What Is the Close-Consolidate-Report Process and what is its Value Proposition?
As an opposite to the 'soft side' of performance management from my last posts, now I would like to emphasize a bit on the technical side. In this post I will eloborate on how one could close the books in a structured manner. Deloitte has done a lot of Fast Close implementations which helps control, speed up and even automate processes that are currently manual or involve input from people or other systems in your finance department, beyond finance or even from outside organizations.
Consider a situation depicting a financial organization where the Finance Organization is significantly regarded as value-added partners to the business leaders within a company. Additionally, the financial processes are streamlined and automated, information is timely, historical information is accurate, and information is made available in views necessary for key leaders to manage their businesses and make strategic decisions. The situation depicted above outlines an example of an ideal World-Class Finance Organization. Within the Finance Organization lie several major core processes which are controlled and directed by the CFO. One of these processes is the Close, Consolidation, and Management Reporting Process.
This process is one of the most time-consuming and detail-oriented processes within a CFO organization, yet it is critical to a company’s overall success. This clearly identifies the need for CFOs to ensure that their processes are made more efficient, people are adequately trained, systems are integrated, financial information is available to meet users’ needs, and overall financial reports are presented in a timely manner, to support strategic business decisions.
Following are some examples of issues affecting the Close-Consolidate-Report process, along with potential ways to address such issues:
- No formal closing schedule and procedures – Controller should issue a monthly schedule to all accounting managers with key dates and deadlines to complete various interdependent tasks. Additionally, each manager should document a checklist of recurring procedures for both efficiency and internal control reasons.
- Inconsistent COA/lack of data definitions – Should operate from one standard chart of accounts with each account carefully defined and accessible to all. The entire code block needs to be structured appropriately to provide information consistently throughout the organization.
- Closing process too slow, data no longer relevant – Investigate shortening the process by allowing for reasonably accurate results instead of highly accurate. Reduce manual journal entries by using automated recurring and standard entries. Perform some closing procedures before month end, where feasible. The optimal solution would be an electronic interface or automated import function between systems of company offices in different locations.
- Hard close not necessary every month - Investigate performing a soft close on non-quarter ending months (i.e., report essential financial information in user defined views, but do not generate complete GAAP financial statements).
- Inadequate reports – Investigate report writers (e.g., FRX, Crystal) or other applications (e.g., EssBase) to extract data and enable more useful management reporting around product lines, customers sales channels, etc. At a minimum, give managers the opportunity to design their own customized report to be generated on an ongoing basis.
- Cumbersome data distribution – Investigate intranet, e-mail, or some other means of electronic distribution of reports.
- Systems not integrated – Consider implementing one integrated system to collect and consolidate financial information for the whole company (e.g., ERP).
End-to-End View of the Close-Consolidate-Report Process
The entire Close, Consolidation, and Management Reporting process is outlined below, together with its four major sub-processes. The process begins with an efficient structuring of the General Ledger and the way financial transactions are captured and ultimately posted to the General Ledger. The arrangement of information and structure of the General Ledger is critical and has a significant impact on an organization’s ability to present timely and useful historical financial information for management purposes. The process ends after completion and all mandated reports are produced and distributed both internally and externally.
Close-Consolidate-Report is divided into two components to provide a more thorough approach for evaluating an entire close process for a potential client. Following are these two components:
- Business Unit Close - organization closes the books on a General Ledger system.
- Corporate Close - the Corporation takes the BUs data submissions, consolidates each entity, and finalizes/publishes overall results.
For the purpose of this review and diagnostic, although the same four processes exist as depicted above, it is important to divide up all items between Business Unit and Corporate. This division is driven by the variability of outputs produced due to different systems and processes that are often employed at each location.
Following is a detailed description of each of the four sub-processes of the Close-Consolidate-Report function.
Manage General Ledger
It is within managing the General Ledger where all the final financial results are recorded and captured. The General Ledger relies on a number of sub-ledger systems that typically exist throughout an organization and are most effective if properly integrated and interfaced with one another. The chart of accounts structure and related data definitions largely drive an organization’s financial and management reporting capability.
Perform Closing
Closing consists of a set of activities which are required to fully reflect all transactions and their resulting impact on the books and records of an organization for a predefined accounting period. The closing efforts typically are driven based on a predefined closing schedule and involve procedures for journal entries, allocations, adjusting journal entries, accruals, account review, reconciliations, etc.
Consolidate
This sub process relates to activities undertaken when consolidating the results of a group of companies. The consolidation process refers to the consolidation of the final period close information which occurs across, up, and through the entire organization. Inter-company eliminations are performed and foreign currency translations may occur. Often last minute events of corporate-wide adjusting entries or accruals are performed through top-sided adjustments.
Management / Financial Reporting
During the management and financial reporting process, a variety of financial and management reports are produced and distributed. Many disparate stakeholders rely on this information. Examples include executive management (and boards), business unit leaders, the SEC, the company’s creditors, and, ultimately, its shareholders. Although this is the last step in this process, the reporting needs largely drive the structure and execution of the preceding steps or sub-processes.
More information on Fast Close can be found on:
