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How to Safely Race to an Optimized Financial Accounting Close?

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As per one survey by the Institute of Management Accountants, financial closing is one of the most significant challenges. In order to optimize financial close; an organization requires to make coordinated efforts. Here in this document, we have discussed how companies can race to an optimized financial accounting close safely.

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How to Safely Race to an Optimized Financial Accounting Close?

  1. 1. HOW TO SAFELY RACE TO AN OPTIMIZED FINANCIAL CLOSE? www.cogneesol.com Prepared by: Telsea Greene Financial Advisor
  2. 2. Index 3-6 Introduction 7-12 Three Most Common Types of Financial Close 13-15 The importance of Financial Close on Time 16-17 Why is optimized financial close essential? Obstacles to Optimizing Financial Close Simple steps to Optimize the Financial Close 33 A Method For Closing Books Accurately & Quickly 34 One Strategy, Various Benefits 35 Provide What Management Expects 36 Our Approach to Financial Close 37 What Kind of Benefits can Your Company Reap? 38 Why Choose Cogneesol? 27-32 18-26
  3. 3. Inefficiency in finance-related processes and flaws in the ERP system become barriers to the financial close process. "MAKING IMPROVEMENTS TO THE FINANCIAL CLOSE ISN’T EASY" Breaking these barriers requires addressing and rectifying the root causes of problems, not just identifying and dealing with the symptoms. As per one survey, conducted by the Institute of Management Accountants, financial closing is one of the most significant challenges that finance and accounting organizations face today. More than half of the survey respondents stated that their team’s productivity could be improved if the financial close process gets streamlined. However, it has never been easy to improve the financial close process as it is not just one process but many processes that are interrelated, well, interdependent (to be precise). INTRODUCTION
  4. 4. IF WE DISCUSS THE SOLUTION, THERE’S NOT A QUICK CURE FOR INEFFICIENCIES IN THE FINANCIAL CLOSE PROCESS. In order to optimize the financial close cycle, an organization requires to make coordinated efforts in making improvements to financial close-related policies, staff, and procedures.
  5. 5. THE HACKETT GROUP, REPORTS: One Recent Survey, conducted by of the survey respondents trust the numbers that are reported in the month-end close. of respondents remain under pressure to close swiftly. of respondents are satisfied with the timely closing process and its quality. of respondents say that processes that are handled manually are still the most significant reason behind the delay in the financial close process.
  6. 6. Your Financial Close Process is Inefficient S I G N S S H O W I N G Undefined close process Insufficient automation Inaccessible real-time data Inefficient integration with strategies and actual data Manually generated financial statements
  7. 7. HARD CLOSE – THE TRADITIONAL PROCESS The hard close process, a vital part of the broad area financial accounting, can become tedious and inefficient, leading to errors or delays in reporting. THREE MOST COMMON TYPES OF FINANCIAL CLOSE
  8. 8. BEST PRACTICE: Design &publish a calendar for financial close Regularly record operational finance transactions Regularly reconcile accounting system modules and ledgers Record monthly journal entries Reconcile balance sheets Review expenses and revenues Prepare financial statements Review management Close accounting system for the month
  9. 9. SOFT CLOSE It uses an abbreviated procedure for financial closing. In this, the accuracy of the financial statements gets reduced due to several expenses and revenue accruals. Thus, the results following a soft close can be inaccurate, or they might give varying results over months. THREE MOST COMMON TYPES OF FINANCIAL CLOSE In the end, questions might get raised on financial statements that are compliant with GAAP-based regulations.
  10. 10. BEST PRACTICE: Make a detailed closing process and add assigned responsibilities, defined deliverables, and a closing calendar in it. Maintain a series – one process should not start until the pending one gets finished. Avoid investigating material variances, remove small adjustments, and set a level of detail for both internal and external reporting. Perform internal auditing to locate issues in transactions, review key components of financial statements daily or weekly. Automate your financial reporting system. Standardize the close process. Analyze reports on a monthly or quarterly basis.
  11. 11. CONTINUOUS ACCOUNTING It allows the organization to switch from a manual and error- prone process to a technology-based process. It implements automation, control, and completes target-specific tasks within daily activities. In this, the workload is distributed more evenly (unlike the hard close process), and it encourages constant reporting and analysis. THREE MOST COMMON TYPES OF FINANCIAL CLOSE
  12. 12. BEST PRACTICE: Enhancing business performance using automation is essential. Prefer utilizing tools for task management, data connectivity, reporting & analysis. Analyze the current condition of the process and improve it for the future accordingly. Adopt automation to optimize the process Monitor metrics and outcomes Reconcile bank accounts with accounting application
  13. 13. The company owners, as every businessman, want their business to run smoothly and grow steadily; this is impossible if they don’t get accurate financial statements on time. In any company, people who have the right to make a decision must become aware of their business performance by looking at its financial history. This historical data generally includes the very last month’s financial reports or the same from the past 12 months. With the help of this detailed information, the decision-makers apply their management skills and perform financial forecasting and make other significant decisions. THE IMPORTANCE OF FINANCIAL CLOSE ON TIME THE SOONER THEY GET THE REPORTS, THE QUICKER THEY CAN MAKE DECISIONS.
  14. 14. TIPS Consider These Tips to Improve The Financial Close Process • Continuously prioritize the improvements in the financial close. • Develop close performance metrics and monitor them regularly. • Define accountability for closing functions without a scheduled closing • Ensure your staff is meeting deadlines.
  15. 15. KEY ELEMENTS OF OPTIMIZED FINANCIAL CLOSE A methodology to improve continuously. Implementing best practices as per your company. Adoption of technology. A complete set of smart strategies and focused resources to sustain improvements. The optimized financial close can be achieved by following a comprehensive approach that includes:
  16. 16. WHY IS OPTIMIZED FINANCIAL CLOSE ESSENTIAL? The benefits of an optimized financial close are the reasons behind its essentialness. Meeting regulatory guidelines and early reporting of financial results are two major benefits, including the following.
  17. 17. BENEFITS Management of issues and items, consistent communications, and timely reviews result in high accuracy in reported numbers. Giving special importance to streamline repeatable processes results in significant cost savings. Consistently meeting regulatory compliance increases the investors’ confidence. Earlier access to vital information (financial reports), which is required to build and implement business strategies or react to business environment changes. Increased number of opportunities for accountants to perform particular analyses and determine overall business improvements. Access to financial reports based on historical and forecasted financial information much relevant to the company’s operations.
  18. 18. OBSTACLES TO OPTIMIZING FINANCIAL CLOSE The Following are the reasons why many companies face issues in optimizing the financial close process.
  19. 19. CHANGING REQUIREMENTS OF THE FINANCIAL CLOSE A growing company undergoes multiple events such as reorganization, restructuration, and mergers & acquisitions; with these changes, the requirements of close change. Improvements focusing reshaping the entire process always disturb the significant processes, financial close is one of such.
  20. 20. LACK OF CLARITY & METRICS The typical financial close process is opaque that even some companies collect metrics on the close process performance. This lack of clarity usually makes it challenging for owners to determine the areas where changes are needed, and if the aftereffects of the changes match their desires.
  21. 21. UNPLANNED PROCESS IMPROVEMENTS In many companies, accounting departments are bound to catch up with a cycle of activities – ending one close, covering the heaps of backlog from the last close, starting to work on the next close period. In between all of this, accountants don’t get a plan to assess the current processes to find efficiency improvements.
  22. 22. THE FINANCIAL CLOSE IS OFTEN TOO COMPLICATED Accountants, especially in large companies, have to handle multiple accounting systems deployed across varying currencies, time zones, corporate cultures, and regulatory compliance requirements. All of this often makes the close process full of complexities.
  23. 23. FINANCIAL REPORTING Most companies get the financial close done by putting the latest requirements into traditional methodologies, instead of overhauling a system during critical and time-sensitive activities, just to provide the financial reports on time.
  24. 24. THE UNCHANGEABLE NATURE OF THE CLOSE Finance & accounting departments often get in a rush around the close, while each department maintains its own list of priorities and members focusing on their own individual responsibilities. Thus, in such an environment, complete visibility, open communication, workload balance, and similar concepts are tough to bring.
  25. 25. IMBALANCED INVESTMENTS Companies make huge investments in Business Intelligence, ERP, and other systems that are helpful in moving and managing data. These systems mostly work efficiently; however, at times, insufficient investments are made to manage and improve the financial close. As a result, some processes get improved while some remain the same.
  27. 27. SIMPLE STEPS TO OPTIMIZE THE FINANCIAL CLOSE There are specific tools and best practices to automate and handle the complete close process from the beginning to the end. An optimized financial close is that which; Reduces the turnaround time of individual close functions. Adds predictability and visibility to close tasks. Ensures reliability on the numbers being complete and accurate. Promotes collaboration. Enhances the quality and consistency of the financial close. SIMPLE STEPS TO OPTIMIZE THE FINANCIAL CLOSE
  28. 28. Identify Main Inefficiencies – Assess Inefficiencies in the Financial Close Process Nonintegrated systems, through which most accounting transactions are done, can result in time-consuming reconciliations. Many managerial reporting methods used at different stages of the close might get better with data manipulation and various spreadsheets. These manipulations are often documented in an unorganized manner, creating issues in the audit trail. WHY IS THIS STEP IMPORTANT? Identifying efficiencies and inefficiencies can help organizations to determine the items they should address immediately, items that have growth potential, and issues that might require more effort and time to rectify. 0 1 A company’s foreign subsidiaries can further create complications in financial matters due to poorly documented intercompany transactions, errors in currency conversion, inappropriate consolidation & elimination of financial statements.
  29. 29. Align Systems, People and Processes - Raise awareness, define optimization teams and goals The second step requires making everyone a part of the financial close process committed to the process of change. Yes, it would be challenging to bring dozens of employees together, typically from operations & services, treasury, cash management, finance &sccounting, legal, IT, payroll, etc. and take them away from their core traditional functions, but it is not impossible. WHY IS THIS STEP IMPORTANT? Aligning systems, staff, and processes help you define the scope of optimization and balance the resources and priorities to achieve optimized financial close. 0 2 Also,after getting together, everyone must set their concerns about deadlines aside so that to focus more on collaborative objectives that are vital for the company to survive in the long run.
  30. 30. Determine Dependencies - Expose bottlenecks and slowdowns Identifying interdependent key processes help the company set achievable deadlines and reduce unnecessary conflict & st that, by understanding the vital path to financial close, all staff members can see the procedure and know their responsibilities. This will also help identify reasons behind delays, which might help to improve the processes. WHY IS THIS STEP IMPORTANT? Determining the processes that require to depend upon each other helps you understand the reasons why the financial close process gets delayed. 0 3
  31. 31. Resolve Constraints Having the Greatest Impact - Define the root Cause of issues and determine related solutions After identifying bottlenecks, it is time to resolve potential constraints before they become responsible for more delay. Defining the main causes allows the company to find out which solutions would be best and when & where to apply them. WHY IS THIS STEP IMPORTANT? This step allows you to find issues responsible for delays and define solutions accordingly. Also, it helps you have a system to start resolving the problems that have the greatest impacts. 0 4 While working on improvements, it is vital to begin with clear and precise information about the problems, for instance, start with the category such as personnel, processes, or system and then find the root cause, its impact on the financial close, and benefits of resolving the issues.
  32. 32. Optimize Financial Close Process Administration - Implement additional solutions to automate the process The final step to optimize the financial close process is to implement the solutions. Automating the administrative tasks and having control over them can help reduce time wastage, manual errors, and improve efficiency. WHY IS THIS STEP IMPORTANT? By executing the solution-focused strategies, companies can automate the recurring tasks and frequent transactions, monitor staff responsible for close cycle tasks, and get real-time information about the financial close status. 0 5 Instead of following traditional means of assigning the tasks, companies can optimize the number of tasks and assign them to different executives that should be involved in the financial close process. Numerous solutions can support you with financial close & reconciliations, which can also automate, control, and monitor the financial close related activities. Solutions such as BlackLine Systems, SAP Financial Closing Cockpit, and Oracle Hyperion Financial Close Suite can provide a smoother, more efficient, and quicker financial close.
  33. 33. A Method For Closing Books Accurately & Quickly Accurate and timely financial statements are vital to meet compliance requirements and achieve competitiveness, but recent survey conducted by Genpact along with CFO Research revealed, “only two out of five responding companies complete the quarterly general ledger close within one week—a significant differentiator for enterprises that are more agile and effective in closing.” Reduced close cycle time Improved close process efficiency Enhanced reliableness of financial statements The faster the financial close is, the quicker the financial numbers get reported and analyzed. Many companies hire outsourcing companies for financial reporting services to get better and accurate reports on time. However, some well-established companies spend only four days from the closing period to final reporting, getting more time for required analysis and fruitful decisions. If we discuss accounting outsourcing services, the scope of advantages is broad. Outsourcing provides you with numerous advantages including;
  34. 34. ONE STRATEGY, VARIOUS BENEFITS Optimizing the close process is no less than a strategy to achieve multiple objectives. A better close process is often achieved with the help of using additional skills and capabilities. This allows staff to focus on core analysis and interpret the financial data rather than just performing assigned jobs. As a result, it reduces overall costs and ensures accuracy in the financial statements. The benefits of taking an end-to-end approach for multiple closing activities can be increased efficiency, speed, and accuracy in the financial close process. This is exceedingly helpful for company owners and CFOs that are planning to cut costs and improve financial effectiveness in alluring stakeholders.
  35. 35. PROVIDE WHAT MANAGEMENT EXPECTS Keeping track of reporting deadlines and meeting them Error-free financial data Quicker closing Increasing efficiency Saving time and cost Internal reporting Planned auditing Improving mid-year control over financial data and forecasting to make better decisions In today’s business environment, CFOs must implement expectations of the management, some of which are mentioned below. management accounting strategies to effectively handle financial accounting and reporting process meet the
  36. 36. OUR APPROACH TO FINANCIAL CLOSE Our approach includes evaluation of operational efficiency and on-going closing processes and associated risks, in terms of both accuracy and adequacy. It delivers a detailed analysis of opportunities to bring accurate, more transparent, and faster closing processes. We, as per our experience, focus on elements that crucially impact the operational efficiency – People, Processes, and Technology.
  37. 37. PAGE 08 What Kind of Benefits can Your Company Reap? You get information that is readily available and reduce closing time. Redundant processes are eliminated. Risks are reduced, and transparency is improved. Workflow is enhanced, and costs are saved. You quickly get benefits, and opportunities to optimize the financial close. You get complete support for having the required level of control over critical items, and their correction and analysis. Interim financial reports are reliable enough to make decisions. All the financial data and reports are accurate. Cogneesol’s services will help you with financial close optimization and reporting processes while preserving shareholder value as we ensure that;
  38. 38. We serve our clients with quality  management experts having vast experience gained from previous projects across various industries. We offer service packages that can be customized as per the requirements and priorities of the clients and ensure that the services delivered reach high levels of satisfaction. Why Choose Cogneesol? outsource accounting services
  39. 39. GET IN TOUCH To Know more about us, get in touch with one of our experts today; +1646-688-2821 info@cogneesol.com www.cogneesol.com