Part 4 in the “Continuous Accounting Action Plan” series
Welcome to the fourth post in our series on how to reinvigorate your finance and accounting processes to make them more responsive, agile, efficient, and trusted.
We kicked off the series introducing the concept of continuous accounting. In a nutshell, it’s taking activities like the financial close and providing better access to real-time data by applying more automation. The goal is to free up accounting teams to focus on the quality of the process, rather than repetitive, mundane manual tasks. Teams can now spend more time partnering with the business instead of being crunched at month’s end. The same applies to FP&A, moving from infrequent forecasting, which often becomes an academic process, to rolling, continuous forecasts that improve accuracy.
In the previous blog, we tackled three examples of quick wins because, like any initiative, it’s important to get some rapid successes under your belt and show value back to the business. Now we’re going to focus on some examples around larger-scale wins, specifically within the corporate and entity close. Here again, your specific big wins might be different. These are examples; depending on your organization, big and small will vary. Intercompany, for example, may be a huge issue at a company with large volumes of intercompany transactions; here, automating and improving the process could be a big win. On the flip side, if your company has fewer intercompany transactions, automating that process may be a quick win. The important takeaway is that you plan your journey in steps and discrete chunks of increasing value.
In the last blog, we defined a “quick win.” But what makes a win a “big win”?
- It delivers significant improvements in strategic areas like financial and accounting efficiency, reduces risk and exposure, or measurably enables the business to better meet its strategic goals. Since the initiative is larger-scale, the timeline in which it should deliver value to the organization would be significantly longer than a “quick win.”
- The initiative, while complementary, may replace existing investments.
- While finance and accounting should own the initiative and manage the new process, it may initially require support from IT or DevOps, to create a deeper integration with the finance application landscape.
With that, let’s start with some examples.
Renovating your financial consolidation processes
Financial consolidation is the nexus of complexity and risk in the financial close process. This is because when there are numerous entities, ERPs, local accounting rules, currencies, and people in play, there’s often substantial room for error. A survey by EY of 1,000 CFOs and heads of reporting of large organizations found that one in five has 20 or more reporting systems. And about two-thirds (63%) said that they’re seeing a rise in the number of reporting standards.
So how can you know if your financial consolidation process needs an upgrade? We talked about the importance of benchmarking earlier, and it turns out that the top 20% of organizations in terms of financial close maturity spend about a day to complete their consolidation process. The least mature 20% spend about three days, with an additional day quarterly, and six days more for annual reporting. In terms of risk, a study by Audit Analytics found that nearly 20% of restatements over a 15-year period were due to areas related to financial consolidation, including acquisitions, mergers, disposals, re-org accounting, foreign party-related transactions, subsidiaries, intercompany accounting, and overall consolidation.
So, we’ve established that financial consolidation meets the benefits-improvement criteria around a strategic win. But what does a project look like?
The objective of any consolidation initiative should improve how the organization can meet different financial reporting requirements; automate the consolidation process across GLs, currencies, and entities; and improve audit trials. It should also shift tasks like intercompany eliminations, minority interest, and currency translations away from spreadsheets.
From a continuous accounting perspective, financial consolidation renovation can also play a significant role in providing information to the business faster. Moving to a virtual close, and performing more consolidation tasks in real time, can provide a consolidated perspective of the business at any point in the period. If consolidations and planning are brought together into a single application, it provides the perfect vehicle to drive rolling forecasts for real-time consolidated results.
Options include renovating your current process and/or technology or perhaps replacing it altogether. In terms of integration, because a corporate financial consolidation system can touch multiple ERPs in the financial landscape, the project should include attention to data governance, integration, and master data management.
Financial close task orchestration
Within the financial close, another significant area of opportunity is ensuring stronger collaboration, sequencing, approvals, and level of detail in the close processes. If your organization uses a spreadsheet-based task list to manage the timing and sequencing of things like journal entries, accruals, intercompany reconciliations, or gathering data from different apps for consolidation and/or validation, then you’re not alone. While task management can improve speed, for example, a recent Wall Street Journal article cited PwC research finding that the top quartile of closers using technology was able to close the books in 3.5 days, while the bottom quartile, who often were more spreadsheet-centric, took 7.5 days or more. Think of it this way: the best closers require less than half the resources versus the bottom-quartile to close the books.
But task orchestration isn’t just about speed and resources. It’s about ensuring that everything is complete and approved at the right level of detail in the closing checklist to reduce financial reporting and regulatory risk. In fact, a recent survey by FSN found that the reporting process is what keeps most CFOs awake at night. An unmanaged process creates both risk and stress. The problem is that a close checklist at a high level is likely to leave too much of the close process to chance, while too much detail can overwhelm accounting teams, causing accounting to get even more bogged down.
Financial close task orchestration enables “detail at scale”; that is, ensuring that everything is checked off on the checklist, while effectively acting as a traffic cop. A central collaborative environment manages what needs to be done, who needs to do it, what the blocking tasks are, and even going as far as kicking off tasks that can be handled without human intervention. The goal is to improve collaboration and monitoring across the entire entity closing cycle for all companies within the group. This approach also helps accounting teams collaborate more effectively, know what to work on next, report their status, and ensure that they perform their work on time and in the proper sequence, resulting in fewer errors and delays. Task management is essential to move to continuous accounting, where close tasks don’t all occur at the end of the period; they occur throughout, which makes tracking what can occur “now” versus period-end, particularly important.
Getting a task management and orchestration project rolling means working to understand what your entity checklist should ideally look like, understanding what approval processes should look like for the various close tasks, knowing which ones can be scheduled robotically, and training the team to move towards checking off tasks using an application rather than using emails or verbal sign-offs. Done right, the results can yield significant efficiency and risk benefits.
In our next post, we’ll jump into controls, and how to use continuous accounting to reduce exposure.
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