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 completed 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 half (53%) of companies complete their monthly close within six business days and even fewer – just 40 percent – 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.