This document discusses optimizing the accounting close and financial reporting process. It recommends taking a holistic approach that considers people, processes, and systems together. The methodology discussed is lean six sigma, which focuses on end users, improving processes incrementally using a team-based, fact-driven approach. Best practices include viewing the close as a supply chain and setting goals for both efficiency and effectiveness. An optimized technology solution should provide workflow, visibility into status and metrics, and bridge multiple systems used in the close. Overall success requires senior management commitment, a strategic plan, focused resources, and continuous improvement.
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A Holistic Approach to Accounting Close and Reporting Effectiveness: It’s so Much More Than Technology
1. Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals
A Holistic Approach to Accounting
Close and Reporting Effectiveness:
It’s So Much More Than Technology
2. Welcome to Proformative
Proformative is the largest and fastest growing online
resource for senior level corporate finance, treasury, and
accounting professionals.
A resource where corporate finance and related
professionals excel in their careers through:
• Uniquely valuable, online Peer Network
• Direct subject-matter-expert advice
• Valuable Features and Resources
All of it completely noise-free
Check it out at www.proformative.com
3. Learning Objectives
After participating in this event you will be able to
understand:
•
Understand the 5 key challenges to improving your company’s
accounting close and financial reporting.
•
Define an Optimized Close for your company.
•
Understand how to better align process and technology for your
company’s financial close and reporting environment.
4. Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals
A Holistic Approach to Accounting
Close and Reporting Effectiveness:
It’s So Much More Than Technology
5. A Holistic Approach to Accounting Close
and Reporting Effectiveness
Agenda / Goals
◦ Introduce the Financial Effectiveness Framework
◦ Dynamics of Accounting Close and Financial Reporting. Discussing the
Whys – Overview
◦ Complete Solution Approach to Optimization
Methodology
Best Practices
Technology
Focused Resources and Strategies
6. Overview
Accounting Close and Financial Reporting
Automation Question
How long has Accounting Close and Financial Reporting
been a challenge?
a)
b)
c)
d)
e)
f)
Since ERP was introduced
Longer than I have been in accounting
Forever
Since Sarbanes-Oxley
All of the above
None of the above
Why does this challenge persist?
7. Business Environment Challenges
Existing Environment Challenges
•
•
•
•
•
•
Difficult economic & business risk environment
Changing Regulations & SOX/MAR compliance
Auditors under PCAOB pressure
Boards / Audit Committee increased accountability
Fraud - Few significant bad apples in the news
Whistleblower and FCPA concerns
Future Environment Challenges
• Enormous technology driven paradigm changes
• Increasing global competition
8. What is the Speed of Changes?
How Fast is the Business Environment Changing?
1900
10mph
Baseline
1933
30 mph
+20
mph
1966
65 mph
+35
mph
2000
120 mph
+55
mph
2033
?? mph
+??
mph
What does the future bring?
Faster
Same
Slower
9. A Finance Seat at the Table
―Today’s CFOs and finance organizations need to execute
on a much broader range of responsibilities than existed in
their traditional role as corporate accountant – including
those related to finance function effectiveness, information
quality and consistency, finance talent
management, internal controls and corporate
governance, business performance management and
others.‖
―Today, the CFO must be increasingly responsible not just
for releasing information about the business to external
users of information, but also for delivering
timely, practical information about the underlying drivers
of business unit performance to internal audiences.
What’s more, the CFO’s team must deliver risk analyses
and performance analytics to anticipate some of the
challenges the business could face. A common obstacle is
that the finance team sets the wrong priorities.‖
10. A Finance Seat at the Table
“In many organizations, the CFO is seen as the number
cruncher, sitting in an office applying procedure and
saying „no‟ to budget requests…The challenge for the CFO
and for their company is to create an environment where
the Finance team and CFO are encouraged to expand
their responsibilities and take an active interest in every
area of the business.”
-Steve O‟Neill, CFO EMEA North, EMC Executives Report From
The Road
11. A Finance Seat at the Table
―Today, organizations are squeezing their finance and
accounting functions like never before. Expectations are at
an all-time high, yet resources are increasingly scarce. They
must maintain controls and compliance and keep up with
complex accounting rules—all this while meeting business
demands for faster turnaround and lower costs‖
―The finance function must undergo a fundamental
change and realignment in order to transform it from the
transactional operational management role of the past,
into a center of cost-efficient and effective strategic valueadd for the future.‖
Its not just us saying this…
12. Expectation Gap
Automated
Number Crunchers
Bean Counters
Historic focused
Always too busy
Internal Controls
&
Internal Consultants
Value added
Business Advisors
Expanding Role
“Seat at the Table”
Transition
And
Requires
Transformation
Past
&
Future
22. Overview
Accounting Close & Financial Reporting
Definition Question
What is the Accounting Close and Financial Reporting?
a)
b)
c)
d)
e)
f)
An event
A process
An important financial process
A rite of passage
A fun time
All of the above
None of the above
Why does it seem as such a unique process?
23. Overview
Accounting Close & Financial Reporting
Uniqueness Questions
• Why is the close different from other processes?
– Changes frequently
– Catcher of the miscellaneous
– Generally has not been an actively managed or highly visible
process
– 100% ONLY based Grading Scale
– “Last mile” of the Financial close process
• On Day 3 of a 6-day close, if the CFO asks,
“Where are we in the close?” – What do you say? Why?
24. Overview
Accounting Close & Financial Reporting
Manageability Questions
How is the Close process managed?
Should the accounting close rely on Excel as a process
management tool? Why?
What technologies are used to manage other complex
financial processes? Why?
25. Sophistication
Progress over time
Analysis
Financial Systems
Process
Control
Systems Feature
Functionality
ERP
WHY ?
Spreadsheets/
Simple systems
X
Checklist
Excel
Paper /
Manual
G/L
A/R
Rev
Payroll
Time
Accounting Close
Financial Reporting
26. Overview
Accounting Close and Financial Reporting
Timing Questions
Q.) Do you have the time to improve the close?
A.) You do not have the time NOT to improve the close.
Improving saves time.
Q.) When should you start?
A.) Start it now, before its mandated by someone else!
Goal of over 50% of audit committees
27. Overview
Accounting Close and Financial Reporting
Visualize the Close
• Q. Why is the Close often referred to as the
“Last Mile”?
• Q. How and Why is the Close so unique?
• A. Pictorial analysis of the problem.
31. Overview: Accounting Close
and Financial Reporting
IOMA survey “Improving the Financial Close- 2010 ”
CFOs & Managers asked to describe top priorities:
5. Assign responsibility for resolving discrepancies
4. Establish clear accountability for closing tasks in a
closing schedule and enforce deadlines
3. Establish clear and regular close communication
2. Develop and monitor close performance metrics
1. Continuously improve closing processes
32. Establish clear accountability for
closing tasks in a closing
schedule and enforce deadlines
Survey Needs Analysis
of Complete Solution
Approach
Develop and monitor
close performance
metrics
Focused
Resources
and Strategy
Assign responsibility for
resolving discrepancies
Establish clear &
regular close
communication
Best Practices
Technology
Methodology
Continuously improve*
closing processes
33. Methodology Lean Six-Sigma
Four Basic Principles of Lean Six Sigma
1. End-User Focused
2. Improve Process
3. Teamwork Focused
4. Facts Based
Reference: What Is Lean Six Sigma by Mike George, Dave Rowlands, and Bill Kastle
34. Methodology Lean Six-Sigma
1) End-User Focused
Who are customers of the financial close process?
What do they value? What do YOU value?
QUALITY
USER
◦ Accuracy / Completeness
◦ Visibility / Manageability
◦ Compliance / No surprises
PREPARER
Easier
Better
Less Stressful
Optimized process yields “good” Speed
35. Methodology Lean Six-Sigma
2) Improve Process
If I ask, “Why do we do things this way during the close?”
“That’s the way we have always done it” which is based
on historical constraints, not on efficiency.
Make incremental process improvements, measure
effectiveness [get data], continue iterations towards
improvement objective.
Continually improve by repeating optimization process to
achieve increased sigma levels of quality
37. Methodology Lean Six-Sigma
3) Teamwork Focused
• Teamwork evolution:
Individual
Contributor
Groups
Teams
Optimized Teams
• Requirements for effective teamwork
– See:
– Decide:
– Do:
•
Visibility to identify need
Communication to process, determine & disseminate
Manageability for effective execution
Use teamwork to set goals, assign accountability, handle
conflict, hold effective meetings, enable continuous
learning, collaborate with other groups
38. Methodology Lean Six-Sigma
4) Facts Based
Find “Relevant Measures” to set goals, measure
progress and track effect of improvements
Visible, useful, quantifications of discrete actionable results
What is measured today?
No measure will be perfect
No one measure is a magic bullet
The story is told by many measures considered together
Customized, so must be based on your measures on your unique
systems, processes, and people
42. Best Practice: Fast Close to the MAX –
Reporting Supply Chain View
Gary Simon describes the “Reporting Supply Chain” as
“all the events around the entire group reporting process
especially the extremities of the process.”
including
“Fast Close to the MAX” by Gary Simon, 2007
43. Scenario 1:
Find: Day 2 Effect: Minimal
Error : Day 2
Analysis 2: the Close Find: Day 8
of
Scenario
Effect: Larger
Day 2/3 review
Number of Tasks
Tasks
Review
Analytic
Best
Review
Review ??
-3
0 ME
3
6
Close day
9
44. Best Practice: Customer Facing
What are the optimization goals for efficiency and effectiveness?
= Speed
No1
Accuracy
+ Predictability
+ Manageability
+ Visibility
+ Accountability
+ Compliance
+ Increased analysis
& Reduced cost
Can you do them all?
Yes!
You MUST DO THEM ALL!
Fast close is not necessarily
efficient, but an efficient
close is faster!
47. Technology
1) What Solution Do We Need?
Continuous Improvement Enablers
• Workflow and collaboration
• Document management
• Automated metrics measurement
• Visibility
• Compliance evidence
• Bridging multiple systems
• Easy to deploy during Close period
• Configurable to your Close process
48. Electronic Working Papers
Alerts
Due date
Security
Desktop
procedures
File Share
Workflow
Accounting notes
Manager notes
Linked Activities
Prior period
binders
56. Silicon Valley Accountants
White Paper 2011
Preparing for an optimization project
• Senior management commits to find a comprehensive solution
with continuous improvement
•
Strategic plan and project management: consider deadlines, project approach
(pilot, division, enterprise, etc.)
•
Prioritize change management
•
Deploy focused resources
•
Identify and adapt current and best practices
•
Evaluate existing technology
• Adopt a culture of continuous improvement
Reference: “Optimizing Financial Reporting in an increasingly Dynamic
World” by Silicon Valley Accountants
57. Focused Strategy and Resources
Planning
Discovery
Technology Selection
Workflow and Measurement
Training
Configuration and Testing
Month One Close
Optimization
Lessons Learned
.
58. Focused Strategy and Resources
Planning
Timing (Schedule)
Between Closes
Incremental Continual Monthly Improvement Steps
Goal: Do not disrupt the ongoing close
People
Unless internal resources available, outside help needed
Goal- Positive implementation
Manage expectations
No initial reengineering
Never slow the close
59. Sample Pilot Program Timeline
Implementation/CRP
Training
Go-live
Month 1
• August (3 days X 2 weeks)
• Detailed discovery, training and conference room pilot
• September (75% support during close period)
• Assistance during close activities
• October
• Preparation & close activity; (75% support during close)
Month 2 optimization
• November
• Analyze data, lessons learned, training (50% X 3 days)
Month 3 optimization
• December
• Analyze data, process improvement, optimization ( 2 days)
Month 4 optimization
• January
• Process improvement and optimization (25% X 2 days)
61. Focused Strategy and Resources
Planning
Discovery
Technology Selection
Workflow and Measurement
Training
Configuration and Testing
Month One Close
Optimization
Lessons Learned
.
62. Focused Strategy and Resources
Lessons Learned
Planning determines success
• Over-plan – expect delay, distractions, and diversions
• Build an adaptable plan
• Never slow the close!
Plan for much more than promised and extra training
63. Focused Strategy and Resources
Lessons Learned
Scope selection is key
• Smaller faster wins = build momentum
• Don’t start with hardest
• Link the benefits
Scope will creep, plan on it
64. Focused Strategy and Resources
Lessons Learned
Change management
• Under-promise & Over-communicate
• Nothing is easy
This is a significant change to an established critical
practice
65. Focused Strategy and Resources
Lessons Learned
Continuous improvement
Adopt a mentality of continuous improvement
Tesco Property actively and explicitly pursues improvements
in its close.
“We have monthly management meetings where we think
about how we can do it better. Not just to get to a four-day
close, but…how to make our information better.”
“Accelerating the Financial Close” – CFO Research Services
68. Please join us at www.proformative.com to ask any
additional questions you may have and to continue this
conversation with your peers and the experts you heard
from today.
If you have questions about CPE Credit, please send
an email to cpe@proformative.com
Notes de l'éditeur
I – surrounding the challenges of optimizing the Financial closeII-required to effectively optimize the close.III – Q & A - You can submit questions as we go along and we will address them after each section
It really is a process performed by a team of people to meet a deadline – and then finish things off and complete documentation after the deadline.In what ways is it unique?
First, consider the cost of producing and filing SEC Form 10-Q. The fastest companies—those that prepare and file their quarterly statements in 10 or fewer days—reside in the top quartile and spend relatively less money to perform financial reporting per $1,000 in revenue (Figure 4). Obviously, the slowest organizations—those that take more than 25 days to complete the quartertly cycle and comprise the bottom quartile—are at a disadvantage.A 10-Q is a comprehensive report of a company's performance that must be submitted quarterly by all public companies to the Securities and Exchange Commission. Its annual counterpart is SEC Form 10-K.The top quartile is the performance level above which 25% of all responses occur. The bottom quartile is the performance level above which 75% of all responses occur. The median is the middle value in a set of values that are arranged in ascending or descending order.First, consider the cost of producing and filing SEC Form 10-Q. The fastest companies—those that prepare and file their quarterly statements in 10 or fewer days—reside in the top quartile and spend relatively less money to perform financial reporting per $1,000 in revenue (Figure 4). Obviously, the slowest organizations—those that take more than 25 days to complete the quartertly cycle and comprise the bottom quartile—are at a disadvantage.A 10-Q is a comprehensive report of a company's performance that must be submitted quarterly by all public companies to the Securities and Exchange Commission. Its annual counterpart is SEC Form 10-K.The top quartile is the performance level above which 25% of all responses occur. The bottom quartile is the performance level above which 75% of all responses occur. The median is the middle value in a set of values that are arranged in ascending or descending order.
It really is a process performed by a team of people to meet a deadline – and then finish things off and complete documentation after the deadline.In what ways is it unique?
Changes frequently - So many moving parts, inputs to estimates, late transactions, varying adjustmentsCatcher of miscellaneous - Data comes from all over the company and geographic locations in so many forms - A diner has a better process management system than accounting departments have over the close – G/L accountants are the “short-order cooks” of the company – rapidly pulling together all the pieces to serve up a full menu of items to a eager, demanding lunch crowd.Not actively managed – Multiple inputs with many dependencies that usually is not controlled by just one person. Last mile – All the data comes together for final analysis, estimates, adjustments, application of accounting standards.Not a highly visible process, but the result is.Day 3 – “We’re doing okay, everybody’s busy, looks like we are on schedule.” But do you really know?
Most companies are using spreadsheets, or Sharepoint, or something put together in Access, to manage the most complex accounting process.What technology do they use?What about timing of getting close processes improved? Next slide
Jeff’s response to timing. Not January… not February… not March… not April (Q1)…late May and late June okay maybe…not July (Q2)… maybe late August or middle of September… not October (Q3), not November (budgeting)…not December – get ready for year end and budgeting.You do not have the time to NOT address this!
Last Mile: Coined in communications industry; refers to the last mile of line going to and into the house – when laying cable TV and phone lines can put down the infrastructure, but the most complex and unique segments are those going into and throughout the house, takes the longest to get this done.Close is the “Last Mile” of the reporting process, because every company’s close and process are also unique. No one size fits all here. Let’s look at why.
Gabe Z. Indeed everything should be made as simple as possible, iPod simple, but the close process is typically not simple, it has to manage an entire accounting environment!
Gabe Z. Indeed everything should be made as simple as possible, iPod simple, but the close process is typically not simple, it has to manage an entire accounting environment!
SuccessFactors
What are accounting executives and managers most concerned about in this complex accounting environment? Here are their top five priorities for improving the financial close.5. Who owns detecting and correcting mistakes?4. Are all closing activities defined and assigned?3. How do we talk, making sure that we collaborate, team together to address common issues, and coordinate all the related activities?How do we measure what we do – how do we get the data? Not just work from the gut or feelings.1. Are we able to continuously improve closing processes? How can we?
Four principles we can apply to optimizing the close.
What do you believe the greatest value of an optimized close is. Accuracy and completeness and speed?Is being able to see where the close is at any given time period to be able to actively manage it also important?What’s the difference between good speed and speed? No errors, no surprises, getting it right. That requires continual optimization.
How can we not just improve but optimize the process?Making small, effective changes, then measuring and monitoring helps us move the process in the right, positive direction.Build a mindset and culture of continually improving first moves to an optimized state and then keeps it optimized over time.
Lean Six Sigma relies on moving along the teamwork continuum scale. When individuals in groups progress to not just teams, but optimized teams, then improvement can increase with the collaborative culture.When the team can see what issues exist and where improvement can happen, and then can collaborate to reach a better direction, then they can work together to ensure positive change occurs. The team can better actively manage the process while in progress.A number of benefits result from this focus, even extending to better collaboration with other related functions.
What is the data that will give feedback on progress? For example, could include total completion time of a task (efficiency) or number of post-close adjustments (effectiveness).What tells the story and considers your unique environment? What measures will give meaningful insight, allow you to track progress, and illuminate potential improvements?
Good performance overall, with the exception of several activities that were being done after the close (4/19+)
Excellent performance to dateHow do we continue to load balance?
Gary Simon talks about viewing the entire reporting cycle as the “Reporting Supply Chain.” From an improvement perspective it’s important to understand how activities at various stages can impact other close activities. Let’s look at some key practices to consider.
Increase the confidence in the numbers and the process.Important to keep all in the mix. All are expected by your customers of the close.
Our experience shows that here are the key enablers to getting to a highly efficient and effective continuous optimization process. Each of these brings gains.
We are not questioning the use of Excel to help with analysis in the close process, but rather the use of Excel to manage the close process.
We are not questioning the use of Excel to help with analysis in the close process, but rather the use of Excel to manage the close process.
This is good typical project management – but with consideration of characteristics of the closeUnderstand and set expectations for management, explaining the constraints so appropriate time and resources are approved.Suggest a pilot program and phased roll-out in larger organizations. Get the model right and reduce stress on the accounting teams.
Be nice if a company could pull experienced accountants off the team to be dedicated to do the implementation. But how many companies really have that many people in the close to do that? So timing and alignment with the accounting calendar is critical.We recommend a series of incremental improvement steps built upon an ongoing culture of continuous improvement.Who should be on the team?
Have a plan. Plan for changes. Things will happen. You must have prime objectives: Never slow close, initially do what is done today, plan for unexpected
T – Drawing
This is important. Don’t under-estimate. Seek help if you need it.The whole nature of optimization is a constantly moving end target. Be flexible but focused.
IOMA says Number 1Game changer to take this approach. Less stress, less risk, adaptable, target keeps changing.Works with time you have, fits you better.