This is the first blog in a blog series that analyzes why the month end financial accounting close takes time. In this blog, we set the stage by identifying the importance of the monthly financial close and discussing the key bottlenecks slowing the process. In subsequent blogs, we will analyze each of the bottlenecks and suggest solutions.
The month end close is an accounting process that ensures all financial transactions have been accounted for in the appropriate month. The month end closing process is required to fulfill the matching principle of accounting which requires expenses along with their associated revenue to be recorded and recognized in the same period.
As an example, expenses paid out after the period they were incurred and the revenue received must be matched and recorded in the period. It is the accountant’s responsibility through the month end closing process to recognize the expense has not been recorded and accrue for it in the correct period.
There is little doubt that month close is a significant activity in the finance function which requires the books to be closed quickly and accurately. Needless to say that forecasting cash flow predictions accurately, making strategic business decisions, financial planning, all depend on a successful financial closure.
The month end close process is important to businesses and results in the following ways:
The month end close process is a complicated process requiring the gathering, analysis, reconciliation, and adjustment of account balances, financial transactions, and data from various systems. The procedure comprises a detailed review of the fiscal activity and performance for the entire month as well as corrections for accuracy in order to have confidence that the financial statements accurately reflect the financial activity for the month.
Bottlenecks occur in the financial close because:
Tasks are often delayed in firms that lack automated capabilities due to a key stakeholder being on leave, or consistent delays on routine chores due to competing priorities. For finance leaders looking to incorporate more automation into their operations, beginning with basic, repetitive tasks- areas, where it is relatively straightforward to make a meaningful impact quickly, is a good place to start.
Since financial close automation cannot be particularly helpful without visibility into the bottlenecks hindering the month-close process, each activity in the close process must be evaluated for its value and purpose during the closure process.
Manual processes are also used in the approval process, and in many firms, executives need to sign off on manual paper copies, which are subsequently maintained for audit purposes. But manual processes are prone to human error. Moreover, any error in the financial statement has a significant impact on a company’s credibility.
According to a survey, business leaders attribute challenges in shortening financial close times to a range of issues- 40% of executives say it’s because of internal levels of scrutiny, 35% say it’s a growing need to find and consolidate more detail for financial statements, and 20% say it’s because more time is required to check for errors. Fortunately, technology has come a long way. The majority of the toughest portions of closing – data input, tracking down receipts – can now completely be automated using financial close software.
Ways in which the HighRadius Autonomous Accounting helps in automating record to report are:
CFOs and finance leaders must lead organizational decision-making processes with insight, speed, and confidence in today’s volatile and disruptive economic environment. Nonetheless, many finance departments still face inefficiencies in routine processes during the month-close and reporting cycle. As a result, shifting time to value-added analysis and decision support is difficult.
Learn how to make day-zero financial close automation a reality through immediate and accurate decisions.
In our next blog, we will analyze what it takes to move the month end close to a continuous process through the access to real time data rather than a month end fire drill. In subsequent blogs we will address:
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HighRadius Autonomous Accounting Application consists of End-to-end Financial Close Automation, AI-powered Anomaly Detection and Account Reconciliation, and Connected Workspaces. Delivered as SaaS, our solutions seamlessly integrate bi-directionally with multiple systems including ERPs, HR, CRM, Payroll, and banks. Autonomous Accounting proactively identifies errors as they happen, provides the project management specifically designed for month end close to manage, monitor, and document the successful completion of tasks, including posting adjusting journal entries, and provides a document repository to support each month’s close process and support the financial audit.