Issues in Closing Quickly
The number of days it takes it to close the company’s books—that is, the number of days into the following month required to complete all the activities associated with the financial close—is a reliable way to gauge the effectiveness of a finance department’s management. Companies that complete their monthly or quarterly accounting close within a business week without regularly requiring material adjustments and entries after the close demonstrate a level of effectiveness that those that take longer do not.
Our recent benchmark research into the practices of the Office of Finance and the challenges it faces finds that only a few more than one-half (53%) of companies complete their monthly close within six business days and even fewer—just 40%—do so for their quarterly close. However, these numbers may overstate the percentage of companies that really close within a business week. Originally the stated objective was a fast, clean (error-free) close. Now, in order to achieve a one-week benchmark, some departments may “close” within a week but then routinely take additional days to address material issues that often involve time-consuming accounting adjustments. These departments are fooling themselves. They need to address the same issues as the departments that take longer than a week to close.