little time for additional value-added analysis. Further, a poorly managed close process can expose the organization to a number of risks, including:
- Reporting inaccurate or untimely financial results
- Critical information being delivered too late to make informed decisions
- Higher-than-necessary staffing levels required to support manually intensive processes
- Key person dependencies for critical close activities — creating process “bottlenecks” and an uneven workload that can lead to employee burnout and high turnover
With an efficiently planned and managed close cycle, companies can close their books quickly and accurately, allowing management time for critical financial and operational analysis.
Challenges and Opportunities
In creating an efficient and effective close cycle, companies face a number of common roadblocks that, if overcome, can significantly reduce the amount of time needed for the close.
- A high number of manual journal entries increases the time needed for preparation and review. Reducing manual journal entries through better utilization of technologies can save significant effort in the close. Automating journal entries and reducing reliance on spreadsheets also reduces SOX testing costs.
- Identification and resolution of the root causes of nonvalue-added entries can significantly reduce the number of manual journal entries during the close.
- Balance sheet reconciliations often take a substantial percentage of time spent on the close process. Proper prioritization of reconciliations using a risk-based approach reduces the time required to complete reconciliations. Benefits include reallocation of professionals to more value - added activities and lower audit-related costs.
- Disparate financial systems add a level of complexity to close cycles. Rationalizing the financial systems infrastructure enhances close process accuracy and efficiency.
- Accounting functions often do not fully understand interdependencies within the close process, resulting in inefficient process hand-offs and an inability to allocate activities appropriately. Understanding and managing the full close cycle results in a more effective process.
- Many accounting functions view close due dates as moving targets rather than hard deadlines. Creating a culture of continuous improvement increases accountability for tasks and creates consistency in the close from month to month.
Our Point of View
Because the root causes of close cycle issues vary, so do the improvement opportunities. We have worked with many clients to improve various elements of their close. Many issues found in the close cycle require investments in technology; others require organizational, policy and/or process changes. Many companies need a holistic approach to addressing all the core components of a close cycle.
For companies seeking improvements, there generally is not a “silver bullet” solution. However, we have found that nearly all best practice companies have instilled a sense of discipline around the close, and made the process repeatable, accurate and efficient. While many companies have made significant infrastructure investments to achieve results, often it is closer oversight on daily activities that drives results, especially as companies initially undertake improvement initiatives. On this point, we have seen companies make remarkable improvements with a relatively small up-front investment.
Companies of all sizes can benefit from creating a comprehensive close checklist and putting a “close manager” in place to oversee the close cycle on a daily basis. Using the close checklist, a close manager can monitor tasks against the timeline and proactively identify issues before they impact the close. Additionally, the manager can analyze the close cycle after it has been completed and compare the results to prior months, identifying trends and problem areas. Key close cycle performance metrics can be established and monitored on a monthly basis. Building and maintaining a repeatable close cycle can help companies provide the best financial reporting data and allow accounting departments more time to complete valued-added analysis.
How We Help Companies Succeed
Our approach is unique in that we do not focus on detailed process mapping during an assessment phase, as it can be time-consuming and nonvalue-added. Instead, we look to quickly understand the activities that comprise your close cycle by leveraging our detailed close checklist model. This enables us to ascertain key dependencies in your process and identify whether your workload is optimally balanced, technology is adequately leveraged, and activities are managed in a repeatable manner throughout the close cycle.
This approach has helped us develop significant expertise in implementing solutions to our clients’ close cycle challenges. Our improvement efforts have included redesigning/automating segments of the close cycle, establishing monitoring techniques and rebalancing workloads. Our expertise will provide you with the ideas and support necessary to help you achieve tangible benefits in a controlled and measured manner.
“I thank you and my family thanks you.” This was a direct quote from an employee of a large coal mining company that wanted to provide relief for its over-worked finance department employees by improving the efficiency of its close cycle.
Our Finance Transformation specialists worked with the company to document its detailed close activities utilizing our checklist model. We identified solutions to problem areas and bottlenecks where time and efficiencies could be gained. Additionally, our close checklist approach helped identify opportunities for improving workload distribution across the finance department and improve work-life balance for its associates.
A key output of the project was the ability for the client to leverage the comprehensive checklist as a close monitoring tool for management to implement real-time tracking of the monthly close. As a result of applying Protiviti’s strategic approach and recommendations, our client:
- Improved the work-life balance for both finance and operations associates by reallocating workload so that no employee works more than 50 hours per week during the close cycle.
- Compressed the close cycle time. Although decreased cycle time was not the primary objective of the project, our efforts contributed to a full-day compression of the close cycle (from seven days to six).