The quicker year-end closing and adjustments can be done, the quicker financial statements can be created. There are some real benefits to this if the right approach is used.
For many, the year-end closing process is a period of stress, long hours and hard work. Anything that can be done to alleviate the pressure must surely be good.
In fact, according to a recent Whitepaper by software firm, Prophix, although each firm may be slightly different in how it tackles the close process, having an effective system in place relieves the pressure on year-end reporting, month-end, annual budgeting, tax and audit preparation, product profitability analysis and quarter or mid-year forecasting.
Reducing the year-end close burden can enable the finance team to focus more on value-added activities. A faster, more accurate close enables staff to get on with current-year financial matters and future planning. When financial information is available earlier, accurate and timely financial positions can help the company make quicker, more informed and effective decisions in areas such as working capital management, investment decisioning and financial planning.
Companies in an advanced state of preparedness will also be in a position to detect and remedy problems within their financial systems earlier. The efficient preparation and audit of financial statements provides a further opportunity to build a higher level of assurance around all financial reports, which in itself suggests overall solid financial governance of the business to external stakeholders, such as investors and analysts.
It can be done
The whitepaper offers some tips on how to expedite an efficient close process.
With certain tasks carried out only once a year, errors are almost inevitable if staff are not kept up to speed. A timely annual refresher can help staff to properly perform. This can also be used to clarify the most recent changes in rules and regulations as they impact the process.
Fully engaging all staff and keeping in touch throughout the year-end close process, can help improve their understanding of the process and thus reduce delays. Proper contact across the business can also mean there is no loss of input from experienced front-end staff on how close processes could be changed for the better. Effective communication between senior management and internal and external auditors can help the rapid resolution of any potentially contentious close-related issues.
Seek system integration
When different functions manage their budgets and plans in isolation, it can lead to false assumptions, poor quality data and insufficient information. Deployment of connected systems (or a single system of input) across the business will reduce the need for slow and error-prone manual interventions.
With systemic efficiency also comes the ability to produce regular management reports. This can make year-end reporting easier by allowing the different functions within the business to track their resources and expenses throughout the year. Up-to-date management reports further allow the functions to re-allocate and re-prioritise their financial resources as needed, to better ensure corporate goals are met.
Engage audit committees early
Engaging internal and external auditors early in the year-end close process can help companies avoid issues, giving the finance team insight into potential system improvements. A fully engaged auditor can also provide regular feedback on any changes to the system intended to help the business react to and mitigate financial risks. When auditors can see an effective system is in operation, it is more likely that only small sample sets of data are required for testing.
Consider specialist software
Corporate performance management (CPM) software can provide improved visibility of divisional performance and make it easier to share information across the business. CPM software has the potential to significantly reduce the time it takes to close the books and report externally.