Accounting and finance leaders are increasingly being tasked with delivering rapid reporting, reducing risk, and providing strategic insight with fewer resources and time. The month-end close process is an arduous task for many business owners. Fortunately, it’s the one process which can always be improved. Optimizing the month-end close can lead to improved timeliness of financial reporting, reduced costs, fewer manual errors, improved auditability, increased adaptability, enhanced scalability, and improved visibility. Additionally, closing your period efficiently and effectively will allow the accounting and finance functions to focus on becoming a value-added part of the business by providing strategic insight to executive leaders and the Board, allowing the company to make better, more informed decisions.
The month-end close can be broken down into four activity phases.
- Recording: Ensure all revenue, expenses, and other transactions are in the ERP, including accrued liabilities, fixed assets, inventory, and depreciation and amortization.
- Reconciliation: Confirm balance sheet accounts match supporting documentation.
- Analysis: Generate and review an adjusted trial balance and draft an income statement, balance sheet, and A/R and A/P Aging Reports.
- Reporting: Prepare all necessary reporting and supporting documentation for the period, including management, FP&A, external, and SEC reporting.
For many companies, the month-end close may only provide limited strategic insight despite being a highly manual and time intensive process. In this article, we will discuss some of the most common issues we see in the month-end close and ways to remediate or mitigate those issues.
1. Lack of Documentation
A lack of documentation around the month-end close is the most common and foundational issue. Ultimately, the purpose of documentation for the month-end close is to create visibility and facilitate communication.
Nearly every auditor and accounting consultant you speak with is going to mention the creation of a month-end close checklist. A month-end close checklist is a great first step; it can document roles, responsibilities, timing, dependencies, contacts, and more. At a minimum, a month-end close checklist will document who is responsible for each task, who is reviewing each task, the necessary timing of the task, and which of the financial statements each task impacts. A month-end close checklist would also document which tasks are dependent upon other tasks to be completed in an effort to avoid bottlenecks All these details within a month-end close checklist are useful, but they are only the first step.
A month-end close calendar to complement the month-end close checklist is another best practice. The calendar should lay out, in a more visually appealing manner, the tasks and anticipated completion dates. Similar to the checklist discussed above, if your calendar highlights dependencies, it can help mitigate issues before they arise.
2. Inconsistent Standardization
Accounting functions will often struggle to achieve repeatable results and timeliness if they have poor standardization across their month-end close process. Documentation, discussed above, and standardization complement each other. Standardized and documented process and control narratives are best practices for all business cycles, and the month-end close is no exception. The narratives provide the overall roadmap and reference for daily operations. The Financial Close and Reporting narrative will highlight the flow of information from start to finish while identifying the control points throughout the process. The narrative should capture how each portion of the close is initiated, what documentation is necessary and/or created, which systems are involved, how communication is handled, which roles have what responsibility, and which other stakeholders are impacted or have dependencies. Done properly, the Financial Close and Reporting Narrative can increase visibility and communication during the month-end close process.
Another standardization best practice for the month-end close is authoritative user guides. While process narratives will highlight, from initiation forward, the flow of information, systems utilized, and roles included, a user guide will highlight, in a granular manner, how to execute specific tasks. A month-end close user guide’s purpose is to create standardization around the execution of specific month-end tasks, which will increase accuracy, improve timeliness, and reduce errors.
3. Numerous Manual Tasks
Another common issue during the month-end close process is an accounting function with a predominantly manual process or many parts of the process occurring “outside of the system.” These manual tasks can include reconciliations, close checklists, high volume ticking and tying, and journal entries.
A month-end close process with many manual tasks will very likely be inefficient. Manual and/or opaque tasks will lead to a loss of time and productivity for the staff. Additionally, the likelihood of mistakes and errors increases without sound structure, documented policies, and a well aligned accounting system. There is also a very strong correlation between the number of manual tasks or outside the system solutions a company deploys and their accounting staff turnover.
Furthermore, a month-end close process with many manual tasks will also likely have weak policies and controls. This can lead to a higher risk of fraud, decreased business reputation, and limited usefulness of the financial statements.
To fully optimize the month-end close process, accounting and finance functions must embrace technology and innovation. The best practice for reducing the number of manual tasks and increasing automation is a month-end close optimization software. This software fits directly in the middle of the financial close and reporting process and is a complementary solution to the general ledger in any environment, picking up where systems typically leave the finance and accounting departments to complete the work in a manual manner, such as with spreadsheets. Month-end close optimization software will typically have a dashboard, which creates accountability and visibility by allowing technology to capture all tasks and report on the status of tasks. Additionally, the software creates a centralized journal entry process with workflow and integration to related balance sheet reconciliations. This journal entry process automates the creation, posting, and certification of a significant portion of a company’s entries. Electing to use a month-end close optimization software will increase automation, reduce manual errors, improve timeliness, enhance visibility, and strengthen controls.
How Centri Can Help
The month-end close process can be a slow and arduous one. The goal of this article was to identify three common issues related to the month-end close and provide insight on how to avoid them. Centri’s Accounting Transformation practice is focused on solutions for foundational accounting needs, optimized processes, and advanced digital controllership, which increase productivity, reduce costs, and improve reporting. Contact us to learn how we can set your business up for success.
Garrett Buckless, CPA
Garrett is a Director in the Accounting Transformation Practice at Centri. He has over 10 years of experience serving as a trusted advisor to entrepreneurs, startups, investors, C-suite executives, and business owners guiding them through the complex financial landscape. His background in consulting, accounting, and tax offers a unique skill set that adds value to clients focused on accounting, financial management, and controls.
About Centri Business Consulting, LLC
Centri Business Consulting provides the highest quality advisory consulting services to its clients by being reliable and responsive to their needs. Centri provides companies with the expertise they need to meet their reporting demands. Centri specializes in financial reporting, internal controls, technical accounting research, valuation, mergers & acquisitions, and CFO and HR advisory services for companies of various sizes and industries. From complex technical accounting transactions to monthly financial reporting, our professionals can offer any organization the specialized expertise and multilayered skillsets to ensure the project is completed timely and accurately.
For more information, please visit www.CentriConsulting.com
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