Harness technology software products and a well-designed process and reap the benefits of a speedy period-end close process
Many people in accounting and finance dread these long and unpredictable period-end closes, especially those that will be relied on for external financial reporting and disclosures. There is a tight close calendar, a mile-long checklist, the accounting department is always understaffed and in addition to closing the books they have to continue their everyday work in the new period. Business doesn’t stop and wait for us to complete the close.
I’ve already written on this subject in this blog – this article expands on the idea and how practical it is for even smaller companies to implement these recommended processes.
It is common to assign the various close tasks to members of the accounting department in such a way that the load is fairly distributed. AR personnel may be tasked with reconciliation of accounts relevant to their department (e.g., the receivables control accounts, other receivables), AP personnel may get to work on reconciliations of the payables control accounts, accrued expenses, etc. The assistant controller or senior staff accountant may be reconciling the cash, PP&E and other assets accounts and the controller may be tasked with the debt and equity control accounts.
The idea is to have the balance sheet control accounts’ balances agree to their sub ledger schedules. Other accounts with no sub-ledgers should have their period end balances agree to the beginning balance plus / minus all relevant period transactions. Variances must be identified and corrected, certain manual journal entries must be made, reviewed and approved and items on the checklist must be checked as activities are completed.
Then there is the challenge of performing internal control tasks surrounding the close process, including documenting evidence of performance and maintaining all source documents that will be needed for external audit work, or both internal and external audit activities if the company maintains an internal audit function.
In smaller companies a period end close can really tax the accounting department around month end and beyond and in certain companies it seems that the accounting department is always either performing a month-end close or preparing for one, which is one of the reasons accounting and finance managements strive to shorten the time it takes to complete these close activities.
Another important reason why you should make a serious effort to shorten the close is having actual financial statements ready for internal review as soon as the period ends. If you combine that with an effective planning, budgeting and analytics solution, one that can automatically pull data from your actual accounting GL, you can perform your period-end analysis immediately after the close. Management, in turn, can have access to the analysis data and make informed decisions.
In recent years we started seeing software applications dedicated to the close functions. Their main purpose is to create a structured and well-defined workflow where all close participants contribute to the process efficiently, while maintaining good communication with everyone involved. This controlled workflow alone can contribute to a more streamlined process and a shorter close. It is not uncommon to see a month-end close completed in 5 business days or less, quarter-end in 10 or less days and year-end in under 20 days.
The end result of implementing such processes is completing the close process quicker, more accurately and with better internal control over financial reporting, all without adding additional personnel to the existing staff. With that comes the ability to analyze the current actual results against the budget a lot quicker while supporting the management decision process with greater accuracy and confidence.
Alan Hart, MBA, is Principal Consultant at Pacific Shine Group in Portland, Oregon, with responsibility for client business development and hands-on client project implementations. Prior to starting Pacific Shine Group, he worked in various executive accounting and finance positions with technology and growth companies. Notable is his 18 years in the hi-tech manufacturing industry where he served as Controller, Vice President of Finance and CFO of several privately as well as publicly held companies in the Hi-Tech industry, such as Hybrid Arts, Inc., Hamilton Bay Associates and Syncronys Software. In his role in management consulting, Alan has worked in diverse industries and with a variety of clients, including fortune 1000 companies such as Boeing, Delta Airlines, Intel, Wyndham Worldwide and others, as well as many mid-market organizations such as Guitar Center, Ducommun AeroStructures, Cypress Semiconductor, TriQuint Semiconductor and others.
Combining his skills and experience in engineering with deep understanding of technical accounting, he is able to assist small and medium-size manufacturing companies establish GAAP compliant accounting and reporting systems.