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Speed up your close


It’s been 10 years since companies like Cisco pushed the financial close envelope to its limits and set out-of-this-world standards for closing their books within 1 hour. Cisco was one of the leaders in the “virtual close” space moving from a 14 day window to being able to close their books and produce consolidated financial statements within hours. As a result, they cut their finance costs in half and were able to provide Cisco executives with the data they needed to achieve sales targets, manage expenses, and make daily decisions that resulted in increased shareholder value.



Jonathan Collins
Jonathan Collins
In the last 10 years, much has changed in the world of finance. In addition to the global financial crisis, finance outsourcing and off-shoring has become a large topic. As a result of this, many finance operations have been significantly downsized; complicating the picture still are a set of accounting rules and regulations that are becoming more complex. Data from BPM International suggests that while some improvements have been made to average close cycle times, significant improvements have not occurred. Further, the data suggests that for leading companies, many have actually increased the number of days it takes to close.

This article highlights several aspects of a financial close improvement program. If you have not reviewed your close cycling with an eye toward efficiency, now is this time.

How fast should I close?
Research by the Hackett Group indicates that the top 10% of global companies close their books internally within five days. Further research by BPM International indicates that there is a direct linkage between the number of days to close and the health of the finance group, finance processes and systems that support the financial close. If your close is taking longer than 30 days, there are significant issues, in plain sight or hidden, within the financial close process.

Benefits of a faster close
In addition to the cost benefits due to the reduction of manual input and reconciliation, a faster close supports better decision making due to timely access to information. This allows managers to work from the same set of facts. Since the data is timely and consistent, proper behaviour can be measured throughout the organization. Shareholder value is increased as more time is allowed for analysis of market opportunities since time spent performing the close is reduced.

Financial System Changes
One of the key aspects of Cisco’s success is that they adopted a fully automated financial system through their organization. The solution was fully integrated and included an automated financial consolidation system.

Cisco also implemented an automated intercompany accounting system which allowed transactions to occur between entities without the need for accounting and finance intervention.
The final aspect to Cisco’s strategy was leveraging an online analytical processing database that allowed users to run their own ad hoc queries and analysis. This OLAP engine had a web portal front end that also allowed for a central distribution of reports.

Cisco’s strategy serves as a model for companies improving their systems with reduced financial close as the goal. In summary, the financial systems strategy goals are:

* Fully automated financial system including automated financial consolidation system
* Automated intercompany accounting system
* Online analytical processing database
* Web portal

Close Calendar
As a finance leader, ask yourself the following questions:

* Do you have visibility into the close cycle?
* Do you have a standard close checklist? Can you evidence that your staff uses it?
* Has the checklist been reviewed in the last year?
* How are issues captured and resolved?
* Do you feel like there is accountability and ownership for all close activities?

If you don’t have a flight plan, how will you arrive at the right airport on time? Developing a close calendar can provide finance with the ability to identify dependent sources of information for key activities and track progress against milestones. Additionally, assigning ownership to individual tasks can help improve status reporting and accountability.

The close calendar displays the key events that occur every month during the company’s monthly financial close process. Each month’s closing schedule follows a recurring pattern that involves the first few working days of the month. Everything else follows from that. Each task should have an owner so accountability can be achieved.

Exam your policies
* Are the policies and procedures accessible to all relevant employees? Is there a single version of the truth?
* Are manual processes documented? Are they sustainable?
* Are policies linked to procedures and procedures linked to activities?

Finance governance is difficult to achieve if everyone is not fully up to date on what the processes and procedures are. As a finance leader, it is difficult to hold people accountable when process bottlenecks and procedure breakdowns occur if you don’t know who to hold accountable. Utilize a web portal to communicate current policies and procedures and make sure the web portal contains the most up to date versions.

Internal Control Holdup
* Have you examined your control environment recently in light of potential changing materiality (due to financial crisis)?
* Does clear accountability exist for control performance?
* How is control performance and review tracked and managed?

A high percentage of key and entity-level controls relating to the financial close are usually tested as part of Section 404 compliance. If your external auditor is not comfortable with the governance of the financial close and consolidation process, the company can quickly be exposed to a risk of a material weakness. Strong entity-level controls enable a company to manage the process with a smaller set of controls, permitting greater internal process efficiency and significantly reduced time to close.

Summary
Financial close excellence is achieved when people, process, and technology are combined to optimize and streamline financial close processes. The results are lower operating costs, increased business performance, avoidance of risks, and increased visibility into market opportunities.

Jonathan Collins is a senior manager for KPMG China in Hong Kong.
Jonathan publishes business and technology insights for CFOs at

http://cfonewsletter.blogspot.com

Jeudi 16 Décembre 2010
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