Strengthening Controls: How Continuous Accounting Can Reduce Exposure

Elizabeth Milne

Part 7 in the “Continuous Accounting Action Plan” series

The concept of continuous accounting is all about getting access to financial data faster. One key concern with speeding up the financial close process is ensuring that you don’t sacrifice quality for speed. A recent ACAA survey found nearly half of accounting leaders stated that the difficulty of instituting effective controls to ensure ongoing accuracy is a barrier to financial close acceleration. In other words, if you do it faster without upgrading your controls process then you risk controls failure. One of the big problems is that ensuring strong controls has become much harder over the past decade. And it’s a delicate balance: Controls that aren’t detailed enough risk things slipping through the cracks. While in a manually intensive accounting environment, controls and checklists that are highly detailed can risk overwhelming accounting teams.

A broadening regulatory and risk landscape

The Sarbanes-Oxley Act (SOX) was introduced in 2002. A recent survey of internal controls professionals found that 80% of respondents still reported improving the efficiency of the SOX function as their top priority.  On average, 48% of organizations have seen their audit costs rise from 2016 to 2017. Beyond SOX compliance, the regulatory climate has become substantially more complex. Base erosion and profit shifting (BEPS) compliance requires complex tax reporting and transparency requirements, new auditing standards with PCAOB 18, and of course an ever-changing and more complex revenue reporting landscape. It’s no wonder then, given this environment, that 70% of firms surveyed in a Thomson Reuters study said they are expecting the focus on managing regulatory risk to increase over the coming year.

Regardless of which regulation we’re talking about, using spreadsheet checklists to manage them is just plain risky. A first step in managing controls is to move to a centralized repository for compliance, control, and policy information. This ensures cross-functional standardization and consistency.

Getting proactive with continuous accounting

One key principle of continuous accounting is to use technology to distribute departmental workloads continuously across accounting periods. Rather than waiting for period-end, you can embed controls directly within operational and transactional business processes, such as order management, invoicing, or procurement. Modern financial management systems typically provide strong workflow, operational analytics, and rules to institute operational controls, and ensure that they can effectively be maintained in an environment of change.

Here are a few ways continuous accounting can improve control of the financial close:

  1. From transaction-based to exception-based. Analytics and automation enable accounting to move from being responsible for the transaction to being precisely focused on the riskiest accounting issues – for example, specific balance sheet variances, or reconciliations that fall outside of given thresholds. Automation of highly transactional accounting tasks enables you to raise exceptions or flag high-risk accounts that merit further investigation.
  1. From interpreted to managed segregation of duties. Checks and balances can be hard to maintain at every point in the month and during the close. Close management and scheduling technology can help orchestrate who is working on what task. This ensures that procedures for who is entering journals, approving reconciliations, or performing eliminations aren’t left to interpretation, but clearly documented with digital workflow surrounding it.
  1. Monitor using real-time analytics. Modern analytics can provide visibility to the status of controls, who is working on what, and drill down from areas of concern. By rolling analytics out to stakeholders within the organization, from the controller to the chief compliance officer, organizations can act faster if control issues are highlighted sooner.

In an era of regulatory change and broadening risk environment, continuous accounting provides a vehicle for organizations to cope with growing controls that can either overwhelm accounting teams or raise the specter of a control failure. It’s the combination of shifting as many of the controls as possible to the point of the transaction. With growing control complexity and dependencies, it’s essential to reduce the burden on humans to adhere to controls by applying automation and scheduling. This ensures that accounting is working on the right things for clear segregation of duties.

In the next post in our “Continuous Accounting Action Plan” series, we’ll focus on how to use the approach to aid the financial consolidation process.

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Elizabeth Milne

About Elizabeth Milne

Elizabeth Milne has over 20 years of experience improving the software solutions for multi-national, multi-billion dollar organizations. Her finance career began working at Walt Disney, then Warner Bros. in the areas of financial consolidation, budgeting, and financial reporting. She subsequently moved to the software industry and has held positions including implementation consultant and manager, account executive, pre-sales consultant, solution management team at SAP, Business Objects and Cartesis. She graduated with an Executive MBA from Northwestern University’s Kellogg Graduate School of Management. In 2014 she published her first book “Accelerated Financial Closing with SAP.” She currently manages the accounting and financial close portfolio for SAP Product Marketing. You can follow her on twitter @ElizabethEMilne