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Video & Slides: http://www.proformative.com/events/holistic-approach-accounting-close-reporting-effectiveness-it-s-so-much-more-technology The accounting close and financial reporting each occupy a unique position among business processes. While recognized as critical processes, and the subject of increasing regulatory scrutiny, the close and reporting processes have been remarkably resistant to the type of re-engineering efforts that have improved performance and productivity in less critical areas. Many companies are looking at cloud and related technology to drive improvements in their accounting close and reporting effectiveness. However, technology in and of itself does not improve manual processes. If technology is implemented without the proper consideration for process and people, it can negatively impact accounting close and reporting effectiveness. Each company’s unique accounting and reporting requirements dictate that a total solution approach, focusing on continuous improvement, offers the best path to successfully improving the quality of financial close and reporting. Join us to discover specific techniques and tactics that can be leveraged by your company in taking a holistic approach to accounting close and reporting optimization.
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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
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All of it completely noise-freeCheck it out at www.proformative.com
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
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…
A Finance Seat at the Table
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=
Financial Effectiveness Framework
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=
Financial Effectiveness Framework
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
18©2012 APQC. ALL RIGHTS RESERVED.
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
19©2012 APQC. ALL RIGHTS RESERVED.
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
20©2012 APQC. ALL RIGHTS RESERVED.
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
21©2012 APQC. ALL RIGHTS RESERVED.
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?
Overview Accounting Close & Financial Reporting
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?
Overview Accounting Close & Financial Reporting
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
Overview Accounting Close and Financial Reporting
• 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
Overview Accounting Close and Financial Reporting
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
Activity Overview
Focused Resources
and Strategy
Best Practices Technology
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
Initial Repeatable Defined Managed Optimized
Optimization
Optimization
Optimization
Goal 4
Other Challenge 2
Other Challenge 1
Integrated Optimized Continuous Process Improvement
Optimization
Optimization
Initial Repeatable Defined Managed Optimized
Silicon Valley Accountants © 2013
Focused Resources
and Strategy
Best Practices Technology
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
Best Practices Technology
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
Focused Strategy and Resources Lessons Learned
Change management
• Under-promise & Over-communicate
• Nothing is easy
This is a significant change to an established critical practice
Focused Strategy and Resources Lessons Learned
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
Focused Strategy and Resources Lessons Learned
Latest Article
FEI ArticleSeptember 2013
Download your copy today
www.SVACPA.com
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