Those who have exposure to either the finance or audit functions of any organisation will know that the Financial Close Process is always a key control. It’s one of the key challenges accounting and finance organisations face. It’s essential that costs in the measurement period and the revenues in the measurement period are from the same period of time. All the activities that can change balances in the financial ledgers must be included, that’s to say, shipping, receiving, payables and receivables.
The finance department will be mostly accountable for the financial close process. The CFO probably won’t get directly involved but the controller will certainly be involved in managing the process. Once the books have closed everyone is bursting to know what the results are.
The augment in controls consciousness brought about by scandals over the years means that organisations have to at least show the process they should be following for financial close. Getting past internal and external auditors requires minimum standard operating procedures or process narratives. Some organisations have refined control activities into checklists. These standard operating procedures and checklist methods are necessary components of a financial close monitoring solution however, they are rather uniform representations of the flow of work.
Financial Close Process Automation
What is needed of a workflow automation tool is that it will:
- Notify people when prerequisite steps are done.
- Capture Evidence.
- Record conformations of complete actions in an auditable store.
The Controller and CFO will be the main users of this financial close management tool however, not the auditors. They are the ones who need to know where the issues and bottlenecks lie in order for a successful financial close process.
You need to confirm balance sheet quality in the close process through reconciliation which is another component we need to look at. There are many control accounts whose balance must correspond to the underlying subledgers. Most general ledger systems have facilities to confirm this on a daily basis however, there are still many balance sheet accounts whose balance is not supported by a formal subledger but backed by other working papers. Although balance sheet reconciliation isn’t part of the close process it will feed into it to ensure that the accounts are periodically reconciled and balance sheet quality maintained.
Monitoring the financial close process is essential to ensure accurate and timely information to stakeholders. It’s a process that spans the whole organisation not just the accounting department. Those who need to understand the bottlenecks in the process are the senior managers in the accounting department. It’s a process that needs to be carried out efficiently and effectively.