Close-the-Books Guide: Reduce Financial Close Risk

A fast, close-the-books process provides multiple benefits for the finance function and for the company. First, a fast close process creates more time for finance professionals to focus on strategic activities for the company, such as identifying warnings in financial data and providing the corporation's financial direction. It also reduces the cost of the finance function, since fewer hours are needed to close the books. And it demonstrates that the company's controls and systems are well organized; the company sends the message to its competitors and to the investment community that it is expert at performing business processes.

Total costs to close the books and to create financial reports, as a percentage of revenue, is an important measure to track because it reflects how well the company manages the labor and technology resources of the finance and accounting organizations. While it's important to close the books quickly at the end of an accounting period, companies also want to achieve a quick close in a financially responsible manner. Leading companies seek to close the books quickly by improving the fundamental processes—in other words, the structure of the organization, the workflow and the procedures—without necessarily spending large amounts of money on additional workers or the latest computer systems.

Total costs to close the books and to create financial reports per FTE indicate how well a company manages its finance and accounting costs relative to the number of workers in the organization. Leading companies seek to improve the close-the-books process—without necessarily spending large amounts of money—by improving the structure of the organization as well as workflow and procedures in the accounting and finance departments.

Here is a list of key indicators of improvement opportunities:

• Nearly every account on the balance sheet is reconciled to the penny on a monthly basis
• Heavy reliance on spreadsheets and “off-line” sub-ledgers
• Relatively high volume of manual journal entries
• Frequent and high volume of overtime by accounting personnel in order to meet tightening deadlines
• A history of being highly acquisitive and not effectively integrating the unit’s close process into the corporate consolidations process
• Continual issues with post-close adjustments (e.g., “surprises,” issues that recur as post-close adjustments each month/quarter/year-end, large dollar amount adjustments, etc.)

Check out KnowledgeLeader’s Fast Close Guide for more information on this topic.

Other related resources include:

• General Ledger Accounting—Close the Books RCM
• Close the Books Key Performance Indicators (KPIs)
• Journal Entry Policy