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Improving the Close-the-Books Process

Posted by Protiviti KnowledgeLeader on Fri, Mar 01, 2019 @ 10:14 AM

""An effective business process is built on a set of well-defined and clearly stated business objectives. These key objectives articulate the ideal performance results that a company expects from that process. To monitor a business process so it stays focused on reaching the key objectives, a company chooses appropriate performance measures. Careful selection of the performance measures takes a company a long way toward improving a business process. Thus, to build and then continually improve an effective business process, a company establishes:

  • Key objectives to articulate the performance results the company expects from the business process.
  • Outcome measures to determine whether the company has reached the key objectives.
  • Activity measures to monitor the performance of those activities that are instrumental in reaching the key objectives.

Closing the books primarily covers the accounting activities surrounding the closing of the general ledger and all associated ledgers for each accounting period (e.g., month, quarter, etc.) Activities for closing the books vary significantly from one company to the next. This process should cover all activities leading up to the closing day, ledger-related activities, review activities, reporting activities and reconciliation activities.

The following table shows key objectives for closing the books, the outcome measures associated with each objective, and the activity measures that drive each outcome measure. A link connects each outcome measure with its corresponding formula and an analysis of this formula.

The list provides a starting point from which companies may select a set of five to nine measures to track. To start tracking performance, a company chooses one or two key objectives and begins measuring the corresponding outcome and activity measures. As these objectives are attained, the company may change its focus to other objectives and their related measures.

Key Objective

Outcome Measures

Activity Measures

An efficient, corporate-wide accounting system

Time to close the books

•     The number of charts of accounts at the company

•     The number of general ledgers at the company

•     The number of business units, such as plants, regional offices, subsidiaries and legal entities, that process accounting transactions

•     The number of automated interfaces to the corporate general ledger

•     The number of "hard closes" per year; that is, the times when the company produces standardized financial reports for outside regulators

Efficient, day-to-day accounting processes

Time to close the books

•     Number of missed deadlines

•     Number of inspection points in the close-the-books process

•     Number of runs of a trial balance during the accounting period

•     Number of manual entries as part of the close-the-books process

•     Number of error correction entries as a percentage of total entries in the accounting period

•     Number of account reconciliations or analyses completed as part of the close-the-books process

Low costs to close the books

Total costs of closing the books and financial reporting as a percentage of revenue

Total costs of closing the books and financial reporting per full-time equivalent (FTE) employee

•     Direct and contract labor expenses applicable to closing the books

•     Data processing expenses applicable to closing the books, including labor for systems support and software licensing

•     Expenses for training applicable to closing the books

•     Expenses for supplies applicable to closing the books

For more information on the close-the-books process, you can find the following tools on KnowledgeLeader and many others under the close the books topic:

Close the Books Key Performance Indicators (KPIs)

Financial Close Review Report

Month-End Close Best Business Practices Checklist

Financial Close Process Controls Questionnaire

Close the Books Process Questionnaire

Topics: accounting/finance, financial reporting, close the books, performance management/measurement

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