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How Organizations Can Streamline the Month-end Close

Published on March 13, 2018

This process is a time of stress and long hours for employees, despite technological improvements. 

Companies have long sought ways to streamline processes so that accountants can spend less time collecting numbers and more time analyzing them for the organization's benefit. Many nimble organizations are finding those time savings in the month-end close. 

Closing the books quickly gives them the opportunity to take corrective action as soon as possible. This results in efficiencies and, in turn, cost savings. It also frees up the accounting department to devote more time to providing management with better information. 

Despite improvements in efficiency from modern accounting systems, the month-end close process still causes considerable stress. A recent survey by software provider FloQast reported that 88% of accounting and finance professionals were negatively impacted by the pressure to close quickly. 

Obstacles preventing a faster close process abound. Among them are the complexity of accounting standards and tax regulations; difficulty obtaining information from outside the accounting department; and working across incompatible legacy software platforms. Understaffed accounting teams, meanwhile, face a lack of time to design and implement new processes. And let's not forget potential foot-dragging. 

If management is comfortable with estimates, closing can be done quickly, perhaps in hours or days. But emphasizing speed over accuracy can compromise integrity. 

Increasing speed and accuracy puts pressure on employees who may already be stressed. In the FloQast survey, 82% of accounting and finance professionals reported a negative personal impact from the close process. Finding the right balance between speed, accuracy, and employees' needs is key. 

Here are some best practices to smooth the process: 

Develop and document standard procedures

Having well-documented procedures ranks at 11 on a scale of 10. Standard procedures — and checklists — are vital for speed and accuracy. 

Adding some fluidity to procedures to allow adaptation to employees' personalities and to changing situations could help. The order of prescribed closing procedures can be moved forward or backward depending on when information is available. 

In other situations, the accountant may need to apply professional judgment when determining which variances from budget or projections need to be investigated in a particular closing period. The significance of that closing period — whether it's month end, quarter end, or year end — affects which variances are acceptable. 

Keep improving your processes

Take one process per month and break it into steps to find ways to improve the accuracy of estimates and to save time. 

For example, one month the process for gathering data, loading the data into the system, and analyzing the data at the end of the period was looked at. It was found that the process could streamlined by ensuring that the appropriate accounting code was being loaded in the invoice process from the vendor. 

Another process examined was booking and reconciling accruals each month. The budget amounts were booked and a "ghost" account was created for the true-up entry. This meant only one account had to be watched to see where they were over or under. 

Besides looking at the individual steps in a process, the processes need to be examined with the end in mind. A tweak to a report generated at the first step can simplify later steps or provide a more accurate final number. 

Cross-train the critical steps

Documented standard procedures and cross-training mean there's no holdup in the process if a key employee is out sick or if that employee leaves the company. Cross-training can mean an end to the unwritten prohibition against vacations during the first seven days of the month. 

Spread out the work

Many routine journal entries can be prepared well in advance. Some accrual or impairment calculations can be started mid-period and fine-tuned at the end of the period. Once the process becomes routine, people are so used to knowing what information is necessary, they're preparing in advance of the month end. 

Frequent reconciliations of key accounts — such as cash — reduce the work needed to close the books. 

Consider materiality for estimates

In calculating accruals and estimates, keep materiality in mind. Finding a simple method for estimating accruals can save time if there's no material difference from the exact amount. 

Communicate the importance of a speedy close to the entire company

If you can have employees identify that they're a critical component in a bigger activity, that helps them take ownership of their part in getting the books done quickly. Getting information from those outside of accounting can often be the biggest impediment to a speedy close. So developing relationships outside the finance and accounting departments is critical. 

Automate as much as possible

Data integrity and speed improve as manual processes such as spreadsheets are replaced with automation. While spreadsheets are a useful tool, they can be prone to errors and have no means to track changes made to them. 

The best path to an accurate and efficient close is for companies to follow the practices recommended for their software systems. Look to the system to see if it will solve the problem rather than just developing yet another spreadsheet. The extra effort required to become familiar with the advanced reporting capabilities of the company's software system and to learn how to create a report that provides the information will likely pay off in the long run. 

With automation, manual data entry is no longer needed. Rather than eliminating data-entry positions, it is recommended retraining these individuals to perform higher-level skills such as research or variance analysis. These higher-level skills lead to better job satisfaction, which is crucial in a tight job market. While retraining can require considerable time and resources, this investment can pay off by retaining the knowledge of those employees in the company. 

Even with automation, humans will still be needed to interpret and apply complex rules, so there will always be a need for accounting professionals. The process requires humans to pay close attention.

(Source: AICPA - CPA Letter Daily - Journal of Accountancy - March 5, 2018)