Why the continuous close can’t wait
The quick onset of the pandemic highlighted traditional accounting practices that have been overdue for change, and the situation has forced us all to take a hard look at what works and what doesn’t.
Now more than ever, businesses must have faster access to financial data at the heart of decision-making. In this moment, the last thing you want to incorporate into your workday is a stressful or maddening project — adjectives that are often associated with the month-end close. As accountants and firms seek more opportunities to deliver strategic value to clients through timely financial insights, now is the time to replace the traditional record-to-report process with a continuous accounting approach.
Here’s why it’s time for the continuous close.
Change is not only coming, it’s needed
Closing the books has long been a resource-intensive task. From reviewing transactions to tracking down errors and correcting journal entries to making sure accounts balance, the sheer time and energy that goes into the process can be daunting for companies of any size.
The bigger problem? Traditional accounting practices are not only more susceptible to human error, but by the time the process is finished — sometimes weeks after the month has ended — there’s little strategic value to the organization. With a small window to analyze results from the month before as the focus turns to the next ahead, decision-makers can no longer act on information that isn’t a real-time reflection of the business.
Enter COVID-19, which has pushed many accountants and firms to adopt parts of the continuous close whether they know it or not. One of the biggest challenges accountants continue to face is ensuring that the data they have is up to date, accurate, and complete. The pandemic has only accelerated and magnified this need. In the American Institute of CPAs’ recent Economic Outlook Survey, 44 percent of business leaders reported that their workforce is operating in compliance with stay-at-home restrictions. Suddenly thrust into working remotely and attempting to deliver real-time views of the business in the midst of crisis, accountants have been pushed to adopt more automated processes throughout their responsibilities, including month-end close.
Why the continuous close works
In a recent survey, 81 percent of finance professionals rated operating cash flow as the top key performance indicator being regularly updated, demonstrating the critical need to have real-time access to the numbers as businesses continue to manage the impact of the pandemic. Compiling large volumes of financial and non-financial information efficiently is no easy feat, and the role of technology in supporting the continuous close approach is essential and cannot be overstated.
Often, accounting’s difficulty in collaborating with others in the organization to get the information it needs in a timely manner is a major obstacle that has slowed the traditional close process. Continuous close mitigates this by automating repetitive tasks such as creating journal entries or reconciling account statements, as well as eliminating the need to collect and normalize data from other departments — which can save dozens of hours every month. This automation must be provided by the financial management or ERP system, which enables you to meet your compliance goals with accounting standards, government regulations, and tax laws, as well as applying the appropriate rules and schedules for items like revenue recognition, depreciation, lease management, and prepaid and deferred expenses — to name just a few.
By incorporating closing tasks into the daily routine, continuous accounting spreads the work out over the entire month and, ideally, balances workloads so accounting team members do the work they are best suited to. The combination of automated processes, real-time access to information, and the replacement of spreadsheets for complex calculations boosts accuracy by eliminating duplicate data entry and the potential errors caused by massive spreadsheets, incorrect formulas, and manual processes. This accuracy ultimately gives firms the ability to provide clients and decision-makers with real-time visibility into daily financial performance, giving senior leaders insights they need to control costs, make smart investments, and meet business goals. This is crucial as the economic environment continues to rapidly change.
Moving from an event-driven close process to continuous accounting provides firms with visibility and accuracy in less than half the time and helps to establish the role of finance as not just a data aggregator, but a business partner.
Shift to business now, not ‘business as usual’
Accounting and finance teams must demonstrate the value they can bring to the organization, and oftentimes this comes with a shift in culture. An accountant’s most critical skill is distilling data in a way that matters most to decision-makers to help them meet organizational goals. It’s one thing to have a great idea, but quite another to be able to leverage approaches like continuous close to deliver financial insights to the business in a meaningful and timely manner.
It’s human nature to be resistant to change, yet this year has shown that we can adapt as quickly as we need to in just about any situation. To help shift the mindset of what accountants can bring to the organization in the month-end close process and beyond, firms must create a culture of collaboration both within finance teams and with other departments to improve processes and allow accounting staff to add more value. As a result, managers should focus on helping individual team members build and maintain strong relationships. One way to do this is by making sure each person — and the group as a whole — sees how their work contributes to the achievement of broader objectives.
The mindset around a continuous close should not solely focus on doing it faster, but rather designing a process for monitoring critical business information and accessing the data in real-time to deliver both short and long-term business value.