The Market is Changing:
Businesses across all sectors are being impacted by changing workforce demographics; converging industry models; the shifting regulatory environment; political unrest and trade barriers; the rise of new business models and competitors; big data and emerging technologies. Finance leaders are well positioned to “co-pilot” with CEOs as they navigate through these changes by leveraging their commercial and financial acumen combined with their understanding of performance insights and business analytics
Nowhere is this more relevant than with the close process where the top 25% of organisations are producing consolidated reports within 5 working days. If your organisation is settling for less than this, you are immediately at a disadvantage versus your competitors. This means more time and resource spent on closing the books and also a delay in gaining access to insightful financial data to drive decisions.
Identifying the need for change across your period end close is the first step on the journey towards improving the financial reporting cycle. Every organisation has its ‘tipping point’ at which the status quo becomes untenable and inefficient. The symptoms are not always obvious.
Similarly, it is all too common for poor practices to become rooted in organisations as frustrations with the period end close process give way to resignment and eventual acceptance. A key skill for Finance leaders is the ability to identify the ‘early warning signs’ across the period end close process.
Internal warning signs that there is a need for change
Sub-optimal Cycle Time
Leading finance functions produce period end reports in less than 5 days at month-end. This is the core baseline against which organisations should be assessing the effectiveness of their close process. Longer and inefficient cycle times are an indicator of a need for change, especially
where critical monthly reporting and external disclosure deadlines are at risk of being missed.
Workforce Burnout
Total effort expended should be considered in relation to working day milestones since process inefficiencies may be concealed by high levels of Finance team member overtime. Long hours of overtime is unsustainable and can lead to low morale and/or high employee turnover.
Transaction Error Rate
Mismatches between data sets that requires significant manual effort to reconcile is a common driver of timetable delays and increased workload intensity. This likely occurs at multiple stages of the close process including postings to the subledger and/or general ledger, intercompany settlements and loading data to the corporate consolidation tool.
Unnecessary Adjustments
A high number of manual journal postings and adjustment entries are common symptoms
of an inefficient process. Much like a high error rate these lead to additional workload for finance team members. The root causes of excessive adjustments often include a lack of standardisation across the enterprise and insufficient governance around ownership of ledgers, particularly when concentrated at a group level.
External Indicators of the need for change
On the other hand, the need for improved close capability may not always be immediately apparent. If existing processes are relatively timely and don’t produce an undue number of errors, it may be tempting to judge them as sufficient without further examination. However, a CFO should also consider where the need for change might be driven externally or at an enterprise level, as well as internally within the Finance function. Some of the ‘triggers’ that should prompt a review might be the following:
The Cost of the Finance Function
It is important for CFOs to regularly benchmark the cost of their finance function against their competitors. Even if close cycle times are in line with leading organisations, if this is requiring expenditure at a level significantly above competitors, it is likely that there are opportunities for automation which should be explored
Acquisition
A newly acquired subsidiary business will need to be brought into alignment with group timelines, processes and policies. Similarly, a takeover that results in new ownership will also place new reporting obligations on a business that will need to be met
Stock Market Listing
As part of the conditions to achieve a listing with an exchange, a business may need to change their financial reporting processes to become compliant with local accounting standards and meet investor expectations.
How KPMG’s Powered Capability Can Help
KPMG Powered Finance takes a strategic, structured, and informed approach to transformation. Focusing on business outcomes, technology is used as an enabler, ensuring that business improvements are continuous and impactful. Our approach can be scaled according to need from point solution through to large ERP deployment.
KPMG Powered Finance can help you execute a digital close by automating routine activities through automation, providing off-the shelf leading practices via the KPMG Target Operating Model, helping you focus on what is important. It is designed to enable you to free up precious people resources from managing technology, processes and controls and allowing the finance function to step up and contribute to driving business performance.
