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Summary
Companies increasingly want to speed up their accounting closes to improve the execution of their close-to-report cycles, according to “The Fast and Clean Close,” a recent primary research study by Ventana Research. The research found that companies want to manage their closing cycles more effectively so they can have additional time to determine how best to structure statutory revenue and cost recognition to optimize the company’s tax obligations. While some companies do not have much tax flexibility because of the structure or nature of their business, many others do. For those companies, the research shows that executing the closing process more effectively can give them  more time to actively manage their tax exposure and to find the best approach to recording and reporting their accounting information.

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Like other activities that take place from the end of the accounting period to when a corporation must file its reports, determining how best to position a company’s income and expense measurments takes time. For many companies, the time and resources they spend on closing their books affect their ability to optimize their tax obligations – that is, to minimize long-term tax expense across the corporation. Our recently completed research study, “The Fast, Clean Close,” sponsored by Longview Solutions, incorporated responses from 424 validated participants in companies that have more than 1,000 employees; almost all of the participants had finance department titles. This study, which was sponsored also by media partners Business Finance, the Institute of Management Accountants and Technology Evaluation Centers, reveals that corporations with complex corporate structures and multinational operations can benefit from having additional time to determine how to recognize income and expenses and to allocate assets and liabilities. About three-quarters of the participants whose companies have multinational operations and many accounting entities said they could reduce their taxes if they had deeper and timelier insights into their tax positions in each of the jurisdictions in which they operate. Asked to name the most important factor that would contribute to having more and better insights, more than one-third (38 percent) of these respondents cited having more complete data available sooner, another 23 percent chose having the analytical tools to assess the situation, and 21 percent named bringing tax people into the closing process from the start. We believe that having all three of these aids is both possible and practical.

Using the right software and having the right processes are two keys to finding the time to perform tax optimization analysis. However, most companies keep these sorts of tax calculations (and much of the data that goes into them) in spreadsheets. Here, as in any repetitive enterprise finance function, spreadsheets are the wrong technology. Though quick and easy to use, they do not support the kind of ongoing analysis aimed at optimizing taxes in a way that gives experts in managing tax exposure enough time and insight to minimize a corporation’s long-term tax expense. An application that uses a relational or multidimensional database and incorporates sufficient tax expertise can do this better.

Assessment
Ventana Research advises companies that are taking longer than five or six days to close their monthly or quarterly books to look for ways to accelerate the process. Not only will a faster, cleaner process give companies more time to minimize their taxes, it also will provide more time to work with and to present financial and management accounting information. We believe that having a process and the right software is the key. Our research found that only about half of the companies with complex multinational structures use consolidation software to manage their closing processes, while many of the rest use an enterprise resource planning (ERP) system. However, the research shows that companies that use consolidation software close their books faster than those that use an ERP system and substantially faster than those that use spreadsheets. Using the right software can accelerate the close and minimize a company’s tax liabilities.