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    How Quick Is Your Financial Close Process?

    Posted by Protiviti KnowledgeLeader on Thu, Oct 31, 2019 @ 04:45 PM


    "Close the books" is a process that a corporation uses to reconcile, consolidate and report financial information on a periodic basis. Each company defines closing the books a little differently; not all companies complete an identical list of tasks in their close-the-books process. Possible tasks in the process include:

    • Ensuring validity and consistency in the company's charts of accounts
    • Completing journal entries
    • Consolidating data from outlying business units
    • Running trial balances
    • Correcting errors
    • Reconciling and analyzing accounts
    • Calculating taxes
    • Preparing and distributing reports
    • Supervising closing tasks and reviewing key accounts and reports

    An investigation of closing the books usually reveals opportunities to improve the speed and accuracy of the process. A fast, accurate close-the-books process provides multiple benefits for the finance function and for the company:

    • More time is created for finance professionals to focus on strategic activities for the company.
    • The laborious, fundamental tasks of closing the books each accounting period normally consume a great deal of finance professionals' time. Meanwhile, strategic financial activities are left undone. Activities performed include improving the quality of financial information; identifying patterns, trends and warnings in financial data; and providing the corporation’s financial direction.
    • The cost of the finance function is reduced since fewer hours are needed to close the books.
    • The company's controls and systems are extraordinary and demonstrate organization.

    Questions to consider when evaluating the close-the-books process include:

    • Is there a standard closing schedule?
    • If so, what are the main deadlines?
    • When/how often is it communicated to applicable individuals?
    • How long does the typical closing process take?
    • Are accounts assigned to people for monitoring and reconciliation? If so, who is assigned which accounts?
    • What type of variance analysis is done (e.g., actual to actual, actual to budget, etc.)? Who is responsible for preparing? Who is responsible for reviewing?
    • What types of system field checks are in place (e.g., account number check to master list, debits = credits, etc.)?
    • Who has access to the general ledger system? How is access controlled?
    • Who has access to close the period in the general ledger system? Can the period be reopened once it’s closed? Can prior years open? If so, who has access to perform this function?
    • Is a standard monthly reporting package created?
    • If so, what is included (e.g., balance sheet, income statement, metrics, etc.)?
    • Who is responsible for creating it?
    • Who reviews it?

    The following activities are indicators that an organization has an optimized close process:

    • The finance function’s strategy is linked to business and IT strategies.
    • Processes are integrated.
    • Low-cost transaction processing and high-value-added financials are in place.
    • Processes are performed in less than three days.
    • The financial close is considered a competitive advantage.
    • Finance teams are considered critical to strategy deployment.
    • Top recruits compete for finance and accounting jobs.
    • Forward-looking internal reports give insight on operating variances.
    • Process improvement, quality management and six-sigma concepts are applied to financial processes.
    • The organization has an established culture of continuous improvement.
    • KPIs monitor revenue and expense drivers are linked back to strategy.
    • Systems fully drive the close process.

    When a company closes its books unusually quickly — then reports quarterly results just days after the period's end and ahead of the competition — the company boldly sends the message that it is an expert at performing business processes. The investor community has increased confidence in such a company.

    For more information on the close-the-books process, you are encouraged to explore these related tools on KnowledgeLeader:

    Financial Close Process Controls Questionnaire

    Close the Books Key Performance Indicators (KPIs)

    General Ledger Accounting—Close the Books RCM

    Topics: Internal Audit, Financial Services Industry, Accounting/Finance

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