In this episode, we discuss how the centralization of the accounting function can be used to enhance the closing process. The following points are made:
The closing process is unusually slow in a multi-division company, because each division has to close its books first and then forward its results to the parent entity, which then has to conduct its closing process. The situation is especially slow when each division uses its own accounting software, procedures, and chart of accounts.
A lesser enhancement is to impose a common chart of accounts and accounting procedures on all company divisions.
The best approach is to centralize all accounting functions. Doing so eliminates all variability by using one set of procedures and a single chart of accounts. It also reduces the number of people involved in the closing process. Further, transactions are stored in one database, making it easier to research problems. With a single location, workflow management software can also be used, making it easier to track the progress of the monthly close.
The main problem with centralizing the accounting function is the process of converting over. It can be smoother to centralize one function at a time, such as all the customer billings, then all payroll, and so forth.
Can also compress the number of people involved in the closing process until an optimum number is reached.
When acquiring other businesses, consider centralizing their accounting functions as soon as they are purchased.