Nov 23, 2005 (09:11 AM EST)
A High-Priority Close
Read the Original Article at InformationWeek
A rapid close can achieve multiple benefits. For the business, a faster close can mean getting information to managers sooner. In general, the quicker the reaction to what just happened, the better the results. For companies that take a particularly long time to close monthly, substantially reducing the interval could eliminate the need for “flash” reports and therefore would save money. For all but the smallest U.S. public companies, the shortened quarterly and annual reporting deadlines have put a premium on time after the close to prepare financial statements and conduct management discussions around it. Shortening the close also enables companies to report their results sooner, possibly offsetting the additional time some non-executive members of the audit committee may need to give the results proper scrutiny. Moreover, Ventana Research asserts that many of the steps that help to achieve a fast, clean close can also streamline finance department operations, increase the controllability of the accounting function and decrease external audit costs.
Closing faster almost always involves a combination of people, process, systems and information. An effective “people” element includes good training, clear instructions and a project management-style approach to the close. Process covers a range of options, including the change from a sequential, end-of-period approach to more frequent steps or a staggered close of certain subledgers or entities. Doing many small things, such as cutting the number of bank accounts and legal entities or increasing the threshold of materiality, also can have a measurable impact. U.S. public companies will benefit if they integrate the accounting cycle steps with their periodic Sarbanes-Oxley Section 404 and 302 activities rather than viewing them as distinct processes to be managed separately.
The systems and information elements offer the best opportunity for shortening the close. Companies that do not have dedicated consolidation software or have outgrown their existing package should weigh the benefits of making new investment as part of an initiative focused on achieving a more rapid close and quicker access to corporate information. Greater automation of the process itself — eliminating manual steps — can shorten time spent on it and reduce errors. Automating the flow of data from one system to the next, which used to be difficult and time-consuming, is far more cost-effective today. More than half of the participants in our study believed they could shorten their close by a day or more if they could eliminate errors.
Standalone spreadsheets are a notorious cause of such errors. Luckily, enterprise spreadsheets now are available that build on familiarity with spreadsheets and years of investment in models and macros while providing substantially greater control. For the longer term, metadata management holds the promise of eliminating information flow bottlenecks that stem from such facts of life as disparate charts of accounts and isolated information silos.
© 2005 Ventana Research