5 minutes modern finance

7/26/2019 5 Minutes Modern Finance

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Does Your Finance Organization

Measure Up?


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Closing the books, reporting more efciently

those are just table stakes for a modern CFO.

You cant ask for a more strategic role in the

organization if you cant deliver on the basics.

Jeff Henley, Chairman of the Board and former CFO,

Oracle Corporation

Moving From a Classic to

Modern Close

lthough the close process may not rank ate top of C-suite priorities, smart nance

their nance teams to perform key functions inparallel during the close process. A company

Improve Your Close Processes

to Improve the BusinessModern CFO Best Practices

According to a new global survey commissioned these new demands; according to the Amby Oracle and Accenture, the expectations Productivity & Quality Center, reducing thon nance to deliver insights to the business process by two days increases the resouare increasing, especially among high-growth available for other high priority projects bcompanies which typically use data-driven 24 days a year.3The following best practinformation to boost customer loyalty and can help you close the books faster and mmarket share.2Smart nance executives are accurately:focused on reducing the close process to meet

Streamline Your Choose Technology Adopt an IntegratedProcesses to Achieve that Supports Your Business ServicesRuthless Standardization Processes Model

Overarching these three leading practices is a Governance & Data Managemefourth critical component: governance and datamanagement. At the end of the day it all comes Processdown to processes and governance, saysStone. Standardized processes are inextricable Technologyfrom strong governance and managing data toensure quality. Shared Service

2Empowering Modern Finance: the CFO as Technology Evangelist, Oracle and Accenture, March 2014.3 Kaigh, Elizabeth, Six Excuses Companies use to Avoid Fixing the Financial close Process, February 5,2014 (cited in http://www.apqc.org/blog/six-excuses-companies-use-avoid-xing-nancial-close-process)

xecutives know that a well-designed,echnology-enabled close has become a criticalest practice by which modern CFOs and their

eams are measured. The faster you can closee books and deliver right-time insights to keyecision makers, the more strategic your nancerganization can be to the business.

ccording to Les Stone, Managing Director -nance & Enterprise Performance, Accenture,world-class close can be dened as aree-day close for legal entities and thenn additional two days for consolidation andeporting, for a total of 5 days. Yet today, only8% of companies appear to close their books 5-6 days, down from 47% in 2007.1While

ome would like to attribute slower closes torowing business complexity and increasedegulatory burdens, Stone and other industryxperts believe that the more likely culprits areoorly-designed, manual nance processes and

consistent data sourced from multiple systems.

o become world-class, nance organizationseed to evolve from a traditional close process which the steps are sequential, to a modern,ore strategic close that allows CFOs and

Trends in Developing the Fast, Clean Close, Ventana Research, 2012.

with a more nimble close process, for example,can take care of a signicant number of accountreconciliations outside the critical path of theclose, rather than right in the middle of it, whichis a traditional and problematicway tohandle reconciliations. If you can achieve suchefciencies and modernize your close process,you can redeploy resources to planning andanalytics, providing much greater value to thebusiness.

In what I would call the classic close,nothing signicant happens until the endof the month. I think where the move has

been over the last few years has been

towards a more modern close, where you

cut off your sub ledgers and transactional

systems early, then look at material

transactions that may have happened

between the date of that early close and

the true month end. When you close this

way, you can then redeploy nance staff

to work on the nancial planning and

analysis component of the close.

Les Stone, Managing Director - Finance &

Enterprise Performance, Accenture

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http://www.apqc.org/blog/six-excuses-companies-use-avoid-fixing-financial-close-processhttp://www.apqc.org/blog/six-excuses-companies-use-avoid-fixing-financial-close-process


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treamline Processeso Achieve Ruthlesstandardization

ith regard to the close process, it is criticaltake a hard look at processes with an eyeward achieving ruthless standardization.he key is to establish processes that arepeatable, predictable, and scalable, and then

nsure that those processes are overseen withgovernance layer, without which things will

ery quickly unwind. Follow these steps to helpnsure a well-governed close:

Designate a global process ownerwho makes the decisions aboutwhether and when process changesmust occur for account reconciliation,allocations, chart of accounts,materiality thresholds, etc.

Ensure that the tone from the topreinforces the processes you haveestablished. The corporate CFO andrest of the C-suite must support andmake it clear that t he processes are

to be followed, no exceptions.

Appoint a close czar who is theowner of the close, establishinga schedule and making sure it iscommunicated and enforced.

I like to think about a world-classclose as similar to Olympic gold

medal execution: a process that

you execute with athletic precision,

and that is awless.

Les Stone, Managing Director - Finance

& Enterprise Performance, Accenture

The goal is to streamline your close throughstandardization. You should set limits to cap thevolume of manual journal entries that can be

made late in the close, for example. You cando this by dening what types of entries canbe made on certain days in the close process,both in terms of materiality and reporting impact.For example, you might allow any type of entryto be made on day one. But by day three, youcan only make an entry of $50,000 or morethat impacts more than one nancial statementreporting line. The denitions will vary based onyour companys controls and nancial structure,but having rigorous standards is the only way tokeep up with the pace of business. When settingmateriality thresholds, be sure to synchronizethe timing with the budgeting and forecastingprocess.

Allocations can be another bottleneck in theclose process that you can minimize throughprocess improvement. Allocations are primarilydone to support statutory (tax transfer pricing)purposes. If allocations are made beyond this,

they should be done in a manner so people canbe held accountable. This is typically done bysegmenting responsibility statements betweennon-controllable versus controllable allocationsor by moving to a COP concept (contribution tooverhead and prot).

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Intercompany accounting is another areathat can cause a bottleneck during the close,primarily because of out of balance situationsbetween two legal entities. The book nowdispute later process will help minimizethese out of balance situations. This will thenbe governed by a robust dispute resolutionprocess that allows for dispute escalationfrom accounting managers up through to thecorporate CFO if business units cannot agree onthe intercompany charges. A meeting with thecorporate CFO to resolve intercompany disputesis probably a meeting that most will try to avoid.

You must look at every component of the closeprocess - aggregating transactions, foreigncurrency, manual interfaces, intercompanyaccounting, allocations, journal entries, accountreconciliations, and more - and establishrepeatable, predictable, and scalable processesfor them all.

Scaling back the chart of accounts makesa tremendous difference as well. Stone hone company reduce its chart of accountsby about 80% so they could speed up theclose process without killing their peopleClear denitions of each chart segment wdeveloped and communicated, thus redumanual journal entries since there were femispostings. It also helped reduce the exnumber of account reconciliations that webeing performed - a great example of howprocess improvements go hand in hand wdata management and governance. Comoften hesitate to thin out their chart of accbut its critical to achieving data harmonizacross the enterprise and simplifyingtransaction entry.


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hoose Technology That Supportsour Streamlined Processes

here are a host of technology tools thatcilitate a faster close. First and foremost, aobal accounting integration and reportingatform allows you to standardize theccounting from multiple third-party transactionalystems. The ability to bring together nancialformation from a variety of systems withoutsrupting those existing offers great benetcompanies with a complex IT environmentat have grown through acquisitions, such asracle. The ability to adopt such a platform over

me without disrupting current processes is alsoey. Oracle, for example, deployed itsFusionccounting Hubproduct as a rst step towardoving to a full instance of Fusion Financials,nd in the process streamlined the close processy one day.

Integrating Acquisitions at Oracle

with Fusion Accounting Hub

Legally combining companies is a very

complicated process, especially for

acquisitions governed by unique laws

and regulations. The acquirer must roll in

the acquired companys legacy systems

including vital operations such as

accounts receivable and general ledger -

without disrupting day-to-day operations.

These were just some of the accounting

challenges facing Oracle, which had

acquired over 100 companies since 2005

as part of its strategy to become the #1

software provider worldwide. Oracles

nance team decided to standardize on

Fusion Accounting Hub (FAH) to designa global chart of accounts to manage its

business more uniformly, and to lay the

foundation for moving to a full Fusion

Financials instance. In conjunction,

Oracles nance team is using Oracle

Hyperion Data Relationship Management

(DRM) to centralize and automate

governance of its global chart of accounts

and related hierarchies, which will help the

company lower costs and greatly reduce

risk.

FAH has simplied the process of

consolidating general ledger data.

Oracles nance teams can submit primary

ledgers running in E-Business Suite (EBS)

R12 directly to FAH, eliminating the need

for more than 90 redundant consolidation

ledgers. With FAH, it is also possible to

submit incrementally, so if an adjustment

needs to be booked in a primary ledger

after close, it can be done withoutreopening it and resubmitting. This affords

earlier visibility to period-end actuals

during the close, providing management

with valuable performance information for

decision-making purposes.

You can also use tools that are easy to useand/or already familiar to everyone involved tospeed up the close process. For example, theclose owner could establish a schedule for closetasks by setting up deadlines in the corporatecalendaring app. A certain journal entry mustbe made by a specic date and timepossiblywith a 30 minute grace period. If that entry isntbooked by the date and time required, thattriggers an alert up the chain of command.

Similarly, collaboration tools to enhancecommunication and accountability can helpfacilitate a faster close and support othernance activities. At Oracle, the nance team

is phasing out email altogether as a meanof communicating around a variety of critfunctions such as the close process and transformation initiatives. Instead, they unext-generation internal collaboration hubOracle Social Network (OSN). Social nesuch as OSN that are tied to the transactthemselves can be exponentially productsince nance personnel can immediatelysee the status of exceptions within contexResponsibility is clearly assigned and sch

can be closely adhered to, and learnings best practices can be continuously monitand rened.

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http://www.oracle.com/us/products/applications/fusion/financial-management/accounting-hub/overview/index.htmlhttp://www.oracle.com/us/products/applications/fusion/financial-management/accounting-hub/overview/index.htmlhttp://www.oracle.com/us/products/applications/fusion/financial-management/accounting-hub/overview/index.htmlhttp://www.oracle.com/us/products/applications/fusion/financial-management/accounting-hub/overview/index.htmlhttp://www.oracle.com/us/products/applications/fusion/financial-management/accounting-hub/overview/index.htmlhttp://www.oracle.com/us/products/applications/fusion/financial-management/accounting-hub/overview/index.html


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dopt an Integrated Businesservices Model

odern CFOs can dial up the effectiveness ofe nance function, which includes improvinge close process, by leveraging shared servicesnters and centers of excellence. Start byking, What needs to be very close to thesiness and what can be handled by a sharedrvices center? Accenture sees leadingmpanies moving towards the integratedsiness services (IBS) model, which expands the traditional shared services foundation

solid service management and focuses onultiple functions with process standardizationroughout the organization. With the IBSodel, it is not uncommon to nd 60-65% ofansactional activities in a shared servicesvironment.

An added benet to shared services canbe lowered costs through reduced resourcerequirements, but the true endgame is toincrease efciency and become a better businesspartner. To accomplish this, leading companiesare moving from shared services to an IBSmodel. The operational decisions made by IBSorganization are no longer focused solely oncost management but are now balanced with theresponsibilityshared jointly with the business

for managing risk and driving growth.4

Thegoal is to provide the analytics, infrastructure,discipline, and expertise necessary to cope withmarket volatility and associated risks. With thatfoundation, modern CFOs can make an impactfar greater than streamlining the nancial closeprocess.

FOs Benet from Shared Services Shakeup, David Axson, CFO.com, March 13, 2013.

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Any mechanism that reinforces ruthlessstandardization without introducing unnecessarycomplexity and risk can help nance teams playa more strategic role in shaping the business thatgoes beyond the necessary but less glamorous

nancial close. Following the best practiceoutlined here will help you modernize andup your organizations nancial close and stay nimble in the face of volatile marketsever-more-complex regulatory demands.


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Modern Finance BestPractice Guide Series

April 2014Author: Anne Ozzimo

Oracle CorporationWorld Headquarters500 Oracle ParkwayRedwood Shores, CA 94065U.S.A.

Worldwide Inquiries:Phone: +1.650.506.7000Fax: +1.650.506.7200oracle.com

Oracleiscommittedtodevelopingpracticesandproductsthathelpprotecttheenvironment

Copyright 2014, Oracle and/or its afliates. All rights reserved.

Accenture is a global management consulting, technology services and outsourcing company, with approximately 275,000people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across allindustries and business functions, and extensive research on the worlds most successful companies, Accenture collaborateswith clients to help them become high performance businesses and governments. The company generated net revenues ofUS$28.6 billion for the scal year ended August 31, 2013. Its home page is www.accenture.com.

This document is intended for general informational purposes only and does not take into account the readers speciccircumstances, and may not reect the most current developments. Accenture disclaims, to the fullest extent permitted byapplicable law, any and all liability for the accuracy and completeness of the information in this document and for any acts oromissions made based on such information. Accenture does not provide legal, regulatory, audit, or tax advice. Readers areresponsible for obtaining such advice from their own legal counsel or other licensed professionals.
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