While most financial organizations have found ways to navigate the convoluted financial close-to-disclose process, it still remains a time-consuming, headache-inducing process — but one that has to be done. However, companies can make the process easier by streamlining efforts, working on the human element and investing in automation software.
For decades, financial departments have attempted to revise the the close-to-report cycle, which requires public companies to follow frequently stiff Securities and Exchange Commission requirements at both quarter end and year end. Business executives are hoping to change the job from an elaborate set of processes to a timely, efficient streamlined one. In fact, in a survey from APQC, which gathered responses from 145 senior finance executives from the U.S., Europe and Asia, 75 percent of organizations reported that close-to-disclose process is one of the top two targets for financial improvement over the next 18 months.
The feeling among financial executives falls in line with the old adage, ‘If it ain’t broke, don’t fix it,’ says Mary Driscoll, APQC’s senior research director for financial management. And yet, instead of spending time forecasting, benchmarking and understanding the drivers of the report’s analytics, finance executives are spending most of their time trying to see that the grunt work gets done.
“It’s been a process that we’ve done the same way for many, many years,” Driscoll adds. Finance department staffs are “soldiers on the front lines. They work through the weekends about five times per year.” It gets done, but it’s not easy or always perfect, she adds.
Challenges run the gamut: human error, timing, regulations, automation, intense manual labor, too many spreadsheets, complex multinational businesses, etc. “Harnessing and improving on the close has proven to be incredibly challenging,” explains Gabe Zubizarreta, CEO of Silicon Valley Accountants. “Most companies do it successfully, but it’s a constant strain where you could introduce errors and you’re dodging bullets.”
Indeed, companies are feeling a “tremendous amount of regulatory pressure” in the wake of the Dodd-Frank and Sarbanes-Oxley laws to have a more transparent financial system, explains Kyle Cheney, a partner in Deloitte’s finance transformation team.
Imperfections in the Process
With new pressures, companies are more prone to errors, which often lead to restatements and exacerbate weakness in internal controls, explains Cheney. Yet, there are ways to streamline the process. To start, Driscoll says, finance executives should map out the close process, replacing superfluous steps that duplicate tasks. For example, companies repeat similar steps when they perform one analysis for the monthly close, a slightly different one for the quarterly close, one for auditors and one for SEC reporting. But efficiency begets cost savings, she adds.
An ideal close would take around 10 days — anything beyond 20 days is competitively worrisome. In fact, companies that complete the process in fewer than 10 days will spend 50 percent less than their slower-to-close competitors, Driscoll asserts, citing APQC data. To shorten that window, the CFO should lead the charge in creating a more standardized and automated system, she adds.