Situation

Finance departments are being pressed to improve the close and reporting process. Externally, market and regulatory bodies have accelerated reporting deadlines. However, simply speeding up the process is not enough as there is also greater demand for more reliable and transparent information. Sarbanes-Oxley requires it, and today’s public markets often reward companies for providing transparency that goes beyond regulatory requirements. Internally, executives and business leaders are looking to the finance department to play a larger role in supporting business and operational decision making. This larger role includes measuring and managing corporate performance against strategic objectives. Furthermore, cost and performance factors are also present as finance departments are trying to do more with the same, or fewer, resources. Combined, these pressures are forcing finance departments to look for opportunities to close faster and smarter.

Demands that companies complete financial reporting faster and with more transparency are coming from every angle. Market and regulatory bodies require access to more reliable information within shorter periods of time. Most notably, the SEC accelerated its filing deadlines for 10Q and 10K reports. At the same time, revelations of corporate financial irregularities have prompted investors and analysts to scrutinize financial information more aggressively and penalize companies that delay or restate earnings. Approximately 20 percent of restatements made between 1997 and 2002 resulted in credit rating changes, and numerous studies document the hit that stocks suffer after restatements. In today’s environment, even companies not regulated by the SEC must demonstrate greater transparency and accountability to banks, venture capital firms and other financing sources.

Beyond regulatory and market demands, finance departments are playing an ever-increasing role in management reporting. Finance departments must also provide company leaders with timely and accurate performance information to enable corporate performance management (CPM). CPM represents an expanded scope of responsibilities for finance departments as it extends beyond the traditional components of corporate reporting and includes planning, budgeting and forecasting and business analytics. Providing the data is not enough; finance departments are now expected to deliver insight into how to interpret results to drive decision making and improved performance. A number of obstacles stand in the way of finance departments that want to provide decision support. Inefficient financial reporting ties up valuable time and resources, obscures transparency, increases the risk of errors, and causes organizations to base critical
business decisions on incorrect or incomplete information. Finance departments must minimize data compilation time and effort to improve their ability to analyze results. This begins with the process of closing the books and makes timeliness and accuracy essential to the success of the process.

A strong economy and increased global competition have forced companies to cut costs to maintain profit margins. Additionally, executive leadership wants better value for the money from finance functions. As a result, finance departments must do more with the same or fewer resources. Some organizations attempt to accelerate the close and reporting cycle by simply asking employees to work faster to meet external and internal demands. But at what cost? Companies find that they can realize only so much speed before accuracy and control are compromised. Overtime and high turnover are commonplace, and the consequences are compounded by fierce competition for experienced accounting resources. Additionally, the costs of replacing accounting resources are significant. According to recent TowerGroup estimates, it can cost as much as 65% of an employee’s annual salary to fill an open position when taking a realistic view of all direct and indirect costs as well as lost business and/or productivity during the transition. However, the real costs of high turnover may be even greater as some experts hypothesize that turnover increases the risk of costly accounting errors. Pressed for resources, many companies have responded to the need to accelerate their close by “tweaking” their processes to save a few days. Few companies make significant holistic changes to their processes or maximize their use of technology to expedite the closing and reporting cycle. As a result, many companies have exhausted “quick wins,” which are easy changes that minimally reduce the process, at a point when they need to remove significant time and effort from the process.