…and what that means for close management systems.
Over the past several decades information systems have been deployed to help improve a wide variety of business processes. Some of the more obvious examples include CRM systems and supply chain management systems. Widespread deployment of ERP systems have helped to automate a wide variety of accounting functions.
Yet the financial close has not seen analogous systems deployed. Why not?
We believe that there a number of unique challenges that have made it difficult to create effective automation systems for the close. Among them:
- The close is a constantly changing process. It is unlikely that any two monthly closes will be exactly the same. Therefore, any system which is designed to manage the close has to be able to adapt to rapidly changing conditions including acquisitions and mergers, restructuring, and changing accounting systems.
- The close process is designed to identify and record those items which do not fit into a defined process performed within the organization. We call it the “Catcher of the Miscellaneous”
- It is hard to imagine that any two companies would have the same combination of accounting systems, especially when you factor in all of the systems being used, such as ERP, Payroll, Equity, Reporting, Fixed Assets, Revenue Recognition and Close Management. The close touches every one of these systems. This unique accounting environment means that each close is unique to that company.
- Each company has its own unique processes.
- Few closes have real time status or defined metrics. Also, during the close, most team members are too busy to accurately record their status, thus metrics are at best approximations of the close. But management can only improve what it can measure, so close management systems need to gather metrics.
- Many one off situations are resolved through ad-hoc journal entries or tasks, again highlighting the changing nature of the close.
- The close is technically not complete until all steps have been completed, however, many finance teams will close the books without knowing that each and every step has been completed.
- Close deadlines may not be adjustable due to external factors such as reporting deadlines, board meetings or even management expectations.
Gary Simon, managing editor at FSN and author of “Fast Close to the Max”, describes the different methods used to tackle the close process and it’s issues many of which are inefficient without visibility.
Any information system designed to help companies manage and improve their close process has to be able to work in this unique environment. Close management information systems need to be:
- Flexible -in response to the constantly changing conditions of the close.
- Able to gather metrics needed for management to improve the process.
- Able to work in any accounting system environment.
- Able to help companies track every step needed for the close.
See how AFRM® addresses these challenges.