The Fast Close Toolkit

Christine H. Doxey

• Publisher: Wiley
• Year: 2019
• ISBN:
  9781119554448
• Edition: 1
• Topic: Business
• Subtopic: Managerial Accounting
• Index: Business

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.

CHAPTER ONE
Why 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:

1. 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.
2. 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 a...

Table of contents

• Cover
• Table of Contents
• Preface
• Introduction
• CHAPTER ONE: Why the Continued Focus on the Fiscal Closing Process?
• CHAPTER TWO: Key Pain Points and Bottlenecks
• CHAPTER THREE: The Components of the Fiscal Close
• CHAPTER FOUR: Governing the Fiscal Close Process
• CHAPTER FIVE: The Transaction Accumulation, Reconciliation, and Sub-Ledger Close
• CHAPTER SIX: Introduction to the Standards of Internal Control
• CHAPTER SEVEN: Roles and Responsibilities During the Fiscal Close
• CHAPTER EIGHT: The General Ledger and Trial Balance
• CHAPTER NINE: The Common Chart of Accounts
• CHAPTER TEN: Cost Centers
• CHAPTER ELEVEN: The Journal Entry Process
• CHAPTER TWELVE: Spreadsheet Controls
• CHAPTER THIRTEEN: Checklists for the Transaction Accumulation, Reconciliation, and Sub-Ledger Close
• CHAPTER FOURTEEN: Sample Policies for the Transaction Accumulation, Reconciliation, and Sub-Ledger Close
• CHAPTER FIFTEEN: Process Narratives for the Transaction Accumulation, Reconciliation, and Sub-Ledger Close Process
• CHAPTER SIXTEEN: Standards of Internal Control for the Transaction, Accumulation, Reconciliation, and Sub-Ledger Close Process
• CHAPTER SEVENTEEN: Corporate Close and Consolidation
• CHAPTER EIGHTEEN: The Number of Consolidation Points
• CHAPTER NINETEEN: The Number of Closing Cycles
• CHAPTER TWENTY: Post-Closing Entries
• CHAPTER TWENTY ONE: Communication and Accountability
• CHAPTER TWENTY TWO: Financial Statement Assertions
• CHAPTER TWENTY THREE: Checklists for the Corporate Close and Consolidation Process
• CHAPTER TWENTY FOUR: Sample Policies for the Corporate Close and Consolidation Process
• CHAPTER TWENTY FIVE: Process Narratives for the Corporate Close and Consolidation Process
• CHAPTER TWENTY SIX: Standards of Internal Control for the Corporate Close and Consolidation Process
• CHAPTER TWENTY SEVEN: Analysis and Reporting (The Final Mile)
• CHAPTER TWENTY EIGHT: Internal and External Reporting
• CHAPTER TWENTY NINE: Budgeting and Forecasting
• CHAPTER THIRTY: Reduce Fiscal Close Cycle Times by Moving Your Finance Function to “Dynamic” Budgeting and Planning
• CHAPTER THIRTY ONE: Fixed Assets and the Capital Budget
• CHAPTER THIRTY TWO: The Forecast Process
• CHAPTER THIRTY THREE: The Fiscal Close and Strategic Planning
• CHAPTER THIRTY FOUR: Analytics to Detect Financial Statement Fraud
• CHAPTER THIRTY FIVE: Checklists for the Analysis and Reporting Process
• CHAPTER THIRTY SIX: Sample Policies for the Analysis and Reporting Process
• CHAPTER THIRTY SEVEN: Process Narratives for the Analysis and Reporting Process
• CHAPTER THIRTY EIGHT: Standards of Internal Control for the Analysis and Reporting Process
• CHAPTER THIRTY NINE: The Virtual Close: Myth or Reality?
• CHAPTER FORTY: Roadmap: Benefits of the Fast Close
• CHAPTER FORTY ONE: Accelerating the Close with Automation
• Addendum: Fast Close Tools and Additional Best Practices
• Glossary
• Index
• End User License Agreement