What good looks like! Faster access to information leads to better informed planning
Faster access to information leads to better informed planning and strategic decision making
Organisations have a fiduciary responsibility to the shareholders to report on management's stewardship of the company.
This is according to Jaco Moller, manager, Business Advisory Services at Ernst & Young.
"Organisations also have a responsibility to report to various regulatory bodies and this makes it imperative for them to complete and report period-end accounts quickly and accurately," he says.
Financial Statement Close Process (FSCP) describes the ability of an organisation to complete and report period-end accounts quickly and accurately. It is often referred to as closing books and covers the General Accounting and Reporting process.
"In the late 90s companies became more effective and efficient in closing their books and reporting their financial information. Compliance regulations such as International Financial Reporting Standards (IFRS) and the Sarbanes Oxley Act placed additional reporting rules on organisations globally. This resulted in many organisations being reluctant to produce information quickly for fear of submitting inaccurate financial information," he says.
Moller says over the years corporations' "close times" subsequently increased dramatically which resulted in labour intensive exercises to ensure the necessary quality of the data produced. However, companies are once again focusing on speeding up their accounting and reporting cycles.
The simple and often-asked question is - why is it so important for organisations to close their books quickly? It enables faster access to financial and management information, which gives the executive management the foundation for timely reporting and better informed planning and decision making.
In addition, companies that close fast typically succeed as a result of streamlining their financial transactional processes, optimising the functionality of their accounting systems and - where applicable improving their reporting systems to become more effective and efficient
This, he says, enables staff that previously spent too much time on non value added activities to concentrate on new, more-strategic value-added activities giving these companies a competitive edge over their slower closing rivals. "Closing fast also helps companies maintain a healthy image in the market increasing shareholder confidence, while companies that do not close fast often miss reporting deadlines and can suffer in the eyes of shareholders, investors and regulatory agencies. If a company is perceived in a positive light, it can be viewed as an attractive business partner."
Moller states that while compliance-related issues have resulted in the increase in close cycles globally, compliance itself is not a direct barrier to a world-class close. "It is the governance process required to meet statutory requirements that creates an environment which puts additional burdens on existing processes, making them less efficient or, in cases where they are already strained, taking those processes to the breaking point.
"The issues lie with the processes; people and technology. These barriers to a fast close can be found at both the head office and reporting unit level, and affect multiple teams and processes. Some of the most frequently cited barriers, based on our experience of supporting fast close initiatives in the corporate centres of todays global enterprises, include data transmission problems and weak audit trails (to name a few)," he says.
Moller concludes: "Organisations should implement a robust effective and efficient FSCP by following a viable methodology to improve their reporting and accounting processes. This must incorporate phases where management can identify improvement opportunities, diagnose root causes of problems, design the future state process model and implement and deliver throughout the process of FSCP. A key differentiator is being capable to implement solutions in a sustainable manner."
