Part 8 in the “Continuous Accounting Action Plan” series
Our blog series has been addressing multiple ways of applying a continuous accounting methodology to help with common finance and accounting processes. We’ve covered various topics such as reconciliations, disclosure and reporting, and management reporting activities. In this blog, we’ll discuss some roadblocks to corporate financial consolidation processes, and how modifying your close methodology can help unblock them.
What are some of the roadblocks that often come up?
- Time and quality issues with data collection. Financial consolidation requires corporate to collect information from individual entities. Corporate either must wait too long to receive information from each entity, or there are issues with the data or questions that create back-and-forth.
- Manual consolidations and entries. Spreadsheet-centric tasks like mapping accounts, applying consolidation rules, or manually making entries to tie out the close slow down the process.
- Intercompany reconciliations and eliminations. Tracking down detail behind intercompany transactions, pricing, contracts, currency rates, and how they were approved absorbs too much time. Corporate is a bottleneck for matching and eliminations
- Consolidation process control activities. Looking up checklists or manually applying control activities in the consolidation process can tie up members of the team.
- Business structure change management. Adding newly acquired or created entities can take a significant amount of effort, as well as risking the integrity of consolidated reports.
- Consolidated report creation. Taking results from the consolidation system typically means reformatting results or further spreadsheet manipulations.
- Changing reporting requirements. New regulatory requirements from various governments and industries can often mean that existing financial consolidation reporting processes fall out of alignment, requiring further manual effort.
A continuous accounting framework can help with all of these issues, but only if tackled from three angles: people, process, and technology.
A multifaceted approach
If you’re running aging financial consolidation software, or perhaps using spreadsheets for a substantial part of the process, you should start with an upgrade from all three angles―which can remove some of these roadblocks quickly and reliably. For example, a recent Ventana Research note found that a technology upgrade can improve multi-reporting processes by using a single database to cut consolidated reporting effort. And the research noted that modern financial consolidation tools can also apply workflows and controls to the process with dashboards, automated hand-offs, and process monitoring. A key to success is modifying employee roles and processes along with the technology.
The multidimensional nature of financial consolidation can also benefit from an upgrade, by enabling teams to much more effectively slice and dice business units, geographies, GLs, currencies, time periods, and so on, and present it visually. Updated technology can also help with change management, such as adding in a new entity or making other changes to the business structure, and ensuring that it flows through to calculations and reports without the risk of process breakdown.
Another area where corporate can apply a continuous approach is intercompany accounting tasks like transactional intercompany reconciliations and eliminations. Technology can provide tools that allow for peer-to-peer reconciliation throughout to prevent corporate from becoming the bottleneck at period-end. This also involves a change in processes and training people to leverage new tools and processes. That way, when period-end rolls around, intercompany accounts are all in balance. Then corporate just needs to run a quick reconciliation report to ensure that everything is balanced, and run automated eliminations with a consolidation software system.
The dividends of reengineering the financial consolidation process, through both software, automation, and changing when activities take place, can be substantial—and can address the bulk of these roadblocks. In many organizations, addressing a few or many of these roadblocks can deliver substantial dividends. For example, a survey by Accenture found that the fastest 20% of companies performed their month-end financial consolidation process three times faster than the slowest 20%. There is no silver bullet for achieving that kind of difference. It requires tackling different consolidation roadblocks using different strategies and tactics.
Process change through automation and training
However, a vital underpinning to continuous accounting is not just changing the process; it’s changing the process through automation, and training your people to optimize the processes and technology. Successfully shifting tasks from month-end to as-they-happen requires augmenting the accounting team with tools that help monitor completions, scheduled tasks, and automate rote and repetitive transactional accounting tasks. In the next blog in the series, we’ll look at an automation foundation for continuous accounting.