The accumulation of tasks and activities around the month-end close is a well-known accounting phenomenon. FSN’s recent research, “Agility in Financial Reporting and Consolidation,” calls it the Month-End Mountain, reflecting the strenuous climb that finance professionals experience every month just to get on top of their workload.
Ironically, just at the point in time when well qualified personnel should be applying their experience and technical skills to quickly dispatch statutory filings and analyze corporate performance, they are preoccupied with mundane, non-value-added tasks, that keep them from exercising their professional judgement. Worse still, it’s the same story every month. In fact, FSN’s research finds that 60% of organizations spend too much of their time chipping away at the month-end. So, the obvious question is, what causes this energy-sapping peak in activity, and what do transformational leaders do to flatten the Month-End Mountain?
The research points to three main causes: an accumulation of data errors, a lack of task management, and a process that does not encourage management to tackle certain activities earlier in the monthly reporting cycle.
Data errors have the most restrictive impact on the agility of the close process and the Month-End Mountain. Errors which arise early in the process, for example, in closing the books in subsidiaries or data capture from reporting entities need to be corrected quickly, at source. When errors are allowed to slip through interfaces or mapping tables (between subsidiaries and the center) they are then propagated throughout the reporting chain all the way to the center. Once these errors reach the center, they are more difficult and time-consuming to correct. This is because people at the center are often unfamiliar with the data and often because of delays in communications between people in different time zones. In general, the further away an error is discovered from its source, the more difficult it is to correct. That is why errors build up in the final stages of the close. In fact, 72% of organizations report that the agility of the close process is affected, or greatly affected, by data errors.
The close process is made up of hundreds of closely interleaved tasks, such as reconciliations, producing and checking reports, agreeing accruals and journal entries. Usually, these tasks are managed in a spreadsheet checklist, which is onerous to maintain in real-time and share between participants. So, task completion can be rather haphazard, and the same mistakes are made month after month. But FSN’s research identifies that those companies that have invested in task management, for example, detailed workflows can more easily see the status of reporting at any point in time and reduce the burden at the month-end.
Such investments also allow for certain activities, such as agreeing inter-company balances or posting recurring journals, to be brought forward to earlier in the month. Getting these tasks out of the way reduces the burden on the month-end close.
Transformation Leaders Work Differently
Transformational leaders represent a compelling example for the value of investing in data quality, automation, and specialised reporting software. So, what do they do differently?
They seek to automate data capture and maintain good control over different data sources and mapping tables. This allows them to trap and correct errors at source, rather than allowing them to build up at the center.
They use task management capabilities to alleviate the pressure at month-end and smooth out peaks and troughs in workload between different people in the finance function.
Finally, they ensure that tasks that can be brought forward and dealt with earlier.
So, the good news is that following best practices in automation and control can greatly alleviate the congestion at month-end, allowing finance professionals to spend more time on value added activities and less time on an unproductive “paperchase.”
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