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A Holistic Approach to Accounting Close and Reporting Effectiveness: It’s So Much More Than Technology

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Learning Objectives

After participating in this event you will be able to understand:

• Understand the 5 key challenges to improving your company’s accounting close and financial reporting.

• Define an Optimized Close for your company.

• Understand how to better align process and technology for your company’s financial close and reporting environment.

Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals

A Holistic Approach to Accounting Close and Reporting Effectiveness: It’s So Much More Than Technology

Agenda / Goals

◦ Introduce the Financial Effectiveness Framework

◦ Dynamics of Accounting Close and Financial Reporting. Discussing the Whys – Overview

◦ Complete Solution Approach to Optimization Methodology Best Practices Technology Focused Resources and Strategies

A Holistic Approach to Accounting Close and Reporting Effectiveness

Overview Accounting Close and Financial Reporting

How long has Accounting Close and Financial Reporting been a challenge?

a) Since ERP was introducedb) Longer than I have been in accountingc) Foreverd) Since Sarbanes-Oxleye) All of the abovef) None of the above

Why does this challenge persist?

Automation Question

Business Environment Challenges

Existing Environment Challenges

• Difficult economic & business risk environment

• Changing Regulations & SOX/MAR compliance

• Auditors under PCAOB pressure

• Boards / Audit Committee increased accountability

• Fraud - Few significant bad apples in the news

• Whistleblower and FCPA concerns

Future Environment Challenges

• Enormous technology driven paradigm changes

• Increasing global competition

What is the Speed of Changes?

190010mph

193330 mph

196665 mph

2000120 mph

2033 ?? mph

+20 mph

+55 mph

+35 mph

+?? mph

What does the future bring?

Faster

SlowerSame

Baseline

How Fast is the Business Environment Changing?

“Today’s CFOs and finance organizations need to execute on a much broader range of

responsibilities than existed in their traditional role as corporate accountant – including those related to

finance function effectiveness, information quality and consistency, finance talent

management, internal controls and corporate governance, business performance management

and others.”“Today, the CFO must be increasingly responsible not just for releasing information about the business

to external users of information, but also for delivering timely, practical information about the underlying drivers of business unit performance to

internal audiences. What’s more, the CFO’s team must deliver risk analyses and performance

analytics to anticipate some of the challenges the business could face. A common obstacle is that the

finance team sets the wrong priorities.”

A Finance Seat at the Table


“In many organizations, the CFO is seen as the number cruncher, sitting in an office applying procedure and saying ‘no’ to budget requests…The challenge for the CFO and for their company is to create an environment where the Finance team and CFO are encouraged to expand their responsibilities and take an active interest in every area of the business.”

-Steve O’Neill, CFO EMEA North, EMC Executives Report From The Road

“Today, organizations are squeezing their finance and accounting functions like never before. Expectations are at an all-time high, yet resources are increasingly scarce. They must maintain controls and compliance and keep up with complex accounting rules—all this while meeting business demands for faster turnaround and lower costs”

“The finance function must undergo a fundamental change and realignment in order to transform it

from the transactional operational management role of the past, into a center of cost-efficient and effective strategic value-add for the future.”

Its not just us saying this…


Expectation Gap

Internal ConsultantsValue added

Business AdvisorsExpanding Role

“Seat at the Table”

Past Future

Transition

Transformation

Automated

&

&

Number CrunchersBean Counters

Historic focusedAlways too busy

Internal Controls

AndRequires

Financial Effectiveness Framework

People Processes SystemsX X Total Effectiveness¿

Qualitative Example

Low Effectiveness

Effective IntegratedSystems

InitialProcessesSilo’s =

Quantitative Example

X X0.4 0.4 2.0 0.3=


Low Effectiveness

Effective IntegratedSystems

Initial ProcessesHighly

Synergized Teams

People Processes Systems Total Effectiveness¿

Qualitative Example

Quantitative Example

=

X X2.0 0.4 2.0 1.6=

X X

Bottleneck

HigherEffectiveness

AutomatedSystems

ManagedProcesses

SynergizedTeams

The Balanced approach result in Better Effectiveness

¿X X1.6 1.2 1.6 3.1=


People Processes SystemsX X Total Effectiveness¿

Process Improvement in Finance

Special Focus: CPM and Reporting

17©2012 APQC. ALL RIGHTS RESERVED.

Most Important Goal for a Major Process Improvement Initiative

72.41%

15.86%

11.03%0.69%

Both efficiency and effectivenessEfficiency (improve finance cost/productivity profile, accelerate cycle speed, reduce error rates)Effectiveness (deliver more effective analytical support to the business)Don’t know

N = 145


Most Popular Targets for Finance Process Improvement

78% Plan, budget, forecast/analyze, re-plan

72% Close/consolidate/report

70% General accounting (any sub-process)

50% Accounts payable transaction management

46% Working capital management


Cycle Time in Days Between Completion of Quarterly Consolidated Financial Statements

and the Release of Earnings

Cycle Time in Days between Completion of Quarterly Consolidated Financial Statements and the Release of Earnings

Figure 12

6.0

15.0

20.6

10.0

15.0

23.5

12.0

20.0

30.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Top Performers Median Bottom Performers

SSCN = 25

HQN = 64

BUN = 107


Total Cost of Financial Reporting per $1,000 in Revenue

Top Performers Median Bottom Performers$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.11

$0.23

$0.57

All Industries, Revenue greater than $1 Billion N = 148


The Faster Close Costs Less

The Fastest: Quarterly Cycle TimeN = 49

The Slowest: Quarterly Cycle TimeN = 42

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

Bottom Quartile

Source: APQC

What is the Accounting Close and Financial Reporting?

a) An eventb) A processc) A rite of passaged) A fun timee) All of the abovef) None of the above

Why does it seem as such a unique process?

Definition Question

An important financial process

Overview Accounting Close & Financial Reporting

Uniqueness Questions

• Why is the close different from other processes?

– Changes frequently

– Catcher of the miscellaneous

– Generally has not been an actively managed or highly visible process

– 100% ONLY based Grading Scale

– “Last mile” of the Financial close process

• On Day 3 of a 6-day close, if the CFO asks,

“Where are we in the close?” – What do you say? Why?


Manageability Questions

How is the Close process managed?

Should the accounting close rely on Excel as a process management tool? Why?

What technologies are used to manage other complex financial processes? Why?


G/L

Time

Pro

gre

ss o

ver

tim

e

A/RRev

Payroll Accounting CloseFinancial Reporting

Paper /Manual

Spreadsheets/Simple systems

Soph

istic

ation

ERP

X

ChecklistExcel

WHY ?

Process Control

Systems -Feature

Functionality

AnalysisFinancial Systems

Timing Questions

Q.) Do you have the time to improve the close?

A.) You do not have the time NOT to improve the close.

Improving saves time.

Q.) When should you start?A.) Start it now, before its mandated by someone

else!

Goal of over 50% of audit committees


• Q. Why is the Close often referred to as the “Last Mile”?

• Q. How and Why is the Close so unique?

• A. Pictorial analysis of the problem.

Visualize the Close


MAS200

FAS

Softrax

Hyperion

ADP

ERP/GL

Fixed Assets

Revenue

Reporting

Payroll

Accounting System

Merger Tax

Options

FMV

COGSADJ

EPS

XBRL

Sales

PeopleProcessesSystems

Accounting Environment

Accounting Environment

MAS200

FAS

Softrax

Hyperion

ADP

ERP/GL

Fixed Assets

Revenue

Reporting

Payroll

Merger Tax

Options

FMV

COGSADJ

EPS

XBRL

Sales

PeopleProcessesSystems

How many activities?

Aug Sept Oct Nov DecAwaiting Prep 0 0 0 0 9Prep 0 0 0 0 3Review 0 0 0 0 22Addl Review 0 0 0 0 81Posting N/A N/A N/A N/A N/AClosed 481 857 524 514 684Total 481 857 524 514 799

Company C

CFOs & Managers asked to describe top priorities:

5. Assign responsibility for resolving discrepancies

4. Establish clear accountability for closing tasks in a closing schedule and enforce deadlines

3. Establish clear and regular close communication

2. Develop and monitor close performance metrics

1. Continuously improve closing processes

IOMA survey “Improving the Financial Close- 2010 ”

Overview: Accounting Close and Financial Reporting

Methodology

Focused Resources

and Strategy

Best Practices Technology

Survey Needs Analysis of Complete Solution

Approach

Assign responsibility for resolving discrepancies

Establish clear accountability for closing tasks in a closing

schedule and enforce deadlines

Establish clear & regular close

communication

Develop and monitor close performance

metrics

Continuously improve* closing processes

Four Basic Principles of Lean Six Sigma

1. End-User Focused

2. Improve Process

3. Teamwork Focused

4. Facts Based

Reference: What Is Lean Six Sigma by Mike George, Dave Rowlands, and Bill Kastle

Methodology Lean Six-Sigma

Who are customers of the financial close process?

What do they value? What do YOU value?

QUALITYUSER PREPARER

◦ Accuracy / Completeness Easier◦ Visibility / Manageability Better ◦ Compliance / No surprises Less Stressful

Optimized process yields “good” Speed

Methodology Lean Six-Sigma1) End-User Focused

If I ask, “Why do we do things this way during the close?”

“That’s the way we have always done it” which is based on historical constraints, not on efficiency.

Make incremental process improvements, measure effectiveness [get data], continue iterations towards improvement objective.

Continually improve by repeating optimization process to achieve increased sigma levels of quality

Methodology Lean Six-Sigma2) Improve Process

May 2012

Day 14 No Post Close

December 2012

Day 10 & Post CloseMoving To Day 8 Close

Day 10 & Post CloseSeptember

2012

• Teamwork evolution:

Individual

Contributor Groups Teams Optimized Teams

• Requirements for effective teamwork– See: Visibility to identify need– Decide: Communication to process, determine & disseminate– Do: Manageability for effective execution

• Use teamwork to set goals, assign accountability, handle conflict, hold effective meetings, enable continuous learning, collaborate with other groups

Methodology Lean Six-Sigma3) Teamwork Focused

Find “Relevant Measures” to set goals, measure progress and track effect of improvements

Visible, useful, quantifications of discrete actionable results

What is measured today?

No measure will be perfect No one measure is a magic bullet The story is told by many measures considered together

Customized, so must be based on your measures on your unique systems, processes, and people

Methodology Lean Six-Sigma4) Facts Based

Activity Overview

Focused Resources

and Strategy


Methodology

Complete Solution Approach

Gary Simon describes the “Reporting Supply Chain” as “all the events around the entire group reporting process including the extremities of the

process.”

“Fast Close to the MAX” by Gary Simon, 2007

especially

Best Practice: Fast Close to the MAX – Reporting Supply Chain View

-3 0 ME 3 6 9

Tasks

Review

Analytic Review

Error : Day 2 Find: Day 2Scenario 1: Effect: Minimal

Find: Day 8Scenario 2: Effect: Larger

∬𝐷𝑎𝑦 2

𝑇𝑎𝑠𝑘𝐷𝑜𝑛𝑒

𝑂𝑝𝑡𝑖𝑚𝑎𝑙 𝑅𝑒𝑣𝑖𝑒𝑤? ?Day 2/3 review

BestReview ??

Close day

Nu

mb

er o

f Ta

sks

Analysis of the Close

What are the optimization goals for efficiency and effectiveness?

= SpeedNo1 Accuracy

+ Predictability+ Manageability+ Visibility+ Accountability+ Compliance+ Increased analysis

& Reduced cost

Can you do them all?

Yes!

You MUST DO THEM ALL!

Best Practice: Customer Facing

Fast close is not necessarily efficient, but an efficient

close is faster!

Goal 1Optimized Close Process

Goal 2LeverageLearning

to Similar

Challenges

Goal 3Optimize

Any Challeng

e

Benefits

Related Financial Challenges

SOX

TAX

Audit

Any Other Challenges

Initial Repeatable Defined Managed Optimized

The Close Process

Benefits

Current Progress Optimization


Optimization

Optimization

Optimization

Goal 4

Other Challenge 2

Other Challenge 1

Integrated Optimized Continuous Process Improvement

Optimization

Optimization


Silicon Valley Accountants © 2013

Focused Resources

and Strategy


Complete Solution Approach

Methodology

Continuous Improvement Enablers

• Workflow and collaboration

• Document management

• Automated metrics measurement

• Visibility

• Compliance evidence

• Bridging multiple systems

• Easy to deploy during Close period

• Configurable to your Close process

Technology 1) What Solution Do We Need?

Electronic Working Papers

Prior period binders

Due date

File Share

Desktop procedures

Workflow

Alerts

Security

Accounting notes

Manager notes

Linked Activities

Real-Time Status by Due Date

By User

By Activity Type

The Finish Line - All Done!

Links to SOX

Testing

Publish Auditor PBC Schedules

Electronic Signatures

Electronic Support

Methodology

Focused Resources

and Strategy


Complete Close Optimization Solution

Preparing for an optimization project

• Senior management commits to find a comprehensive solution with continuous improvement

• Strategic plan and project management: consider deadlines, project approach (pilot, division, enterprise, etc.)

• Prioritize change management

• Deploy focused resources

• Identify and adapt current and best practices

• Evaluate existing technology

• Adopt a culture of continuous improvement

Silicon Valley Accountants White Paper 2011

Reference: “Optimizing Financial Reporting in an increasingly Dynamic World” by Silicon Valley Accountants

PlanningDiscoveryTechnology SelectionWorkflow and MeasurementTrainingConfiguration and Testing Month One CloseOptimizationLessons Learned

Focused Strategy and Resources .

Timing (Schedule)Between ClosesIncremental Continual Monthly Improvement StepsGoal: Do not disrupt the ongoing close

PeopleUnless internal resources available, outside help

needed

Goal- Positive implementationManage expectationsNo initial reengineeringNever slow the close

Focused Strategy and Resources Planning

Sample Pilot Program Timeline

• August (3 days X 2 weeks)• Detailed discovery, training and conference room pilot

Implementation/CRPTraining

• September (75% support during close period)• Assistance during close activitiesGo-live

• October• Preparation & close activity; (75% support during close)Month 1

• November• Analyze data, lessons learned, training (50% X 3 days)Month 2 optimization

• December• Analyze data, process improvement, optimization ( 2 days)Month 3 optimization

• January• Process improvement and optimization (25% X 2 days)Month 4 optimization

Preliminary Project Plan (Actual)

PlanningDiscoveryTechnology SelectionWorkflow and MeasurementTrainingConfiguration and Testing Month One CloseOptimizationLessons Learned

Focused Strategy and Resources .

Planning determines success

• Over-plan – expect delay, distractions, and diversions

• Build an adaptable plan

• Never slow the close!

Plan for much more than promised and extra training

Focused Strategy and Resources Lessons Learned

Scope selection is key

• Smaller faster wins = build momentum

• Don’t start with hardest

• Link the benefits

Scope will creep, plan on it


Change management

• Under-promise & Over-communicate

• Nothing is easy

This is a significant change to an established critical practice


Continuous improvement

Adopt a mentality of continuous improvement

Tesco Property actively and explicitly pursues improvements in its close.

“We have monthly management meetings where we think about how we can do it better. Not just to get to a four-day close, but…how to make our information better.”

“Accelerating the Financial Close” – CFO Research Services


Latest Article

FEI ArticleSeptember 2013

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