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A One Day Accounting Close? Utopia Through People, Process, And Technology

October 15, 2015   |   1:05 PM
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by Jay Humphries, Teradata

The pressure for an accelerated accounting close can be relentless, as evidenced by the $1.3 billion Toshiba accounting scandal this spring. The electronic manufacturing giant admitted it had overstated profits by $1.3 billion going back to fiscal 2008/2009. An accounting probe in July led to the CEO and several board members resigning and a 30 percent slide in shares of Toshiba stock, and found that the company suffered from dysfunctions in governance.

As senior financial leader Doug Ryan has said, the theoretical, achievable limit for the monthly accounting close is one day. That might be achievable for every business regardless of size, industry, or consolidation complexity in a near-perfect world with unlimited resources, but as we know, that utopian world doesn’t exist.

accounting

Conventional wisdom generally pegs an optimal accounting close period at five business days. For companies who have overcome some of the more common hurdles to meeting that goal—such as cluttered or poorly defined accrual processes or an inability to track results on at least a near real-time basis—most find that each close process reduction is never enough. Both public and private companies must fulfill multiple, complicated financial reporting packages quickly and efficiently, while balancing competing internal and external reporting requirements and deadlines. Simultaneously, senior management needs fast, transparent close results that deliver meaningful insight that can guide their decisions.

No Single Technology Is a Silver Bullet

Technology can certainly help overcome some of these challenges, but it’s no panacea. There are many companies who install a helpful point solution or even an analytic database, score a quick win, and then find themselves facing new calls for close-process transformation within less than a year because they only accounted for technology and not people and processes. In my experience helping major enterprises optimize their close processes, a sustainably successful approach starts with recognizing the limits of technology.

I see many data-driven finance departments using a single data repository to accelerate and lower the cost of monthly close processes. A single repository provides business units with faster access to local results, which simplifies local reporting requirements and prompts early error identification and correction. Business units spend less time reviewing because they have earlier visibility throughout the month. The corporate consolidations process is simplified through accessible transactional and sub-ledger details, which reduces the need to ask the field to clarify results.

As important as these technical enablers are, technology is ultimately only one-third of the close-to-report cycle equation. A successful, holistic approach must account for people, process, and technology.

How does your company rate on these close-to-report cycle dimensions?

People

  •  Are roles and responsibilities in the accounting organization clearly aligned to every stage of the close process?
  •  Are the events in the close calendar defined in a way that clearly assigns accountability back to specific individuals/roles?
  •  How clearly is communication coordinated across all those involved in each stage of the process?

Process

  •  Are the activities throughout the close properly sequenced?
  •  Is the process obstructed by manual steps occurring outside of the transactional-processing and reporting systems?
  •  Are issues identified and analyzed in a way that resolves root causes?
  •  Are the same processes/steps performed “because we’ve always done it that way” without questioning why?

Technology

  •  Are current technologies fully utilized?
  •  Are employees sufficiently trained and knowledgeable in the technologies that enable their part of the close process?
  •  Can current technologies enable reduced “time to insight” through real-time or near real-time views of actual results?

Technology will always matter, but it is most “sticky” when applied as part of a holistic approach. Companies like Toshiba looking to rectify breakdowns in their close processes and related governance mechanisms need to address the people, process, and technology factors that enabled such materially inaccurate reporting in the first place. In every company’s drive to accelerate the close process and head off a similar crisis, finance departments must think comprehensively if they hope to shorten the distance between reality and utopia.

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