Accelerating the Financial Close

By Priya Sarjoo

Financial closing challenges
Anyone who has worked on a financial close will tell you that the financial close process is never an easy task, and it has only become more challenging as more companies have increasingly disparate operations in locations around the globe.

Companies with multiple locations frequently have multiple computer systems, different and sometimes inconsistent processes, and different reporting requirements for local and global needs. This operational complexity, coupled with changing regulatory environments can create difficulties for even the most efficiently run companies.

While the objective of the financial close process is straightforward - to produce a summary of all of the transactional processes occurring within a specific financial period in an accurate, timely, reliable and transparent manner - implementing an effective set of financial closing activities to achieve this objective is a challenge.

How long does it take your company to complete the financial close?
If you find yourself well into a new month before you have completed the prior month's close, you may be working with traditional closing processes which are often labour-intensive, poorly defined, inconsistent and undocumented.

Here are some indicators of a traditional non-accelerated financial close:

	Closing period that extends well into the new month.
	Unclear closing timetable with frequently missed deadlines.
	Books are frequently re-opened to make adjusting entries.
	High number of manual entries and hand-offs.
	Time-consuming error correction.
	Inaccurate or unreliable financial forecasts and reporting.
	Reliance on multiple systems which do not interface.
	Excessive overtime logged during the closing process.

If any of the items on this list remind you of your company's closing process, you have an opportunity to make your close more efficient and effective and could probably benefit from implementing some of the suggestions in this article.

Accelerated closing practices are exemplified by well defined, documented, reliable, and technology-enabled processes. We would like to share some of our Accelerated Financial Closing guidelines with you to help you reduce the number of days it takes to complete your financial close process. You can implement these best practices within your organisation by evaluating and improving your process flows, reducing inefficiencies, making changes to job descriptions and clarifying reporting responsibilities. You can also leverage your existing technology to support a more efficient close process.

Here are some suggestions from our Accelerated Financial Closing guidelines to help you jump-start your company's improvement initiative:

	Secure executive management support and educate the entire organisation. Work with your executive management to ensure their support and commitment to ensuring timely and accurate reporting. Educate process-owners about how their actions affect the timing of the financial close.
	Establish the role of information technology. Work with your IT department to discover how disparate systems can be integrated and fully leveraged to support your streamlined closing process.

Benchmark your current state and identify your desired state. Understand your current process and identify your desired state. Here is an example using period-end reconciliations to illustrate how you can undertake this step:

Develop and implement a plan to close gaps. Develop a project plan which targets time-saving solutions first and then focus on possible technology enhancements.

Implementing Accelerated Financial Closing procedures can help you immediately realise value by:

	Streamlining your financial closing and consolidation process  You can eliminate redundant or unnecessary activities, reduce the time required to close your books and be better prepared to deal with internal, external and other regulatory reporting requirements.
	Providing transparent and predictable financial reporting   You can improve the quality, accuracy and timeliness of your financial reporting and produce more reliable financial data to help grow your company.
	Improving the productivity of your finance and accounting staff  Your finance department can spend more time assessing financial results and focusing on more constructive activities instead of transaction processing and error correction.

The benefits of an accelerated financial close are clear - companies can close their books more accurately, efficiently and quickly, and meet regulatory requirements and stakeholder demands to provide more timely information. The risks of an ineffective close are also clear - simple mistakes can easily add up to materially significant transactions and disclosing inaccurate figures can lead to restatements and damaged investor confidence, increased audit expenses and sinking stock values.

This article is extracted from: A Guide To The Accelerated Financial Close, Grant Thornton International, June 2006.
 

Accelerated Financial Closing Objectives Streamline the financial closing and consolidation processes Provide transparent and predictable financial reporting Improve finance and accounting staff productivity

Implementing an Accelerated Financial Close The implementation of an accelerated financial close includes: mapping and analysing current financial close processes identifying performance gaps (from both an effectiveness and efficiency perspective) developing a plan to close the gaps implementing the plan to improve the financial close process

Accelerated Financial Closing Benefits A financial close that is accelerated offers better timeliness, quality, reliability and transparency - resulting in several benefits to a company: Performance Reduces time required to close the books each period, offering more time to assess the results Improves quality, accuracy and timeliness of financial information Increases capability of making financial decisions with reliable data Eliminates unnecessary activities Control Helps the company focus on goals and objectives, rather than only on processes Reduces number of manual entries Integrates databases between applications Reduces errors Establishes policies and processes that should be consistently followed Value Lowers the cost of accounting and finance functions based on reducing personnel time Improves productivity: staff time freed to engage in more strategic services such as benchmarking, forecasting or contributing to financial decision-making Gives greater investor confidence because financial statements are more timely and accurate Reduces accounting errors and potential misstatements, which in turn reduces audit fees Improves information technology systems and applications that do not interface

For more information, please email Patrick Rozario, Principal, Business Risk Services at parick.rozario@gthk.com.hk or
Priya Sarjoo, Manager, Business Risk Services at priya.sarjoo@gthk.com.hk.
 

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