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Insights


3 COMMON ISSUES WITH THE MONTH-END CLOSE AND HOW TO AVOID THEM

August 8, 2023

Accounting and finance leaders are increasingly being tasked with delivering
rapid reporting, reducing risk, and providing strategic insight with fewer
resources and time. The month-end close process is an arduous task for many
business owners. Fortunately, it’s the one process which can always be improved.
Optimizing the month-end close can lead to improved timeliness of financial
reporting, reduced costs, fewer manual errors, improved auditability, increased
adaptability, enhanced scalability, and improved visibility. Additionally,
closing your period efficiently and effectively will allow the accounting and
finance functions to focus on becoming a value-added part of the business by
providing strategic insight to executive leaders and the Board, allowing the
company to make better, more informed decisions.

The month-end close can be broken down into four activity phases.

 * Recording: Ensure all revenue, expenses, and other transactions are in the
   ERP, including accrued liabilities, fixed assets, inventory, and depreciation
   and amortization.
 * Reconciliation: Confirm balance sheet accounts match supporting
   documentation.
 * Analysis: Generate and review an adjusted trial balance and draft an income
   statement, balance sheet, and A/R and A/P Aging Reports.
 * Reporting: Prepare all necessary reporting and supporting documentation for
   the period, including management, FP&A, external, and SEC reporting.

For many companies, the month-end close may only provide limited strategic
insight despite being a highly manual and time intensive process. In this
article, we will discuss some of the most common issues we see in the month-end
close and ways to remediate or mitigate those issues.


1. LACK OF DOCUMENTATION

A lack of documentation around the month-end close is the most common and
foundational issue. Ultimately, the purpose of documentation for the month-end
close is to create visibility and facilitate communication.

Nearly every auditor and accounting consultant you speak with is going to
mention the creation of a month-end close checklist. A month-end close checklist
is a great first step; it can document roles, responsibilities, timing,
dependencies, contacts, and more. At a minimum, a month-end close checklist will
document who is responsible for each task, who is reviewing each task, the
necessary timing of the task, and which of the financial statements each task
impacts. A month-end close checklist would also document which tasks are
dependent upon other tasks to be completed in an effort to avoid bottlenecks All
these details within a month-end close checklist are useful, but they are only
the first step.

A month-end close calendar to complement the month-end close checklist is
another best practice. The calendar should lay out, in a more visually appealing
manner, the tasks and anticipated completion dates. Similar to the checklist
discussed above, if your calendar highlights dependencies, it can help mitigate
issues before they arise.


2. INCONSISTENT STANDARDIZATION

Accounting functions will often struggle to achieve repeatable results and
timeliness if they have poor standardization across their month-end close
process. Documentation, discussed above, and standardization complement each
other. Standardized and documented process and control narratives are best
practices for all business cycles, and the month-end close is no exception. The
narratives provide the overall roadmap and reference for daily operations. The
Financial Close and Reporting narrative will highlight the flow of information
from start to finish while identifying the control points throughout the
process. The narrative should capture how each portion of the close is
initiated, what documentation is necessary and/or created, which systems are
involved, how communication is handled, which roles have what responsibility,
and which other stakeholders are impacted or have dependencies. Done properly,
the Financial Close and Reporting Narrative can increase visibility and
communication during the month-end close process.

Another standardization best practice for the month-end close is authoritative
user guides. While process narratives will highlight, from initiation forward,
the flow of information, systems utilized, and roles included, a user guide will
highlight, in a granular manner, how to execute specific tasks. A month-end
close user guide’s purpose is to create standardization around the execution of
specific month-end tasks, which will increase accuracy, improve timeliness, and
reduce errors.


3. NUMEROUS MANUAL TASKS

Another common issue during the month-end close process is an accounting
function with a predominantly manual process or many parts of the process
occurring “outside of the system.” These manual tasks can include
reconciliations, close checklists, high volume ticking and tying, and journal
entries.

A month-end close process with many manual tasks will very likely be
inefficient. Manual and/or opaque tasks will lead to a loss of time and
productivity for the staff. Additionally, the likelihood of mistakes and errors
increases without sound structure, documented policies, and a well aligned
accounting system. There is also a very strong correlation between the number of
manual tasks or outside the system solutions a company deploys and their
accounting staff turnover.

Furthermore, a month-end close process with many manual tasks will also likely
have weak policies and controls. This can lead to a higher risk of fraud,
decreased business reputation, and limited usefulness of the financial
statements.

To fully optimize the month-end close process, accounting and finance functions
must embrace technology and innovation. The best practice for reducing the
number of manual tasks and increasing automation is a month-end close
optimization software. This software fits directly in the middle of the
financial close and reporting process and is a complementary solution to the
general ledger in any environment, picking up where systems typically leave the
finance and accounting departments to complete the work in a manual manner, such
as with spreadsheets. Month-end close optimization software will typically have
a dashboard, which creates accountability and visibility by allowing technology
to capture all tasks and report on the status of tasks. Additionally, the
software creates a centralized journal entry process with workflow and
integration to related balance sheet reconciliations. This journal entry process
automates the creation, posting, and certification of a significant portion of a
company’s entries. Electing to use a month-end close optimization software will
increase automation, reduce manual errors, improve timeliness, enhance
visibility, and strengthen controls.


HOW CENTRI CAN HELP

The month-end close process can be a slow and arduous one. The goal of this
article was to identify three common issues related to the month-end close and
provide insight on how to avoid them. Centri’s Accounting Transformation
practice is focused on solutions for foundational accounting needs, optimized
processes, and advanced digital controllership, which increase productivity,
reduce costs, and improve reporting. Contact us to learn how we can set your
business up for success.

GARRETT BUCKLESS, CPA

Director

Garrett is a Director in the Accounting Transformation Practice at Centri. He
has over 10 years of experience serving as a trusted advisor to entrepreneurs,
startups, investors, C-suite executives, and business owners guiding them
through the complex financial landscape. His background in consulting,
accounting, and tax offers a unique skill set that adds value to clients focused
on accounting, financial management, and controls.




ABOUT CENTRI BUSINESS CONSULTING, LLC

Centri Business Consulting provides the highest quality advisory consulting
services to its clients by being reliable and responsive to their needs. Centri
provides companies with the expertise they need to meet their reporting demands.
Centri specializes in financial reporting, internal controls, technical
accounting research, valuation, mergers & acquisitions, and CFO and HR
advisory services for companies of various sizes and industries. From complex
technical accounting transactions to monthly financial reporting,
our professionals can offer any organization the specialized expertise and
multilayered skillsets to ensure the project is completed timely and accurately.

For more information, please visit www.CentriConsulting.com



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LATEST NEWS

 * 5 Ways Outsourced Accounting Can Support Your Business’ Growth August 10,
   2023
 * 3 Common Issues with the Month-End Close and How to Avoid Them August 8, 2023



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