If a company has a number of subsidiaries that report their information to corporate headquarters for consolidation, it is quite possible that the headquarters accounting staff will spend an inordinate amount of time trying to consolidate the disparate results that it has received. Further, if the corporate staff detects a possible error in the results forwarded from a division, it must make inquiries with that division, which may take quite a long time to respond. Also, some subsidiaries may use different procedures that require more time to forward closing information to headquarters. The result of these issues is a slower close.
The solution is a high degree of standardization throughout the accounting operations of the business. You can apply standardization in a number of areas, including:
- Software. It is very useful to have a single company-wide enterprise resources planning (ERP) system, but that solution is so expensive that it may not be cost-effective. Instead, consider installing the same accounting software in all locations, so that common procedures can be designed around them.
- Chart of accounts. Use an identical chart of accounts in all locations. This makes it much easier to map the month-end results of the subsidiaries to the general ledger of the parent company.
- Procedures. Use an identical set of procedures for all accounting transactions. This can be difficult if some transactions are based on non-standard systems elsewhere in the company, so there will likely be some variability in procedures.
- Policies. Accounting policies should be the same in all locations, so that transactions are treated in the same way. For example, different capitalization policies would mean that an expenditure would be recorded as a fixed asset in one location and as an expense in another location.
- Journal entries. There should be a standard set of journal entries that are used in all locations, and which use the same accounts. Thus, journal entry templates are standardized.
- Calendars. The same activity schedules are used everywhere, so that the managers of all accounting operations know when they are supposed to complete assigned deliverables.
Encourage the selective testing of new ways to streamline accounting processes further. This may involve the use of an in-house team of accountants, internal auditors, or perhaps a group of process consultants. If successful, you can then roll them out throughout the company.
When you have a high level of standardization within the business, it is much easier to compare the closing performance of each accounting area. This is useful for spotting promotion-worthy employees. In addition, you can develop closing metrics for all subsidiaries, and use this information to improve the operations of those accounting units that persistently perform at sub-par levels.
Allocate a large amount of time to the standardization task. This involves the construction of operational manuals, training classes, and follow-up system testing by the internal audit staff to ensure that standardized approaches are being followed. In a large company, this could be a multi-year task.