Close Faster with Standardized Accounting

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Close Faster with Standardized Accounting

The Need for Standardized Accounting

One of the most prevalent reasons for a slow close is that the corporate accounting staff must investigate variances and outright errors in the summarized information they receive from divisional accounting staff, and spend days correcting them. Frequently, a problem is caused by a multitude of different accounting procedures throughout the company, resulting in inconsistent reporting results that are hard to reconcile. Also, since different divisions use different accounting systems, it is impossible to spread accounting best practices throughout the company – they may work well in one location, but not in another.

Overview of Standardized Accounting

The solution is to implement a common approach to all accounting transactions throughout the company, not just to those transactions directly related to the closing process. This approach improves the level of corporate control over transactions. Further, if a recurring transaction error is discovered that presents the risk of significant and ongoing reporting errors, the corporate controller can easily mandate a change in the standard accounting procedures, thereby rolling out critical system changes in a short time period. This drops the corporate risk profile, which is of some importance under the mandates of Sarbanes-Oxley. Further, this approach improves the level of information accuracy at the source, resulting in far less time being required by the corporate accounting staff to track down and fix errors at the end of the closing process.

By standardizing accounting systems throughout the company, it also becomes much easier to mandate the use of closing schedules and force the accounting departments of subsidiaries to follow them. For example, if a division controller claims that he cannot forward closing information by a scheduled date, she can no longer use as an excuse the presence of a unique step in her divisional closing process – such steps are not allowed. Also, the corporate controller can more easily judge the management talent of the divisional accounting staffs based on their ability to produce financial results in accordance with the closing schedule, since everyone operates under the same guidelines.

An added benefit of company-wide standardization is that every accountant in every division handles transactions in the same way, so it is much easier to cross-train employees, as well as to swap them among locations. In addition, if someone devises a best practice for one location, it can probably be copied throughout the company, since all accounting systems are identical.

Further, the use of standardization eliminates the need for information being rolled in from unrelated sub-systems or electronic spreadsheets, which can be time-consuming and is more likely to include errors. Instead, the common closing procedure specifies exactly where all data comes from, how it is processed, and where it is posted as part of the closing process. There is no longer a place for unusual sources of information. However, since divisional controllers may adopt their own systems to process data, it is important to dispatch internal auditors to the divisional accounting departments from time to time in order to search for and report on the presence of such systems.

If the corporate controller makes the decision to standardize all accounting procedures, she can simply mandate the use of the procedures being used by a single favorite division. Though this may be the fastest way to standardize systems, it may not result in the most efficient and effective system. If the standardization project has a sufficiently long timeline, it may be useful to analyze the systems in use at all locations in order to cherry pick the best methods from all locations; this approach has the added benefit of probably being supported by more divisional staffs, since they will have had input into the process. Yet another approach to adopting standardized procedures is to base the new common procedures on the dictates of a single accounting computer system that is to be used throughout the company. If the accounting system chosen for central use only allows certain procedural flows, then these requirements must be factored into the common accounting procedures. Given all of these possible approaches, the recommended one is to standardize systems throughout the company as soon as possible without regard for first finding the absolute best system. By doing so, there is an immediate impact on the speed of the financial close. To improve the newly standardized systems from this point onward, create an internal consulting team that regularly recommends system changes based on an analysis of benchmarks, best practices, recurring system errors, and consultant or auditor recommendations.

Whatever approach is used to derive a standardized accounting system, the corporate controller must budget considerable resources to roll out the new system in all locations, preferably first using a single pilot site to ensure that the rollout will work. The implementation will require the use of detailed written procedures with copious examples, training classes, and on-site assistance by qualified staff, followed by internal audit reviews of transactions to ensure that the changes have been properly implemented. Depending on the number of accounting locations, this rollout may require many months of effort.

Podcast

There are multiple discussions about the fast close in Episodes 16 through 25 of the Accounting Best Practices podcast.