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Summary
Ventana Research recently completed a primary research study, “The Fast, Clean Close” (sponsored by Longview Solutions). A total of 424 participants, almost all with finance department titles working in companies with more than 1,000 employees, responded to our survey. Based on the research findings, we advise controllers and CFOs to make closing faster a priority. Accelerating this phase of the accounting cycle gives companies more time to do important tasks. It enables all companies to have actionable management and financial information and analyses available sooner. It also provides public companies that much more time to analyze and check their numbers before filing financial statements. Particularly for companies that take a long time to close, accelerating the process can materially diminish the risk of having to restate results. Spending less time on closing also means there is more time for people in finance departments to do more valuable work. Process and systems are the two areas senior finance executives must improve to achieve a faster close. For almost all companies, there is no “silver bullet” that will accomplish this objective. Instead, focusing on managing process improvement and using the right software are the two areas where our research found the greatest need for improvement.

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Most of the people (85 percent) who participated in the research study, which also was sponsored by Business Finance, the Institute of Management Accountants and Technology Evaluation Centers, said that shortening their company’s accounting close is important or very important, and they cited two main reasons. First, since most of these companies must submit periodic statements to third parties, they want more time for analysis and auditing before publishing their financials. Second, they want to get their financial and management information out as soon as possible.

From the start of the computer age, faster access to information has been a major purpose of having automated financial systems. Companies made strides in speeding up their closing period during the 1990s, helped by improvements in accounting, database and reporting software. These made it much easier to centralize storage of accounting data and to report on it. Early in this decade, Ventana Research looked into whether companies have been able to make further progress, and we found little evidence of it (probably because of distractions caused by the recession and the Sarbanes-Oxley Act). We were pleased, therefore, to discover in this latest research that nearly half (47 percent) of the participants in this study said they have made progress over the past two years in accelerating their close. In fact, nearly one-third (30 percent) of them said they have shortened their close by at least two days. A majority (58 percent) of the companies surveyed close their books within five or six business days after the end of the month, and nearly half (47 percent) do it within five or six days after the end of the quarter.

Still, when we compare how long it takes organizations to close their books to the ideal times that our respondents said it should take, we conclude that companies can do more – in some cases, much more. On average, participants estimated their company can shave at least one to two days from both the monthly and quarterly closes. Moreover, this average obscures the desire on the part of companies that take far longer to make a substantial improvement. For those that take seven or eight days, 43 percent set their ideal close at three or more days shorter; for those that take nine or 10 days, 60 percent also set it at three or more days shorter; and for those that take 11 or more days, nearly half want to cut it by a week or more.

Process and systems are the two areas senior finance executives must improve most to achieve a faster close. For almost all companies, there is no single “silver bullet” that will accomplish this objective. While there are some changes that will produce results for many (such as standardizing and simplifying journal entries), having a regular (monthly or quarterly) review to identify action items aimed at shortening the close produced the most consistent results. This may sound like Management 101, but surprisingly few of our participants have enacted such a process. Companies that have a stated objective to cut their closing interval were the ones that improved over the past two years; those that don’t, didn’t.

IT systems are the second area corporations must scrutinize. Companies that use more of the right software and less of the wrong software close faster. The data shows companies that use a dedicated consolidation application close their books faster than those using their ERP system for their statutory consolidation and even faster than those that still rely on spreadsheets. Corporations operating internationally, particularly larger ones with large numbers of accounting entities or complex ownership structures, are most likely to have multiple accounting systems and therefore most likely to benefit from a dedicated consolidation application. We also found that companies that are heavy users of spreadsheets in the closing process have more data quality issues in preparing their financial statements than those that limit their use. Our Maturity Model analysis confirms that a large majority of companies lag in the process and systems dimensions of the closing process, which validates the need for companies to look here first to find solutions to a faster close.

Assessment
Closing the books faster has been a longstanding business imperative. Fortunately, some companies have picked up where they left off in the 1990s and have started to focus on the need to achieve further progress. Yet our data shows that a majority of companies can make progress in this area. Ventana Research recommends that CFOs and controllers put a standing program in place to find ways to reduce the time and resources required to complete their accounting cycle. This program must include specific objectives, periodic review cycles and accountability to be successful.