Therese Tucker
My
March 2 column on continuous accounting,
“Stopping the Madcap Sprint to Close the Books,” apparently struck a
chord, encouraging many readers to write thoughtful responses. Most
wanted to know how
continuous accounting “actually works.” This piece is my reply to these inquiries.
First a quick recap of my earlier column: Continuous accounting is a
measured and balanced alternative to compressing a month’s (or more)
worth of accounting tasks to close the books into a few days at the end
of the month, quarter, or year. Rather, the work to perform such closing
tasks is conducted incrementally by accountants
during the month, quarter, and year.
The benefits include a reduction in the pile-up of accounting work
and the stress this causes; lower risk of financial irregularities; and
an earlier opportunity for financial planning & analysis to deliver
the business forecast.
CFO readers intrigued by these benefits wanted to know, as one wrote, “How does this actually work?”
To answer the question, let’s start with today’s inefficient workload
procedures. As part of their bookkeeping, accountants in midsize and
larger companies manually sift through thousands of spreadsheets
generated by different systems. Without an automated system, it’s an
uphill climb to methodically tick and tie the ledgers to confirm that
every item is accounted for and properly connected to related items.
This confirmation process is therefore pushed off to the end of the
month, quarter, or year.
Another inefficiency derives from batch processing. When digital
documents replaced paper-based accounting records, technological
limitations caused the accounting work to be stored up during working
hours and executed when computer systems were offline. As the volume of
data expanded, the process took more time to run. Ultimately, the system
was not ready to use when accountants required its use. Again, the
solution was to push off the work.
What’s wrong here? Top-notch
accounting talent
is underutilized during non-peak periods and overworked during the peak
period. To alleviate some of the workload, finance and accounting hires
temp workers that eat up the budget.
These many inadequacies and the pains they inflicted — from
burned-out accountants and pointless costs to an increased risk of
errors, out-of-date results, and zero time for analysis — raise the
obvious question: “What if we could account for the business at close at
the speed of transactions?”
Well, the answer is, you can.
And Here’s How
The first thing to do is to rethink the internal paradigm of accounting, adjusting the mindset to consider the
F&A
process as one of continuous improvement. The goal is to optimize the
accounting process one task at a time, then rinse and repeat. By
building automation and accuracy into the accounting process,
accountants are eliminating the time wasted performing redundant
exercises and fixing errors. In this voyage, automated technology is a
tool to achieve the ends; it is not the beginning of the journey.
Great things are possible once a philosophy of continuous accounting
is in place. Instead of bringing up all the data in one batch process as
before, the batch is split up into a series of smaller tasks. Tasks are
scheduled as early in the accounting process as possible and embedded
within the everyday workflow of the accountants. By breaking the tasks
into smaller pieces, the completion of these elements becomes routine, a
process that takes its cue from agile software development. Tasks are
automated where possible and standardized elsewhere.
The last step is to monitor the effectiveness of these process efficiency improvements through
predictive analytics,
measuring the time it takes to close the books, the total costs per
full-time F&A employee, and the average number of days for an
accountant to complete a selected assignment.
Continuous Accounting in Action
Sounds all well and good, but readers have asked for “actual
examples.” Let’s apply the above steps to a particular F&A task —
account reconciliations.
The current state of many finance organizations is to perform the
reconciliations at the end of the month, reducing the opportunity to
conduct proactive analysis before then. The alternative is to split the
batch process into smaller tasks, such as the daily reconciliation of
key
accounts. To perform this task earlier, scheduled end-of-month
reconciliations are shifted to event-based reconciliations, i.e., as
they occur. Automation is used to automatically reconcile the key
accounts and match these transactions. Accountants are now in the
position to investigate anomalies associated with these reconciliations
throughout the month, minimizing the period-end rush.
Let’s apply continuous accounting to another routine F&A task —
intercompany accounting, the process of balancing the accounts between
two different company branches to bring the balances to zero in the
general ledger. The current state in most F&A organizations is to
wait until the books are closed and entries are booked by these
different entities before performing the task. Since the time it takes
to record the transactions varies by entity, there’s no time to react to
possible discrepancies, culminating in a rushed review at the
period-end.
By dividing the batch process into smaller tasks, intercompany
transactions can be recorded and approved on each entity’s books in
real-time throughout the period. The task no longer waits until the end
of the month, quarter, or year, as it is embedded along with the proper
controls into daily workflows for automatic approval. By automating this
process, accountants are freed to focus on value-added services to the
CFO.
As the reader can see, continuous accounting is a philosophical
approach, not simply a technological one. Only by first analyzing the
current state of F&A can a vastly more efficient future state be
designed, followed by its development and continuous improvement.
Therese Tucker is CEO of financial automation software provider BlackLine.
Source: http://ww2.cfo.com/accounting/2016/05/putting-continuous-accounting-work/
