As someone who’s always trying to peer over the horizon to see what’s “next,” I look forward to the results of our annual Finance Priorities Survey, released earlier this quarter. What sets this publication apart is it reflects the voice of the CFO and other finance executives – real people who face real problems every day.
This year’s findings are particularly intriguing considering that many companies that have been building liquidity during the past five or six years are coming out of the economic downturn resource rich and ready to invest in emerging opportunities.
But we continue to see first-hand that companies are continuing to focus on the basics. Case in point: One of the top priorities for CFOs in 2014 is streamlining the financial close.
Not that a fast, efficient and timely close hasn’t always been a priority, with regulatory reporting deadlines driving the process. But a resurgent economy rewards prepared and nimble organizations, and CFOs need their cash and their calculators pointing strategically forward, not tactically backward, if they’re going to help their companies capitalize on emerging opportunities.
Manual processes tend to be inefficient and prone to errors. An automated, streamlined process frees up resources that instead can be reallocated to analyzing results for trends and opportunities. A short and efficient closing process also gives management the ability to move ahead of the competition. With more timely financial information, they can make better and quicker decisions.
The lack of a disciplined financial close process exposes a company to a number of risks, including:
– High error rates
– Missed regulatory deadlines
– Rushed or delayed audits
– Incorrect or unreliable forecasts
– Poor controls
– Fines and/or penalties
As senior managers and members of the audit committee, it’s important to review your company’s financial close process for inefficiencies. At the very least, you need to make sure all the bases are covered, ideally through a comprehensive close checklist.
Protiviti recommends developing a closing checklist in our discussion paper, Why the Financial Close Matters, also available on our website. Some of the key points from this paper:
– Make sure your checklist matches your company’s structure. For example: Do business units, individual locations and shared service centers need their own lists, or is there value in consolidating reviews for all entities, locations and divisions into one master? The best approach is the one that gets the right people focused on the right tasks at the right time.
– Once finance managers agree on the tiers and level of detail required for the checklist, design a standardized format. To produce effective reporting, this design should be simple but detailed enough to capture relevant data for each activity type (e.g., preparation, review, analysis, etc.).
– Establish the position of a “Close Manager” responsible for ensuring completeness of the close each month. This individual monitors the close tasks with daily status meetings and also works to improve the process continually by analyzing month-to-month performance against plan targets, and then recommending and implementing appropriate changes.
– Use dashboards to monitor performance by region, function, activity type, individual, etc. These reports provide effective support to the daily close status meetings, and are useful in identifying opportunities for smoothing allocation of tasks, clarifying dependencies and redistributing the timing of activities.
It’s gratifying to see that, based on the results of our survey, CFOs will have their eyes on this issue in 2014. A disciplined financial close process is instrumental to effective and efficient financial reporting, as well as freeing up finance resources to focus on value-added activities.
In subsequent blogs, I’ll be looking deeper into some of the other 2014 priorities from the survey. In the meantime, download your own copy of the 2014 Finance Priorities Survey and let me know what you think.