Month-End Financial Close
Sheila Saffold (Senior Treasury Accountant)
| Feb 3, 2010
Good morning. I'm new to this group, and looking for best practices for the financial month-end close.
How long is your close? If it's particularly short, do you rely on estimates?
What type of internal analysis does your group do, prior to finalizing the finanicals?
How do you distribute the information to department managers and use their feedback?
I'd love to hear your success stories!!
Thanks!
Topics:
Answers
Company: TPG Credit Management
I have seen close periods from +2 to +10 business days. In all instances estimates are involved and judgment must be applied to consider whether changes get booked in current or subsequent months.
Most firms seem to be staffed only to close the books with little resources focused on analysis, not the best situation in my view. The most common analysis I have seen are account reconciliations where every G/L account, balance sheet in particular, is tied out to supporting information and period fluctuation analysis.
Best practices I have seen are to involve business people in the review and approval of their numbers, require them to take some ownership. In larger companies this is usually more formal, involving committees and signatures. In smaller companies it is usually a quick email that confirms they agree to their figures.
Worst case scenario is if nobody but accounting recognizes and takes ownership of the numbers. Best case scenario is if accounting is framed to be just processing the businesses results.
Company:
Completely agree. Make the businesspeople own their numbers. Finance and accounting are there to write history and provide visibility to the future, but a)mistakes happen, b)garbage in, garbage out, and c)the businesspeople need to know and own their numbers. All too often when the numbers are unfavorable the businesspeople (GM, Sales VP, etc.) look to accounting as if they drove the result, rather than just tabulating the outcomes.
As CFO I send pre-close financials monthly to the Business GMs at my company and either I or my Controller review those numbers with them to make sure we're all on the same page.
Company: Seeking new opportunities
Ensure that the closing process is well-documented and that a closing calendar is published ahead of each month-end, distributed not only to accounting but to functional/business unit (BU) leaders and those who provide inputs into closing. Be sure their deadlines are included so that your process stays on track.
Obviously, 'real' numbers are best, but use professional judgment and best estimates when necessary for timely month-end. You might extend qtr or yr-end by one day to avoid estimates, if possible, and get buy-in on estimates from those whose numbers are effected. I recommend the balance sheet be thoroughly tied out and support documentation is complete before closing is completed. Test for profit/loss and major revenue/expense reasonableness against relevant prior period(s) as well as budget/forecast. It's essential to allow enough time to get buy-in on final numbers from functional/BU leaders. If they ignore you, at least you have done your due-diligence and have solid ground on which to stand when, as happens in some organizations, the functional or BU leader intimate that accounting some how pulled the numbers from thin air and weren't simply reporting the facts that were presented by their people. If you're doing some form of daily Dashboard (which often involve a number of estimates or assumptions), your leadership team should have a good idea of, at a minimum, the way the numbers are trending and not be particularly surprised by the actuals at period-end.
Other best-practice: if applicable, daily tie-out of A/P, receipts, invoicing, so that at end of period your team is balancing only a day's worth of data instead of a month's worth.
Company: Silicon Valley Accountants
Mohler, Nixon, and Williams recently published a survey on the state of the financial close at SF Bay Area companies. The survey results can be downloaded from http://www.mohlernixon.com/machform/view.php?id=24
Company: Silicon Valley Accountants
One of the things we have seen is that the close process is unique for each organization. So, while it is possible to benchmark yourself against others, see my previous post on the benchmark survey recently published by Mohler Nixon & Williams, best practices need to be tailored for your specific organization.
We believe the best way to do this is with a culture of continuous improvement, along with tools that help you to measure your close.
Company: TTX
Our primary close process takes five work days with reports issued on the seventh work day. Most ledger master accounts are reconciled during the close, and nearly all major balance sheet captions are analyzed. Actual transactions are used primarily with estimates where required. Income tax accruals are recorded on the sixth day using estimated effective tax rates which are reviewed quarterly The close process compares preliminary income statement data to plan and forecast and review 13 month moving averages. The close process also includes a summary balance sheet change review with an internal activity format cash flow statement for month and year-to-date. We will sometimes add one day at quarter-end and two at year-end, except for final pension plans data which awaits the actuarial report in late January. Income tax accrual asset/liabilitiy reclassifications are done annually at year-end. We identify and establish during the month key data flows to minimize unexpected items arising in the close. Annual estimate items are reviewed at least quarterly...monthly where feasible. State tax law changes are monitored constantly and reflected at least quarterly.
Company: Floor and Decor Outlets of America, Inc.
We are a $300 Million company. Our Monthly Financial Close is 4 days, with FLASH review with our CFO on day 5. After this is done, Executive Team FLASH Review is done on workday 6 or 7 (depending on their calendar) and then it is released. Our close is based upon actuals with A/P accruals recorded as needed based upon account analyses. Unfortunately, Accounting is made primarily responsible for all accounting actuals, comparisons to budget/plaan and prior year, as well as to explain variances with very little input from the various cost center managers.
I completely agree that the many cost center managers/businesspeople should own and explain their results, but we're told they don't have time. So Accounting has a monthly scrable performing detail results analses and pulling detail invoices from A/P to try to explain cost center spending, particulalry where there are large variances to comaprison data. A typical review meeting with the CEO would include questions to me as control for each department, who traveled and what was the purpose of their travel? Listing the who is the easy part, but knowing by department who among more than 1,000 emploees traveled each month and for what specific purpose is absolutely rediculous!!!
I believe finance and accounting are there to accurately capture and report what went on financially with the business. but with limited staff and a tight close window, cannot reasonably have all the detail answers for management and that the managers who spend the money and approve the spending should have to play a bigger role. As the owners of their P&Ls, they should have to own explaining it as well.
As Mark Stokes said, "All too often when the numbers are unfavorable the businesspeople (GM, Sales VP, etc.) look to accounting as if they drove the result, rather than just tabulating the outcomes." Now how does this make sense when they are ones who spent/approved the spending?
As Controller, I have found it is an uphill battle trying to change behavior and processes. As I make efforts to improve processes, efficiencies, and management effectiveness, I fear I am viewed as not being a team player.
I do firmly believe an Accounting Staff can be strong, effective, and supportive of the business doing the right things, but all too often are viewed as necessary evils rather than valuable partners to the business.
Andy
Company: Packaging Dynamics
We are an $800 million dollar, three business unit company with operations only in the US. We close in 2 days. We spill into day three only if there is an significant issue to address. The best advice I can give anyone is, don't start closing after the month ends. We make any entry that we can in the before the last day of the month. The rest is just plain discipline as we have one G/L system that still processes batch transactions on a monthly basis, but this is not a barrier to a quick close. Our business units are close to being closed on day one and using day two to do more analysis on why results varied from expectations. We also use some tools to communicate faster between locations such as using IM's to get quick responses and communicate entries to be made. I have also been in an multi-nationals where closes were delayed, but usually due to lack of discipline in completing entries before the month ended.