According to Ventana Research, the majority of companies (83%) view the ability to close their books quickly as important or very important. However, businesses nowadays take longer to close than they did five years ago. Pressures from both within and outside of organisations are preventing them from achieving an efficient financial close.
External demands for a faster financial consolidation process
In addition to demands for better internal controls and corporate governance practices, companies are facing tighter regulations regarding filing deadlines, integrity and business disclosures from global financial markets.
Customers, partners, employees and communities are demanding more transparency into the inner workings of companies and how companies impact the environments in which they operate.
Some of the most prominent issues include:
- Data Quality and Collection Errors
Companies, especially those with multiple branches in different locations, will need to put in extra effort to achieve a “right-first-time” financial consolidation process, from data collection to normalisation, and overcome the issues that may arise during the process, such as:
- Manual data entry errors
- Late delivery from reporting units
- A lack of validation and controls
- Poor integration with source systems
- Lack of integration across multiple close processes
- Intercompany Reconciliation
Intercompany transactions can cause significant delays in the close cycle. Staff at both HQs and local branches have to spend time on resource-intensive tasks, such as eliminating intercompany transactions, calculating group ownership and minority interests.
- Weak Performance of Consolidation Applications
Financial consolidation is inherently iterative and involves many rounds of consolidation, review and adjustment before the process is finalised. Hence, limited capabilities of financial close software can seriously hinder the whole process.
- Lack of Automation
Many elements of financial consolidation can be automated to speed up the close process and reduce errors, as well as increase staff availability. Without automation and guided workflow, issues associated with staff that may be unfamiliar with business processes and reporting systems may arise.
- Inefficient Audit Trails
A lack of strong audit trails is not only an internal issue where central finance may seek to investigate and verify figures, but also an external issue where post close audit sign-off takes place.
To solve these problems, companies need to evaluate their approach towards the financial consolidation process. Check out our full whitepaper “Financial Consolidation: Building a bridge to operational excellence” to learn about available options.