The benefits of a quicker close process…
Hyoun Park, founder and principal consultant at DataHive Consulting, recently posted “Five Steps to Closing the Books Faster” on SearchFinancialApplications.com. He listed five steps that an accounting and finance department take in order to close the accounting period quicker. “Closing” faster has been a popular topic of discussion as it enables management, lenders, shareholders, auditors, etc. to have financial results on which so many crucial decisions are made upon.
In recent years, many publically traded companies have experienced shortened filing deadlines of their annual and interim reports. For example, accelerated filers must file an annual report within 75 days of their fiscal year end, yet large accelerated filers only have 60 days to complete this filing the FORM 10-K. Similarly, quarterly reports are only given 45 and 40 days from quarter end, for the type of filers described above respectively.
This means that there is less time to perform annual audits and quarterly reviews. To add even more pressure to the deadlines, additional compliance activities, such as auditing of certain internal controls must be performed in conjunction with close activities.
Non-SEC filers, like privately held companies and not-for-profit organizations, for example, also strive to shorten the close period. Those who undergo an annual audit of their financial statements and quarterly reviews by an external auditor must be able to have all pertinent financial data and internally prepared financial statements ready for review or audit.
Although currently much less common, some financial and accounting systems make it easier to perform transactions in a new period when the previous period is closed. Errors of posting to a previous, open period can be prevented.
In addition to the benefits mentioned above, additional incentives are:
- Management can receive and review financial statements sooner.
- Consolidation of financial statements, including inter-company eliminations can start earlier in the cycle.
- There is more time to review the financial data and prepare more complete and accurate financial statements with proper disclosures and footnotes.
- Less overall time and effort is spent by the accounting and finance departments each accounting period with a more streamlined process.
Lastly, there is the benefit of having final, actual accounting data available to the finance group using planning software for analysis against an approved budget and periodic re-forecasts. The quicker this data is available for analysis, the quicker managements can review it and make timely and informed decisions.
Companies that use planning and budgeting solutions with integrated financial statements can benefit from having good insight into the future financial health of their organizations by comparing the forecasted statements with their actual counterparts, as soon as the accounting period is closed. Closing the books faster can be a challenge for many organizations. However, with the proper planning and discipline, the benefits are significant.