May 27 2016 0comment

Good Practices In Financial Close

One of the prime responsibilities of an enterprise is to deliver timely and accurate financial statements to their investor and other ecosystem. This function is imperative not only to keep in compliance with regulatory requirements but importantly, to also help the recipient of this information to take timely and accurate decisions on the basis of the financial statements.

Simple as it may sound, the entire process is very arduous, time sensitive and labor intensive.  Not only does it require extensive attention to detail on a continuous basis (for month end closing) but also constant reconciliation activities to minimize discrepancies.  Too many accountants are still bogged with spreadsheets and long hours of labor to accomplish tasks involved in closing books of accounts reconciling general ledger balances, intercompany transactions etc. Some enterprises do this in the same way that it was being done generations ago. This not only has an adverse impact in terms of productivity but also on governance and compliance as manual tasks are error prone. The enormous amount of time taken for finance professionals to accomplish these tasks, can be used to drive high impact activities that can add a lot of value to business including enterprise performance management, budgeting, predictive analysis etc.

A wave of change is coming in via automating these processes. With solutions that conduct automatic reconciliation and transaction matching, account balances are automatically matched and exceptions are identified. Journal entries are created, reviewed, approved and posted all via a batch or scheduled upload in the system. Workflows are completely automated with audit trails.  In addition back up documents are also attached to each entry and stored in a centralized system to have adequate visibility at any point. Month end checklists incorporating a list of tasks to be completed are now totally automated so that there is adequate visibility to where an activity is at any point. No longer does an enterprise need to rely on the availability or have risks in case any employee leaves the organization during the financial close. Any successor will be able to know exactly the steps remaining to financial close. Each task together with deadlines can be easily tracked irrespective of geography where the accountant may be based.  When new balances are imported, the finance organization can determine which accounts need monitoring (based on how prone they are for showing up differences), in order to ensure that they are being proactively monitored. Similarly in the case of multiple general ledgers that gets into a consolidation system, the integrity between the GL’s and the Consolidation system can always be automatically maintained using applications that automate this process. All credit card transactions, inter-company reconciliations and account reconciliations are completely automated thereby ensuring that the time taken as well as the accuracy of the closing process is improved by several notches.  There are solutions that fully integrate with the back end ERP, making the entire process extremely seamless.

While automating this process is imperative, it is equally important to hire the right people, set and communicate the right processes to ensure that they take good advantage out of these investments.  Defining clear accountabilities, setting the right levels of approval, ensuring that employees are adequately trained on processes and tracking and reporting progress is imperative for the success of the finance organization.

The financial close is a very important process for an enterprise, and warrants implementing and adhering to good practices to ensure adequacy in governance and compliance together with ensuring that the enterprise delivers timely and accurate financial information to its stakeholders.