BUSINESS

FAST-TRACK FINANCIAL CLOSE

FAST-TRACK FINANCIAL CLOSE

By Mario Spanicciati

“Speed” is a relative term, as we know from watching 100-meter sprinters and Formula One racecar drivers. When Roger Bannister broke the four-minute barrier in running the mile in 1954, the feat was considered impossible. Today, his time of 3 minutes 59.4 seconds wouldn’t get him invited to the track event.

In the context of financially closing the books, yesterday’s speed will be considered slow tomorrow. Why is closing the books quicker than one’s competitors considered strategically important? One reason is to ensure that senior management has prompt access to the organization’s financial data to make swift adjustments in strategy and tactics.

Another reason is to rapidly identify mistakes before they evolve into financial statement irregularities. Error-free financial closings are critical to a company’s compliance and fiduciary responsibilities, not to mention a key underpinning of its business reputation.

Lastly, a faster close frees accountants tasked with accumulating and verifying the financial data to put their time and effort into more high-value activities like predictive data analytics—making sense of the figures rather than merely tallying them up.

Unfortunately, achieving a complete, accurate and fast financial close is easier said than done. A factor in this regard is today’s fast-paced global economy. Keen to seize growth opportunities, organizations are briskly developing new products, engaging new markets, and entering new geographic territories. These priorities result in a vast volume and array of financial data. As the business approaches the month-end close, the demands on accountants to reconcile the accounts—proving or documenting that the balances are correct—are severe. As this pressure intensifies, it increases the risk of mistakes.

These daunting responsibilities are compounded by ever-increasing regulation and the convergence of accounting standards. Working to multiple sets of standards – including IFRSs, Gaap and statutory accounts – creates an even more onerous burden for global companies when they close their books every month.

When questions arise regarding the accuracy of a journal entry or an intercompany transaction, accountants typically have to dig through a mountain of spreadsheets by hand to reveal the truth. Without an automated accounts reconciliation system, they have no visibility into the underlying data to complete this exercise easily or confidently. Sorting out a single version of the truth absorbs countless hours of time, delaying the close.

When this occurs, it creates impressions of operational misalignment—different company departments and functions failing to communicate and interact effectively. As Rob Kugel, senior vice president and research director at Ventana Research, recently stated, “There’s a benchmarking element, which is if you’re not closing the books within a week, you’re probably doing a lot of other things wrong that need attention.”

In other words, a slow or staggered close sends a message of management inefficiency, lax operations and even leadership failure. No organization wants to suffer such reputational tarnish, nor should they.

Accurate and Fast

Just like a 3 minute 59.4 second mile seems antiquated today, so does the continuing use of spreadsheets to post journal entries, reconcile accounts, match transactions, and attend to other financial close tasks. Yet, nearly 60 percent of U.S. companies continue to rely on manual account reconciliation using spreadsheets, according to the report by Robert Half International. A similar if not larger percentage of these manual processes are in place across Europe.

When mistakes are made, the regular response is to blame the venerable spreadsheet, introduced as Excel by Microsoft in 1985. The truth is more nuanced—spreadsheets are only as good (and accurate) as the people using them. It’s not the spreadsheet that’s the root of the problem; it’s the manual reconciliation of accounts, requiring accountants to wearily sift through rows and lines of spreadsheets executed by multiple people in different ways.

Many employees in payroll, accounts payables, and credit and collections generally also are not trained as to the accounting purpose of the transactional data they are directed to collect and repurpose. Possibly unaware of the compliance ramifications of a lost document or erroneous figure, they don’t give these tasks the attention they deserve. High turnover makes a difficult situation worse, as new hires are prone to altering spreadsheet templates, inserting new rows, tabs and files that no longer add up correctly.

Tracking these workflows across a global business creates version control issues and worrisome questions about data integrity. In this entrenched environment, something is bound to go wrong. When a possible error surfaces, accountants must analyze thousands upon thousands of multi-line-item spreadsheets, an effort challenged by the different ways these documents were created and used across the enterprise, not to mention the accounts that were added and deleted by the various individuals who left no mark.

To clear the confusion, accountants reach out for answers to their coworkers via email, text or telephone. Sometimes their queries culminate in a dead end—a colleague just can’t find the document or failed to preserve a physical record. The frustration is palpable, yet it merely increases the risk of a mistake. It’s a small wonder why companies are increasingly unable to recruit skilled accountants—one of the “ten hardest jobs to fill” in Manpower Group’s last three annual talent shortage surveys. They’re leery of the potential workload.

Certainly, this is no way for finance and accounting to operate in a fast-growing business, not in this age of enhanced regulatory scrutiny. The solution is to automate manual account reconciliation and other processes toward an accurate and fast close. No longer can this be put “under advisement”; it is now a strategic necessity and will become a competitive differentiator.

What to Expect

Using an automated accounts reconciliation system, data is imported from the ERP system into the system’s online document repository, which stores and safely archives all supporting documentation. Accountants can easily click through the details of account balances across all balance sheet accounts, investigate any discrepancies that pop up, and then make the required corrections.

Since users have unprecedented visibility into the progress of all processes involved in the financial close, the ability to validate the accuracy of the data is vastly enhanced. Senior management is given heightened confidence in the management of risk to achieve full and worry-free compliance as they compress the time it takes to close the books.

Gartner recently introduced a new financial management software category called Enhanced Finance Controls and Automation. The category recognizes the development of automated financial close solutions to improve productivity, data accessibility and process efficiency, while lowering audit costs and control-related risks. The market research firm urges companies to give a close look at these software products as they plan for and prioritize their future IT investments.

Championing this cause must be accountants. Crunching numbers is better left to machines.

Mario Spanicciati is Chief Strategy Officer at BlackLine, a provider of a unified cloud platform supporting the entire close-to-disclose process

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