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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Serie: Wiley Corporate F&A
- Sprache: Englisch
This publication focuses on the critical methods that can be used to dramatically improve the fiscal closing process. The Record to Report (R2R) or Fiscal Closing Process is at the core of the controllership function. The process includes transaction processing, internal and external reporting, and the internal controls--the people, processes, and technology--that constitute the corporate organizational hierarchy. CFOs, controllers, and corporate finance departments require timely, accurate, and consistent data to make appropriate operational and strategic decisions and fulfill statutory, regulatory, and compliance requirements with accurate and timely data. The Fast Close Toolkit offers both strategic and tactical suggestions that can significantly improve the fiscal closing process and provides guidance on new legislation requirements, systems and best practice processes. Checklists, templates, process narratives, and sample policies are provided for every component of the fiscal close. Investors and shareholders expect fast and easy access to the data created by current business activities in the information-driven digital age. The Fast Close Toolkit provides the necessary tools and expert advice to improve the fiscal closing process. Authoritative and up to date, this book: * Identifies the bottlenecks that can impact the and improvethe fiscal close process and provides best practices to help alleviate these challenges * Defines the Record to Report (R2R) and recommends the roles and responsibilities for fiscal close processes flow * Offers the internal controls to use for the end-to-end fiscal close process * Describes approaches for risk management, R2R, and fiscal close benchmarking * Identifies KPIs for all aspects of the R2R process * Provides the mechanism for developing a financial close scorecard * Recommends leading practices for both external and internal reporting * Provides guidance on how strategic planning, the budget and forecast processes can be streamlined to enhance the fiscal close and internal reporting results Written by a respected expert on internal controls and the fiscal closing process, The Fast Close Toolkit is a valuable source of information for professionals involved in controllership and have responsibility for the fiscal close.
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Seitenzahl: 553
Veröffentlichungsjahr: 2019
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Table of Contents
Cover
Preface
HOW THIS TOOLKIT IS ORGANIZED
GUIDE TO TOOLKIT ORGANIZATION
TABLE OF BEST PRACTICES
TABLE OF POLICIES
TABLE OF CHECKLISTS
TABLE OF PROCESS NARRATIVES
TABLE OF STANDARDS OF INTERNAL CONTROL
Introduction
IMPROVING THE FISCAL CLOSE
BEST PRACTICE 1: CONSIDER THE USE OF A SINGLE ERP SYSTEM
BEST PRACTICE 2: EMPLOY CLOUD-BASED COMPUTING
NOTE
CHAPTER ONE: Why the Continued Focus on the Fiscal Closing Process?
AN OVERVIEW OF THE FISCAL CLOSE
CYCLE TIME TO MONTHLY CLOSE
NOTES
CHAPTER TWO: Key Pain Points and Bottlenecks
CHAPTER THREE: The Components of the Fiscal Close
CUTOFF DATES
BEST PRACTICE 3: IMPLEMENT CUTOFF DATES
NOTE
CHAPTER FOUR: Governing the Fiscal Close Process
BEST PRACTICE 4: IMPLEMENT A FISCAL CLOSE GOVERNANCE PROCESS
COMPOSITION OF GAAP
GAAP HIERARCHY
OTHER DISCLOSURE STANDARDS
CHAPTER FIVE: The Transaction Accumulation, Reconciliation, and Sub-Ledger Close
BEST PRACTICE 5: COMPLETE GENERAL LEDGER RECONCILIATIONS
ACCOUNTING BODIES
OTHER REGULATORY REQUIREMENTS
CHAPTER SIX: Introduction to the Standards of Internal Control
BEST PRACTICE 6: IMPLEMENT AN INTERNAL CONTROLS PROGRAM
ENSURING SUCCESS
CHAPTER SEVEN: Roles and Responsibilities During the Fiscal Close
TACTICAL RESPONSIBILITIES
EXECUTIVE RESPONSIBILITIES
CHAPTER EIGHT: The General Ledger and Trial Balance
CHAPTER NINE: The Common Chart of Accounts
BEST PRACTICE 7: IMPLEMENT A COMMON CHART OF ACCOUNTS
SAMPLE CHART OF ACCOUNTS
CHAPTER TEN: Cost Centers
BEST PRACTICE 8: DEFINE BUSINESS RULES FOR ESTABLISHING COST CENTERS
BEST PRACTICE 9: DEFINE ALLOCATION RISKS
COMMON ALLOCATION CHALLENGES
BEST PRACTICE 10: IMPLEMENT AN INDIRECT COST ALLOCATION METHODOLOGY
CHAPTER ELEVEN: The Journal Entry Process
BEST PRACTICE 11: STREAMLINE RECURRING JOURNAL ENTRIES
CHAPTER TWELVE: Spreadsheet Controls
BEST PRACTICE 12: ADDRESS SPREADSHEET RISKS AND IMPLEMENT CONTROLS
BALANCING RISKS WITH CONTROLS
CHAPTER THIRTEEN: Checklists for the Transaction Accumulation, Reconciliation, and Sub-Ledger Close
CHECKLIST 1: TRANSACTION ACCUMULATION AND FISCAL CLOSE CHECKLIST
CHECKLIST 2: FISCAL YEAR-END CLOSE SAMPLE SCHEDULE
CHECKLIST 3: ACCOUNTS PAYABLE ROLES AND RESPONSIBILITIES YEAR-END CHECKLIST
CHECKLIST 4: RECONCILIATION TEMPLATE
CHAPTER FOURTEEN: Sample Policies for the Transaction Accumulation, Reconciliation, and Sub-Ledger Close
POLICY 1: ACCOUNT RECONCILIATION POLICY
POLICY 2: ACCOUNTS PAYABLE ACCRUALS
POLICY 3: SPREADSHEET CONTROLS
CONTROLS STANDARDS
BEST PRACTICE GUIDELINES
CHAPTER FIFTEEN: Process Narratives for the Transaction Accumulation, Reconciliation, and Sub-Ledger Close Process
PROCESS NARRATIVE 1: JOURNAL ENTRY (JE) PROCESS
PROCESS NARRATIVE 2: MANAGEMENT APPROVAL OF JOURNAL ENTRIES
PROCESS NARRATIVE 3: OTHER CURRENT AND LONG-TERM ASSETS
PROCESS NARRATIVE 4: OTHER CURRENT AND LONG-TERM LIABILITIES
CHAPTER SIXTEEN: Standards of Internal Control for the Transaction, Accumulation, Reconciliation, and Sub-Ledger Close Process
STANDARDS OF INTERNAL CONTROL 1: JOURNAL ENTRY (JE) PROCESS
STANDARDS OF INTERNAL CONTROL 2: MANAGEMENT APPROVAL OF JOURNAL ENTRIES
STANDARDS OF INTERNAL CONTROL 3: OTHER CURRENT AND LONG-TERM ASSETS
STANDARDS OF INTERNAL CONTROL 4: OTHER CURRENT AND LONG-TERM LIABILITIES
CHAPTER SEVENTEEN: Corporate Close and Consolidation
DIFFERENCES BETWEEN IFRS AND U.S. GAAP THAT IMPACT THE R2R PROCESS
HOW OFTEN ARE NEW IFRS PRONOUNCEMENTS ISSUED?
IS IFRS, AS ISSUED BY THE IASB, THE SAME FOR ALL COMPANIES AND INDUSTRIES, IN ALL COUNTRIES?
WHAT IS THE PRINCIPAL STANDARD GOVERNING CONVERSION TO IFRS?
DOES IFRS USE THE SAME FINANCIAL STATEMENTS AS THOSE REQUIRED UNDER U.S. GAAP?
HOW WILL IFRS IMPACT INTERNAL CONTROL REPORTING AND CERTIFICATION UNDER THE SARBANES OXLEY ACT OF 2002?
NOTES
CHAPTER EIGHTEEN: The Number of Consolidation Points
BEST PRACTICE 13: AUTOMATE THE CONSOLIDATION PROCESS
BEST PRACTICE 14: INCLUDE THE PEOPLE WHO IMPACT THE CLOSE
BEST PRACTICE 15: CREATE CONSISTENT CLOSING SCHEDULES
BEST PRACTICE 16: CONSIDER FISCAL CLOSE PROCESS IMPROVEMENTS
CHAPTER NINETEEN: The Number of Closing Cycles
BEST PRACTICE 17: REDUCE THE NUMBER OF CLOSING CYCLES
CHAPTER TWENTY: Post-Closing Entries
FINANCIAL CLOSING STRATEGIES
BEST PRACTICE 18: DEVELOP BUSINESS RULES FOR POST-CLOSING ENTRIES
CHAPTER TWENTY ONE: Communication and Accountability
FISCAL CLOSE POSTMORTEM MEETINGS
CHAPTER TWENTY TWO: Financial Statement Assertions
FINANCIAL STATEMENT ASSERTION REQUIREMENTS AND APPLICATION
NOTE
CHAPTER TWENTY THREE: Checklists for the Corporate Close and Consolidation Process
CHECKLIST 5: CORPORATE CLOSE AND CONSOLIDATION
CHECKLIST 6: EXECUTIVE-LEVEL CLOSING CHECKLIST
CHECKLIST 7: TWENTY CRITICAL AREAS TO REVIEW AT YEAR-END
CHECKLIST 8: THE YEAR-END FINANCIAL STATEMENT CHECKLIST
CHECKLIST 9: THE YEAR-END TRANSACTION CHECKLIST
CHECKLIST 10: THE YEAR-END PAYROLL PROCESS CHECKLIST
CHAPTER TWENTY FOUR: Sample Policies for the Corporate Close and Consolidation Process
POLICY 4: FISCAL CLOSE AND CONSOLIDATION PROCESS
THE TIMELY COMMUNICATION OF DELAYS
ADJUSTMENTS REQUESTED BY FIELD AND CORPORATE PERSONNEL
ADJUSTMENTS BETWEEN PRELIMINARY AND FINAL RESULTS
“LATE” ADJUSTMENTS
CHAPTER TWENTY FIVE: Process Narratives for the Corporate Close and Consolidation Process
PROCESS NARRATIVE 5: BALANCE SHEET CONSOLIDATION
PROCESS NARRATIVE 6: ASSETS HELD FOR SALE DUE TO DISCONTINUED OPERATIONS
CHAPTER TWENTY SIX: Standards of Internal Control for the Corporate Close and Consolidation Process
STANDARDS OF INTERNAL CONTROL 5: BALANCE SHEET CONSOLIDATION
STANDARDS OF INTERNAL CONTROL 6: ASSETS HELD FOR SALE DUE TO DISCONTINUED OPERATIONS
CHAPTER TWENTY SEVEN: Analysis and Reporting (The Final Mile)
CHAPTER TWENTY EIGHT: Internal and External Reporting
INTERNAL REPORTING
BEST PRACTICE 19: ASK KEY QUESTIONS TO DEFINE YOUR INTERNAL FINANCIAL REPORTING PROCESS
EXTERNAL REPORTING
NOTE
CHAPTER TWENTY NINE: Budgeting and Forecasting
ABOUT THE BUDGET PROCESS
TYPES OF BUDGET PROCESSES
BEST PRACTICE 20: CONSIDER FIVE STEPS FOR A SUCCESSFUL BUDGET PROCESS
TEN CONSIDERATIONS FOR A SUCCESSFUL BUDGET PROCESS
VARIANCE ANALYSIS
OTHER FACTORS TO CONSIDER
CORPORATE PERFORMANCE MANAGEMENT (CPM)
A MOVING TARGET
CHAPTER THIRTY: Reduce Fiscal Close Cycle Times by Moving Your Finance Function to “Dynamic” Budgeting and Planning
DYNAMIC BUDGETING AND PLANNING
CHAPTER THIRTY ONE: Fixed Assets and the Capital Budget
BEST PRACTICE 21: ESTABLISH A CAPITAL BUDGET PROCESS
DEVELOPING THE CAPITAL BUDGET
BEST PRACTICE 22: IMPLEMENT THE CAPITAL REVIEW AND APPROVAL BOARD (CARB) PROCESS
CONSTRUCTION IN PROCESS ACCOUNTING
FIXED ASSET MANAGEMENT
DEPRECIATION METHODS
INTANGIBLE ASSETS
ASSET APPRECIATION AND ASSET IMPAIRMENT
DISPOSAL OF FIXED ASSETS
THE CAPITAL BUDGET AND FIXED ASSETS BUSINESS PROCESS RISKS AND CHALLENGES
CHAPTER THIRTY TWO: The Forecast Process
ABOUT THE FORECAST PROCESS
TYPES OF FORECASTING MODELS
THE FORECASTING PROCESS FOR SMALL BUSINESSES
NOTE
CHAPTER THIRTY THREE: The Fiscal Close and Strategic Planning
EXPECTED OUTCOMES OF THE STRATEGIC PLAN
BEST PRACTICE 23: INCLUDE FINANCE AND ACCOUNTING IN THE STRATEGIC PLANNING PROCESS
BEST PRACTICE 24: USE A STRATEGIC PLANNING READINESS CHECKLIST
BEST PRACTICE 25: FOLLOW THESE SEVEN STEPS FOR YOUR STRATEGIC PLANNING PROCESS
BEST PRACTICE 26: IMPLEMENT SIX KEY ELEMENTS FOR YOUR STRATEGIC PLAN
BEST PRACTICE 27: USE A STANDARDIZED TABLE OF CONTENTS FOR YOUR STRATEGIC PLAN
STRATEGIC PLANNING METHODOLOGIES
BEST PRACTICE 28: ESTABLISH PERFORMANCE METRICS TO DETERMINE THE EFFECTIVENESS OF YOUR STRATEGIC PLAN
NOTES
CHAPTER THIRTY FOUR: Analytics to Detect Financial Statement Fraud
BEST PRACTICE 29: USE RED FLAGS TO DETECT FINANCIAL STATEMENT FRAUD
THE NATIONAL COMMISSION ON FRAUDULENT FINANCIAL REPORTING (THE TREADWAY COMMISSION)
USE DETECTION METHODS FOR GENERAL FINANCIAL STATEMENT FRAUD
NOTE
CHAPTER THIRTY FIVE: Checklists for the Analysis and Reporting Process
CHECKLIST 11: QUARTER-END FISCAL CLOSE (10Q)
CHECKLIST 12: YEAR-END FISCAL CLOSE (10K)
CHECKLIST 13: PERFORMING FINANCIAL STATEMENT ANALYSIS
CHECKLIST 14: TREND ANALYSIS
CHAPTER THIRTY SIX: Sample Policies for the Analysis and Reporting Process
POLICY 5: BASIC POLICIES ON FINANCIAL REPORTING
CHAPTER THIRTY SEVEN: Process Narratives for the Analysis and Reporting Process
PROCESS NARRATIVE 7: DISCLOSURE CHECKLIST
PROCESS NARRATIVE 8: FLUCTUATION ANALYSIS
PROCESS NARRATIVE 9: CASH FLOW STATEMENT RECONCILIATION
PROCESS NARRATIVE 10: REPORTING DEBT
CHAPTER THIRTY EIGHT: Standards of Internal Control for the Analysis and Reporting Process
STANDARDS OF INTERNAL CONTROL 7: DISCLOSURE CHECKLIST
STANDARDS OF INTERNAL CONTROL 8: FLUCTUATION ANALYSIS
STANDARDS OF INTERNAL CONTROL 9: CASH FLOW STATEMENT RECONCILIATION
STANDARDS OF INTERNAL CONTROL 10: REPORTING DEBT
CHAPTER THIRTY NINE: The Virtual Close: Myth or Reality?
WHAT IS THE VIRTUAL CLOSE?
HOW IS THE VIRTUAL CLOSE DIFFERENT FROM THE SOFT CLOSE?
CASE STUDY: THE VIRTUAL CLOSE AT CISCO
IMPLEMENTING A VIRTUAL CLOSE
NOTES
CHAPTER FORTY: Roadmap: Benefits of the Fast Close
DIFFERENT TYPES OF FAST FISCAL CLOSING PROCESSES
SOFT CLOSE
VIRTUAL CLOSE
LEGAL ISSUES IMPACTING THE FAST FINANCIAL CLOSE
STEPS TO ACHIEVE A FASTER FINANCIAL CLOSE
CONCLUSION
CHAPTER FORTY ONE: Accelerating the Close with Automation
KEY REQUIREMENTS FOR AUTOMATING THE FISCAL CLOSE
KEY QUESTIONS TO ASK DURING IMPLEMENTATION
SYSTEM EASE OF USE
QUALITY OF FINANCIAL INFORMATION
ACCOUNTS PAYABLE AND PURCHASING
PROJECT ACCOUNTING
Addendum: Fast Close Tools and Additional Best Practices
CONTINGENCY PLANNING
BEST PRACTICE 30: ESTABLISH ESCALATION PROCEDURES
ROADMAP: 25 STEPS TO SHORTEN THE FISCAL CLOSE
THE MONTHLY FINANCIAL CLOSE PROCESS CHECKLIST
FOREIGN CORRUPT PRACTICES ACT (FCPA)
ACCELERATE YOUR FINANCIAL CLOSE: A 35-STEP ROADMAP
THE FAST CLOSE COMPLIANCE TOOLKIT
THE M&A DUE DILIGENCE CHECKLIST
FINANCE AND ACCOUNTING KEY BUSINESS PARTNERSHIPS MATRIX
FISCAL CLOSE RISKS AND CHALLENGES
FISCAL CLOSE STANDARDS OF INTERNAL CONTROL
THE FISCAL CLOSE DASHBOARD
THE CONTROLLER'S DASHBOARD
THE DETAILED FISCAL CLOSE SCORECARD
THE PROJECT MANAGEMENT TOOLKIT
NOTES
Glossary
NOTES
Index
End User License Agreement
Guide
Cover
Table of Contents
Begin Reading
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Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Asia, and Australia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers' professional and personal knowledge and understanding.
The Wiley Corporate F&A series provides information, tools, and insights to corporate professionals responsible for issues affecting the profitability of their company, from accounting and finance to internal controls and performance management.
The Fast Close Toolkit
CHRISTINE H. DOXEY
Copyright © 2020 by John Wiley and Sons, Inc.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750–8400, fax (978) 646–8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748–6011, fax (201) 748–6008, or online at www.wiley.com/go/permissions.
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Library of Congress Cataloging-in-Publication Data
Names: Doxey, Christine H., 1955- editor.
Title: The fast close toolkit / edited by Christine H. Doxey.
Description: Hoboken, New Jersey : Wiley, [2020] | Series: Wiley corporate F&A | Includes index.
Identifiers: LCCN 2019024543 (print) | LCCN 2019024544 (ebook) | ISBN 9781119554493 (hardback) | ISBN 9781119554523 (adobe pdf) | ISBN 9781119554448 (epub)
Subjects: LCSH: Closing (Accounting) | Financial statements.
Classification: LCC HF5681.C45 F37 2020 (print) | LCC HF5681.C45 (ebook)| DDC 657—dc23
LC record available at https://lccn.loc.gov/2019024543
LC ebook record available at https://lccn.loc.gov/2019024544
Cover Design: WileyCover Image: © fanjianhua/Getty Images
Preface
REGARDLESS OF COMPANY SIZE or complexity, all successful fiscal close processes require continuous communication, comprehensive documentation, and a flexible, responsive organization that is focused on people, processes, transactions, reconciliation, and reporting. The degree to which each building block is implemented will vary based on company size, type of industry, availability of resources, and management commitment.
However, omitting one or two of these building blocks may result in some type of failure during a month-end close. The building blocks for the fiscal close are explored in Chapter 3, “The Components of the Fiscal Close.” When executing these building blocks, executing the fiscal close correctly helps achieve the following benefits.
A reduced cycle time for the fiscal closing process
A more transparent, better documented process with better insight into the close process
Finance and accounting executives being more confident in the close
Well-managed and less-stressed employees
More time for analytics and the calculation of metrics
The fiscal close process is one of the most fundamental indicators of the efficiency of your fiscal infrastructure, and is the critical foundation that must be in place before your finance and accounting team can even begin to optimize its role as a true consultative business partner and trusted advisor, assisting in achieving strategic goals and creating shareholder value.
Over the last decade, the financial reporting landscape has seen significant change. Finance executives face mounting pressure to increase the accuracy of financial reporting while decreasing turnaround time. Costs are being highly scrutinized as the longest recession in U.S. history continues. Regulatory agencies have introduced a host of new standards and accounting rules changing materiality thresholds and requiring detailed schedules and new disclosures for public filings. To complicate matters, many finance organizations are being asked to do more with less as headcounts are reduced in response to economic pressures.
The current legislation has strict requirements for the timing of preparation and the quality of financial statements. It is especially important for chief financial officers (CFOs) of large companies who receive fiscal information from multiple entities, from different systems, and in incompatible data formats.
Since the adoption of the IFRS throughout the EU and the demand for greater transparency as far as external reporting is concerned following the collapse of corporate giants such as Enron and WorldCom, there is a great need for reliable fiscal information on a real-time basis.
Today's finance organizations face multiple priorities that include the oversight of fiscal transactions, management of enterprise performance, attestation of financial reporting, and timely close and consolidation of fiscal data. As they grapple with these issues, CFOs are always seeking ways to increase the efficiency and timeliness of their fiscal close and compliance processes. However, merely improving the speed of the fiscal close process is not enough.
There is a competing demand for improved fiscal governance and increased transparency and reliability of data. The pace of regulatory change also continues to increase as a result of the current economic challenges as well as ongoing regulatory initiatives such as the mandate of eXtensible Business Reporting Language (XBRL) as the reporting standard format and the likely move to International Financial Reporting Standards (IFRS).
Finance organizations need to proactively manage the challenges of data quality and prepare for new regulatory requirements to avoid creating a “perfect storm” for their fiscal close and consolidation processes. As regulations and requirements become tighter around responsibility accounting, more and more companies are continually reevaluating their closing processes to meet up with their statutory requirements, but also to integrate multiple financial reporting systems requiring a “Fast Close Toolkit.”
HOW THIS TOOLKIT IS ORGANIZED
This toolkit provides the guidance, best practices, tools, templates, and policies to enable a faster fiscal close. The Guide to Toolkit Organization table provides the applicable chapter number for each section.
For easy reference, each best practice, policy, checklist, process narrative, and standard of internal control is numbered throughout this toolkit. Tables for these important references are provided in the following tables:
Table of Best Practices
Table of Policies
Tables of Checklists
Tables of Process Narratives
Table of Standards of Internal Control
GUIDE TO TOOLKIT ORGANIZATION
Chapter Number
Chapter Title
Introduction
Executive Summary
1
Why the Continued Focus on the Fiscal Closing Process?
2
Key Pain Points and Bottlenecks
3
The Components of the Fiscal Close
4
Governing the Fiscal Close Process
5
The Transaction Accumulation, Reconciliation, and Sub-Ledger Close
6
Introduction to the Standards of Internal Control
7
Roles and Responsibilities During the Fiscal Close
8
The General Ledger and Trial Balance
9
The Common Chart of Accounts
10
Cost Centers
11
The Journal Entry Process
12
Spreadsheet Controls
13
Checklists for Transaction Accumulation, Reconciliation, and Sub-Ledger Close
14
Sample Policies for Transaction Accumulation, Reconciliation, and Sub-Ledger Close
15
Process Narratives for the Transaction Accumulation, Reconciliation, and Sub-Ledger Close
16
Standards of Internal Control for the Transaction Accumulation, Reconciliation, and Sub-Ledger Close Process
17
Corporate Close and Consolidation
18
The Number of Consolidation Points
19
The Number of Closing Cycles
20
Post-Closing Entries
21
Communication and Accountability
22
Financial Statement Assertions
23
Checklists for the Corporate Close and Consolidation Process
24
Sample Policies for the Corporate Close and Consolidation Process
25
Process Narratives for the Corporate Close and Consolidation Process
26
Standards of Internal Control for the Corporate Close and Consolidation Process
27
Analysis and Reporting (The Final Mile)
28
Internal and External Reporting
29
Budgeting and Forecasting
30
Reduce Fiscal Close Cycle Times by Moving Your Finance Function to “Dynamic” Budgeting and Planning
31
Fixed Assets and the Capital Budget
32
The Forecast Process
33
The Fiscal Close and Strategic Planning
34
Analytics to Detect Financial Statement Fraud
35
Checklists for the Analysis and Reporting Process
36
Sample Policies for the Analysis and Reporting Process
37
Process Narratives for the Analysis and Reporting Process
38
Standards of Internal Control for the Analysis and Reporting Process
39
The Virtual Close: Myth or Reality?
40
Roadmap: Benefits of the Fast Close
41
Accelerating the Close with Automation
Addendum: Fast Close Tools and Additional Best Practices
Contingency Planning
Roadmap: 25 Steps to Shorten the Fiscal Close
The Monthly Fiscal Close Process Checklist
Foreign Corrupt Practices Act (FCPA)
Accelerate Your Financial Close: A 35-Step Roadmap
The Fast Close Compliance Toolkit
The M&A Due Diligence Checklist
Finance and Accounting Key Business Partnerships Matrix
Fiscal Close Risks and Challenges
Fiscal Close Standards of Internal Control
The Fiscal Close Dashboard
The Controller's Dashboard
The Detailed Fiscal Close Scorecard
The Project Management Toolkit
Glossary
TABLE OF BEST PRACTICES
Best Practice Number
Best Practice
1
Consider the Use of a Single ERP System
2
Employ Cloud-Based Computing
3
Implement Cutoff Dates
4
Implement a Fiscal Close Governance Process
5
Complete General Ledger Reconciliations
6
Implement an Internal Controls Program
7
Implement a Common Chart of Accounts
8
Define Business Rules for Establishing Cost Centers
9
Define Allocation Risks
10
Implement an Indirect Cost Allocation Methodology
11
Streamline Recurring Journal Entries
12
Address Spreadsheet Risks and Implement Controls
13
Automate the Consolidation Process
14
Include the People Who Impact the Close
15
Create Consistent Closing Schedules
16
Consider Fiscal Close Process Improvements
17
Reduce the Number of Closing Cycles
18
Develop Business Rules for Post-Closing Entries
19
Ask Key Questions to Define Your Internal Financial Reporting Process
20
Consider Five Steps for a Successful Budget Process
21
Establish a Capital Budget Process
22
Implement the Capital Review and Approval Board (CARB) Process
23
Include Finance and Accounting in the Strategic Planning Process
24
Use a Strategic Planning Readiness Checklist
25
Follow These Seven Steps for Your Strategic Planning Process
26
Implement Six Key Elements for Your Strategic Plan
27
Use a Standardized Table of Contents for Your Strategic Plan
28
Establish Performance Metrics to Determine the Effectiveness of Your Strategic Plan
29
Use Red Flags to Detect Financial Statement Fraud
30
Establish Escalation Procedures
TABLE OF POLICIES
Policy Number
Best Practice
1
Account Reconciliation Policy
2
Accounts Payable Accruals
3
Spreadsheet Controls
4
Financial Close and Consolidation Process
5
Basic Policies on Financial Reporting
TABLE OF CHECKLISTS
Checklist Number
Best Practice
1
Transaction Accumulation and Fiscal Close Checklist
2
Fiscal Year-End Sample Schedule
3
Accounts Payable Roles and Responsibilities Year-End Checklist
4
Reconciliation Template
5
Corporate Close and Consolidation
6
Executive-Level Closing Checklist
7
Twenty Critical Areas to Review at Year-End
8
The Year-End Financial Statement Checklist
9
The Year-End Transaction Checklist
10
The Year-End Payroll Process Checklist
11
Quarter-End Fiscal Close (10Q)
12
Year-End Fiscal Close (10K)
13
Performing Financial Statement Analysis
14
Trend Analysis
TABLE OF PROCESS NARRATIVES
Process Narrative Number
Best Practice
1
Journal Entry (JE) Process
2
Management Approval of Journal Entries
3
Other Current and Long-Term Assets
4
Other Current and Long-Term Liabilities
5
Balance Sheet Consolidation
6
Assets Held for Sale Due to Discontinued Operations
7
Disclosure Checklist
8
Fluctuation Analysis
9
Cash Flow Reconciliation
10
Reporting Debt
TABLE OF STANDARDS OF INTERNAL CONTROL
Standards of Internal Control Number
Best Practice
1
Journal Entry (JE) Process
2
Management Approval of Journal Entries
3
Other Current and Long-Term Assets
4
Other Current and Long-Term Liabilities
5
Balance Sheet Consolidation
6
Assets Held for Sale Due to Discontinued Operations
7
Disclosure Checklist
8
Fluctuation Analysis
9
Cash Flow Statement Reconciliation
10
Reporting Debt
Introduction
ACCORDING TO THE Journal of Accountancy, fiscal close systems, processes, people, and their interconnectivity can be complex, but successful improvements to the process can be achieved by introducing some simple building blocks and basics as provided throughout this toolkit.
No matter what the company size, industry, or complexity of systems and process, all successful fiscal close processes require a solid governance and infrastructure, checklists and documentation, standards of internal controls, and continuous communication throughout every phase of the process to ensure accurate and timely fiscal results and reporting.
There are many factors that place the spotlight on the fiscal close process, which is usually led by a team of individuals in the corporate finance and accounting department managed by the corporate controller. The complexity of the process is driven by the nature of the company (private, public, nonprofit, or government subcontractor) and the type of industry or industries the company has responsibility for. Well-defined fiscal closing processes for monthly and quarterly close are foundational to establishing the discipline needed to obtain accurate and timely results throughout the fiscal year.
The fiscal year (FY) is usually the primary accounting year for a company, organization, or government. The fiscal year serves as the organizing basis for economic measurement and financial reporting. The fiscal year also serves as a basis for budgeting and planning. The budget, forecast, and planning process will be discussed later in this toolkit.
Sometimes the organizational structure of the company, the fiscal systems and tools, and the management style can impact the fiscal close. As an additional consideration, a company that has recently been through a merger or acquisition (M&A) activity will have a whole new set of “closing challenges.”
This toolkit will focus on the general best practices for the fiscal close that will enable a “fast close.” With the closing process, I've found that it's critical to do the basics well. In comparing the monthly, quarterly, and annual processes, I've determined that there may be differences in closing schedules, the number of journal entries processed, the types of reporting, the level of scrutiny for external and internal reporting, and the preparation of external communiques for public companies but the need to “close the books” sooner and more efficiently is a universal goal. The ultimate deliverables for the fiscal close process include the following two requirements.
Achieving timely, accurate, and consistent data.
It's all about the data! Controllers and corporate finance and accounting departments often find themselves in the eye of today's market whirlwinds with both internal and external reporting requirements to fulfill. Timely, accurate, and consistent data is always of critical importance.
Operational and strategic decisions are dependent on this rapid, precise, and reliable data. This data drives the planning and budget processes of an organization. The digital age has created a class of investors and shareholders who expect immediate access to the data created by current business activities for rapid decision making, to meet regulatory requirements and to complete reporting and review results with metrics and analytics.
Adhering to statutory, regulatory, control, and compliance requirements.
Statutory, regulatory, control, and compliance requirements add another layer of complexity. Global organizations are required to support reporting with multiple accounting standards, and new legislation requires new systems. Global organizations need to be concerned with the accuracy and regulatory requirements for intercompany accounting processes. Here are two examples and definitions of regulatory requirements that impact the fiscal close. We'll focus on the Sarbanes Oxley Act of 2002 (SOX) and the Foreign Corrupt Practices Act (FCPA). Additional regulatory requirements are provided in the Fast Close Compliance Toolkit located in the addendum of this book.
The Sarbanes Oxley Act of 2002 (SOX) was designed to enhance the reliability of financial reporting and to improve audit quality. SOX strengthened corporate governance, shifting responsibility for the external auditor relationship away from corporate management to independent audit committees. It instituted whistleblower programs, CEO and CFO certification requirements, and stricter criminal penalties for wrongdoing, including lying to the auditor. These measures and others were geared toward improving the reliability of corporate financial reporting.
The Foreign Corrupt Practices Act (FCPA) adds a new level of anti-bribery controls to the closing process for global organizations. Under the FCPA's Anti-Bribery Provision, it's unlawful to make a corrupt payment to a foreign official (official, political party, political official, or candidate for political office) for the purpose of obtaining business, retaining business, or directing business to any person. This includes ordering, authorizing, or assisting others to violate or conspire to violate these provisions. This applies not only to a successful corrupt payment—the offer or promise of such payment can also cause violation. Under the Accounting Provision, corporations must make and keep books and records that accurately and fairly reflect the transactions of the corporation. Corporations must devise and maintain an adequate system of internal accounting controls.
IMPROVING THE FISCAL CLOSE
Many chief fiscal officers (CFOs) and controllers face ongoing challenges with the fiscal closing process. In some cases the process is still very manual and spreadsheets are used throughout the process. Many companies can't seem to get a handle on the fiscal closing process and find that a checklist with well-defined roles and responsibilities is needed for every component of this critical and highly visible business process. In some cases, automation is not always the “silver bullet” but gaining a true understanding of the full fiscal closing cycle along with the processes that impact the cycle is a recommended direction.
Several years ago, I managed the fiscal consolidated process at Digital Equipment Corporation (DEC), which is now merged with Hewlett Packard. We faced two very unique challenges that I had the opportunity to address.
We had 32 individual general ledgers that were sent to corporate finance every month. Each ledger needed to be individually reconciled before we consolidated the results. Our CFO decided to implement financial management centers which combined multiple ledgers by region. This greatly reduced the time spent collecting data from several locations. The financial management centers were also responsible for reconciling the results in a “mini-corporate consolidation” process, which ensured that clean data was transmitted to corporate finance. Of course, we had some glitches along the away, but the process change in our fiscal architecture took out two days from the fiscal close. This was before the concept of shared service organizations was even fashionable.
During the mid-1980s DEC was using a tool called Software International General Ledger (SIGL). We found that our finance team was not using the correct programs to run the corporate work papers, which was a critical step in producing our financial reporting. There were hundreds of incorrect reports that were never purged. My team developed a set of standard reports for the monthly, quarterly, and annual close. All we needed to do was change the reporting period. This process change removed another day from the fiscal close.
I mention these two examples because best practices cannot replace empowerment and a culture of continuous improvement. Lastly, technology and automation are great tools to support the fiscal close, but it's important to ensure that your staff understands how to use them. I suggest the ultimate best practice combines people with automation, and when establishing a goal for the completion of the fiscal closing process, ensures there is enough time to analyze results, metrics, and potential risk. Let's take a look at some best practices.
BEST PRACTICE 1: CONSIDER THE USE OF A SINGLE ERP SYSTEM
Gartner's current definition of ERP in the postmodern era is:
Postmodern ERP is a technology strategy that automates and links administrative and operational business capabilities (such as finance, HR, purchasing, manufacturing and distribution) with appropriate levels of integration that balance the benefits of vendor-delivered integration against business flexibility and agility.i
The original ERP systems were developed for product-centric companies, which typically have the broadest ERP functional footprint. Product-centric companies traditionally are manufacturing companies and distribution companies.
A single- instance ERP reduces the number of consolidation points and allows the integration of financial transactions across a company. There is no need for uploads to a “system of record” to properly record a transaction.
A single-instance strategy is compelling in that it helps lower cost in the many organizations that struggle with redundant data, high training costs, and lack of insight across disparate systems and processes. A single-instance strategy is related to the desire of a business unit for more autonomy; others are of a more technical nature. There are three factors to consider when evaluating a single instance deployment:
Global organizations with legal entities operating in different countries need to comply with local statutory reporting and legal requirements. Trying to comply with these different requirements in one single code base can add system complexity, both in configuration and management as well as user experience.
Whenever many users access the same single instance it is critical that access to data and business processes is restricted in a way that can be easily monitored and managed.
Although there might be a high degree of commonality across entities, there still needs to be support for industry-specific requirements and specific processes and policies.
BEST PRACTICE 2: EMPLOY CLOUD-BASED COMPUTING
Cloud-based computing (also called software as a service, or SaaS) allows users access to software applications that run on shared computing resources (for example, processing power, memory, and disk storage) via the Internet. These computing resources are maintained in remote data centers dedicated to hosting various applications on multiple platforms.
Cloud ERP is software as a service that allows users to access Enterprise Resource Planning (ERP) software over the Internet. Cloud ERP generally has much lower upfront costs, because computing resources are leased by the month rather than purchased outright and maintained on premises. Cloud ERP also gives companies access to their business-critical applications at any time from any location and is an excellent enabler of a faster close process and supports business continuity and contingency requirements.
NOTE
i
Gartner, “IT Glossary.” Accessed May 6, 2019.
https://www.gartner.com/it-glossary/single-instance-erp
.
CHAPTER ONEWhy the Continued Focus on the Fiscal Closing Process?
INTRODUCTION: THE FISCAL CLOSING process is one of the most fundamental indicators of the efficiency of your fiscal infrastructure, and is the critical foundation that must be in place before your finance and accounting team can even begin to optimize its role as a true consultative business partner and trusted advisor, assisting in achieving strategic goals and creating shareholder value. Getting accurate and timely fiscal information is critical in today's global market because:
Financial statements are the ultimate scorecard for a company. A company's financial statements reflect the company's business results and trends—its products, services, and macro-fundamental events.
The critical information obtained from fiscal information is used to perform analysis. The absolute numbers in financial statements are of little value for shareholder and investment analysis. These numbers from financial statements must be transformed into meaningful relationships to judge a company's fiscal performance and determine its fiscal health at the current time. The resulting ratios and indicators must be viewed over extended periods to spot trends and predict performance.
If your finance organization is bogged down in a never-ending closing process, they have little time to focus on enhanced reporting or analytics. Visibility to accurate fiscal information and underlying operating metrics are critical to your management team in any economic environment, but particularly in times of uncertainty, where rapid and knowledgeable responses to changing business and market dynamics are imperative.
There are many factors that place the spotlight on the fiscal close process, which is usually led by a team of individuals in the corporate finance and accounting department managed by the corporate controller. The complexity of the process is driven by the nature of the company (private, public, nonprofit [tax-exempt or mission based], or government) and the type of industry or industries the company has responsibility for. Sometimes the organizational structure of the company, the fiscal systems and tools, and the management style can impact the fiscal close process cycle time and the resources needed.
Key Point: The signs that the fiscal close needs attention include:
The close is completed later than four days after the period end.
No formal management review of the fiscals is done after every close.
The driving force behind completing the financial reports is an external reason—bank covenant reporting, tax payments, government reporting, etc.—rather than a sincere belief it is a key management tool.
The current fiscals are not integral to the company's forecasting system.
The accounting and finance team is focused on past shortcomings, not getting the most out of the company's future potential.
Executives are not pushing to get the fiscals as soon as possible each month.
Every fiscal close event results in chaos, delays, and unexpected results.
The fiscal closing cycle is also referred to as the Record to Report (R2R) process. Record to Report (R2R) forms an important aspect of the finance and accounting process. It provides the necessary insights on the strategic, operational, and fiscal facets, which gives an in-depth idea of an organization's performance. It involves complex processes of gathering, converting, and supplying information to stakeholders who want to know if their expectations have been met.
Regulatory bodies and analysts expect organizations to review their account books in less than a week and release their earnings statements within a month. Industry-specific regulations and the ever-increasing financial reporting has put a huge burden on an organization's reporting process.i
Key Point: When fewer days are devoted to month-end close activities, more time can be spent providing performing analytics and addressing finance and accounting process improvements.
AN OVERVIEW OF THE FISCAL CLOSE
The accounting process can differ slightly from one business to another based on variances in the chart of accounts, revenue and expense recognition, and cost center breakdown. Despite these differences, the overall monthly closing process is the same. Following the same standard procedures to close the books each month will help ensure consistent and accurate reporting. Here are some basic processes that will add discipline to the fiscal close. These processes will also help to expedite closing processes.
1. Establish a Closing Date
Establish a closing date by which all expenses and revenue must be posted. Communicate the closing date to everyone who has access to modify the ledger. Close the books for the month as of the date communicated, prohibiting any further changes to the ledger for the period.
2. Trial Balance Report
Start the closing cycle with a trial balance report. Review the balances to identify any anomalies from what is expected. Review the transaction details for any accounts you are uncertain of and note any adjustments that need to be made.
3. Adjusting Entries
Create the adjusting entries to recognize prepaid expenses, accrue outstanding invoices, relieve accruals that have been paid, and recognize depreciation and other amortizations. Post adjusting entries to correct the current balance of any ledger account that reflects expense postings in error.
4. Adjusted Trial Balance
Generate an adjusted trial balance report to review the final balances in the ledger. Verify that the trial balance matches on the debit and credit side. Verify that the balances are accurate, checking the account activity if needed. Trial balances will vary from the initial report due to the adjusting entries. This helps you identify any entries that posted incorrectly.
5. Reporting
Create reporting to show the final expense activity for the period and year-to-date. Include documentation of the balance sheet, income statement, and depreciation schedules. Save copies of the entire journal entries posted along with the documentation supporting their necessity for audit purposes.
CYCLE TIME TO MONTHLY CLOSE
The following background on the “cycle time to monthly close” comes from APQC's General Accounting Open Standards Benchmarking survey. For this open-ended question, the metric is defined as the cycle time in calendar days between running the trial balance to completing the consolidated financial statements. Cycle time is the total time from the start of the process to process completion, including time spent actually performing the process as well as time spent waiting to move forward.
Of the 2,300 organizations that answered this survey question, the bottom 25% said they need 10 or more calendar days to perform the monthly close process. The top performers, or the top 25%, can wrap up a monthly close in just 4.8 days or less—about half the time of the bottom 25%. At the median are the organizations that need 6.4 calendar days to close out a month's books.ii
Cycle Time in Days to Complete the Monthly Consolidated Financial Statements
For multisite companies with separate reporting entities, finance has to ensure the chart of accounts' naming and numbering conventions are as closely matched as possible. Organizations that strictly adhere to common fiscal definitions need fewer days to complete their monthly consolidated financial statements.
Common data definitions set the business rules for every aspect of the fiscal close and can prevent transactional errors and will help set the foundation for accurate metrics and support consistency through all phases of the fiscal closing process.
NOTES
i
Senthil Kumaran, Operations Manager—Finance and Accounting, “6 Best Practices for Record-to-Report Process,” Invensis Technologies. Last modified February 12, 2016. Accessed February 8, 2019.
https://www.invensis.net/blog/finance-and-accounting/6-best-practices-record-report-process/
.
ii
Perry D. Wiggins, “Metric of the Month: Cycle Time for Monthly Close,”
CFO.com
. Last modified March 5, 2018. Accessed February 11, 2019.
http://www.cfo.com/fiscal-reporting-2/2018/03/metric-month-cycle-time-monthly-close/
.
CHAPTER TWOKey Pain Points and Bottlenecks
INTRODUCTION: ALTHOUGH THERE ARE different reporting requirements and levels of complexity for each fiscal close process, the closing is very similar regardless of industry or company size. Here are some of the common challenges that continue to place the fiscal close in the corporate spotlight. Understanding these key pain points and bottlenecks will help identify the areas of focus when implementing process improvements to achieve a faster close.
Common Financial Close Process Challenges
The fiscal close process exceeds a desired benchmark and never seems to end.
All participants in the fiscal close are in “fire-drill” throughout the process.
All other finance activity (such as analysis, ROI calculations, and project support) shuts down during the close.
Reports are late, difficult to understand, and overly complex, data is suspect, and last-minute revisions are needed.
There are differences between internal and external financial reports with conflicting internal report requirements.
Multiple systems and data warehouses are used during the close process.
There is no clear ownership of the data.
Reports are usually created in spreadsheets and document control is a challenge. Spreadsheets are further used to support multiple manipulations of the same data over and over to meet various reporting requirements. Financial documents (including spreadsheets) are created and stored on individual computers within and outside of finance, which can result in:
Too many surprises
Lack of timely reporting
Period-end cutoff errors
Lack of supporting documentation
Lack of consistent processes
Excessive post-close adjustments
The fiscal hierarchy is too complex.
There is no time and a limited capacity or ability to report operational metrics or key performance indicators (KPIs). An absence of staffing and training plans creates a resource gap during each closing cycle.
There are too many cost centers, and many are inactive and can be consolidated.
There are disparate and disconnected business process and fiscal systems.
Multiple, nonstandard, or overly complex charts of accounts are used. These are the basic “bones” of the accounting system.
There are too many adjusting entries during the fiscal close.
There is no time to worry about fiscal close internal controls or perform any risk analysis.
Multiple general ledgers and disparate transactional systems with inconsistent data structures must be mapped to achieve a consistent reporting format.
There is a lack of visibility into the status and execution of the closing process and the related tasks and evidence gathering performed by finance, with the knowledge of these processes in the heads of just a few employees.
Limited reporting capabilities that have propagated spreadsheet-based reports that house critical fiscal results have become the company's “corporate records.”
There is a lack of focus on the process “basics” such as closing process checklists, reporting templates, standard operating procedures, and business continuity plans.
There are concerns with systems limitations, intercompany issues, and nonstandard procedures during the fiscal close.
Systems and software:
There are multiple systems for payroll, accounts payable, accounts receivable, general ledger, and consolidation.
Little or no adherence to closing checklists, which creates a delay in submitting data and documents.
Incorrect classification of expenses causes errors and increases the risk of fiscal statement miss-statements.
The field accounting staff is not following established procedures.
Lack of support for internal controls by management.
CHAPTER THREEThe Components of the Fiscal Close
INTRODUCTION: THE FISCAL CLOSE process starts with: (1) Transaction Accumulation, (2) Reconciliation, and Sub-Ledger Close process component, and is pictured in the diagram below. It focuses on recording and reporting accounting transactions during a specific and defined period—monthly, quarterly and annually.
All activities that comprise the fiscal close are driven by cutoff dates that ensure fiscal results are accurately reported as part of the Close and Consolidation process.
The Corporate Close and Consolidation component is considered part of the fiscal close and consolidation process and includes the close of business units and the completion of the adjusted trial balance, and the first pass of consolidated financial statements. The “final mile” of the process is (3) the Analysis and Reporting cycle.
Components of the Fiscal Close or Record to Report (R2R) Process
CUTOFF DATES
Cutoff dates are a critical component of the fiscal close since they drive all the accounting activities that will be included in a specific fiscal period to ensure that the information in the financial reports for the company is accurately stated.
Here's a definition of a cutoff date.
In accounting, the cutoff date is the point in time that delineates when additional business transactions are to be recorded in the following reporting period. For example, January 31 is the cutoff date for all transactions that will be recorded in the month of January. All transactions occurring after this date will be recorded in February or later months.i
The fiscal year (FY or financial year) is usually the primary accounting year for a company, organization, or government. The fiscal year serves as the organizing basis for economic measurement and metrics, and establishes the deadline for the fiscal close process and the preparation of financial statements. The fiscal year is usually one year in length, composed of four fiscal quarters. The fiscal year may or may not always correspond to the calendar year or to a company's tax year.
BEST PRACTICE 3: IMPLEMENT CUTOFF DATES
Establish a cutoff date by which all expenses and revenue must be posted. Communicate the closing date to everyone who has access to modify the ledger. Close the books for the month as of the date communicated, prohibiting any further changes to the ledger for the period.
The fiscal close process can differ slightly from one business to another based on the industry and the size of the company. Despite these differences, the foundation for the closing process is very similar, and following a set of standard procedures to close the books will help ensure consistent and accurate reporting that supports a fast close.
1. Transaction Accumulation, Reconciliation, and Sub-Ledger Close
Single chart of accounts:
The goal is to implement a policy that ensures the unification of accounts into a single chart of accounts for the entire company.
Trial balance report:
Start the closing cycle with a trial balance report. Review the balances to identify any anomalies from what is expected. Review the transaction details for any accounts you are uncertain of and note any adjustments that need to be made by considering the following processes.
Streamlined data flow:
Streamlining the data flow and dissemination in such a way that ownership resides at the point of entry and information is considered to be a readily available corporate resource
Sub-ledger and general ledger integration:
Integration of sub-ledgers with the general ledger through the use of cross-validation rules and error (control) fields and/or reports
Adjusting entries:
Create the adjusting entries to recognize prepaid expenses, accrue outstanding invoices, relieve accruals that have been paid, and recognize depreciation and other amortizations. Post adjusting entries to correct the current balance of any ledger account that reflects expense postings in error.
Adjusted trial balance:
Generate an adjusted trial balance report to review the final balances in the ledger. Verify that the trial balance matches on the debit and credit side. Verify that the balances are accurate, checking the account activity if needed. Trial balances will vary from the initial report due to the adjusting entries.
2. Corporate Close and Consolidation
Create reporting to show the final expense activity for the period and year-to-date. Include documentation of the balance sheet, income statement, and depreciation schedules. Save copies of the entire journal entries posted along with the documentation supporting their necessity for audit purposes.
Flexible consolidation options:
Consolidation may be realized at several levels and for different entities. Any consolidation technique can be realized (full or proportional consolidation, and equity method).
Control of reporting process:
Flexible capabilities of tracking and alignment of data at any stage, reviews of input data and final reports, use of registers for making manual adjustments, and audit trail of reporting data.
3. Analysis and Reporting
Limit the use of spreadsheets.
Reduced closing time:
Minimize of the overall close and consolidation time frame, and meeting management reporting deadlines.
Centralized application architecture:
All the information is stored in a centralized database, which is accessible from any place in the world. All users can see real-time information after it has been input in the system. At the same time the system provides an opportunity to work offline with subsequent simple synchronization of modified data.
Data security and contingency plans:
Secure data access is ensured by the distribution of user privileges according to their roles and by configuring the rights of access to different analytical dimensions (directories) or particular reports, folders, and other objects.
Accurate results:
Consolidated financial statements that provide accurate financial reporting.
Integration of statutory and management information:
Statutory and management information via the implementation of specialized software packages are integrated.
Compliance:
Transformation of financial statements in compliance with IFRS (GAAP).
Analytical capabilities:
Reporting items, companies, currencies, periods, versions, geographical regions, and products.
Environment of communication:
Reporting process becomes more comprehensible with the capability of inputting instructions and comments, as well as sending notifications either automatically generated by the system or customized by the user.
NOTE
i
Accounting Coach, “Cut-off Dates.” Last modified August 8, 2018. Accessed February 7, 2019.
https://www.accountingtools.com/articles/2017/5/14/cutoff-date
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CHAPTER FOURGoverning the Fiscal Close Process
INTRODUCTION: ACCORDING TO THE American Productivity & Quality Center (APQC), good governance goes beyond standard data definitions The focus should be on creating systems for accountability that improve data quality and consistency and reduce the risk of regulatory repercussions. No matter where data comes from, vendor invoices, emails, the addition of new customer accounts, or other sources, should align with your organization's technology and finance processes. Good data governance includes procedures for data accountability, confidence in data reliability, and the reduction of unnecessary tasks that decrease efficiency.
In general, the fiscal close process should have a defined governance process to ensure that roles and responsibilities are defined and that there is consistency in the process. A well-governed process can help reduce “fire drills” during the process and establishes the structure for scrutiny, accuracy, and continuous improvement.
Effective finance organizations address these issues by establishing a ledger close governance framework. Central components of a fiscal close governance process include the following best practices.
BEST PRACTICE 4: IMPLEMENT A FISCAL CLOSE GOVERNANCE PROCESS
Introduction: A well-defined governance process for the fiscal close also reduces the risk of fiscal statement fraud, error, and management overrides resulting in fiscal restatements. Many of the tools contained in this toolkit can help you build the foundation for the governance process for your fiscal close. I recommend the following 12 best practices.
Implement a Financial Close Architecture
Standardize Templates and Processes
Implement a Financial (GAAP) Hierarchy
Implement a Controlled Journal Entry Process
Automate Variance Analysis
Follow a Best-in-Class Documentation Philosophy
Automate Manual Tasks
Provide Training
Implement a Communication Strategy
Collaborate Across Organizations
Involve Other Functional Areas
Implement Metrics
1. Implement a Financial Close Architecture
The concept a fiscal close architecture is comprised of several components which help make the close successful. These components are included below:
The ability to superimpose a complete suite of governance; risk management and compliance applications on a miscellany of operational systems with the minimum of disruption
The ability to seamlessly connect period close, fiscal close, external filings, and controls in a single overarching environment
The ability to merge quantitative information in the form of fiscal results with qualitative information about workflow status, tasks, issues, and controls to create a complete picture of financial reporting readiness
The ability to implement standard processes on a global or enterprise-wide basis to smooth out the differences in time zones and connect disparate reporting entities and to give complete end-to-end visibility of the financial reporting and controls environment
The provision of specialist functionality that allows tracking and reporting of tasks, issues, and controls throughout the fiscal close process
Tight integration with consolidation applications and a variety of other data sources so that fiscal outcomes are inextricably linked with underlying controls (through reporting and dashboards) to prove that reported fiscal results are dependable
2. Standardize Templates and Processes
Standardized closing templates guide your closing in completing the tasks that are accurate and consistent across your organization. Templates should include timelines and clear definitions of the tasks to be completed by the specific individual, and should build in time for a review and approval process.
3. Implement a Financial (GAAP) Hierarchy
Generally Accepted Accounting Principles (GAAP) is the single most important body of accounting standards in the United States as it defines how financial statements are produced. These guidelines provide the framework that allows investors to understand what the statements say. GAAP is composed of a variety of resources, some of which contradict each other. As a result, a hierarchy of authority was established that clearly defines which standard to use in case of conflict. It is important to note that GAAP is not the only set of standards that a business must use to meet all of its disclosure requirements.
COMPOSITION OF GAAP
GAAP standards are drafted by three separate organizations. The first is the Accounting Principles Board. The APB was one of the earliest organizations that established accounting guidelines. The APB issued 31 opinions and four statements prior to its dissolution in 1973. The APB was followed by the Financial Accounting Standards Board. The FASB is a private organization of accounting professionals and its main focus is to provide better accounting standards. It issues several different types of reports on accounting standards which have varying authoritative value. The final organization is the American Institute of Certified Public Accountants. The AICPA is in charge of establishing the industry's ethical standards and induction qualifications. It also provides guidance on reporting standards.
GAAP HIERARCHY
The hierarchy
