Key questions to ask about financial closing process

February 16, 2021

The financial closing process requires a lot of time and energy for the Finance team. It is often delayed, inconsistent or inaccurate. Technical obstacles and/or inefficient processes can cause lot of problems, in addition to human error.  

4 keys to simplifying and streamlining the financial close while ensuring consistency

IMA’s global report “Process Automation in Accounting and Finance” reveals that only 20% of CFOs surveyed are very satisfied with their financial close process and only 28% are completely confident about the accuracy of their financial reporting data.  

Some questions that will efficiently guide the financial closing process are as follows 

Until when? 

The closing process and financial consolidation has to be completed in fixed and precised period defined by the CFO depending on the company business or organizational constraints, mainly due to today’s VUCA (Volatility, Uncertainty, Complexity and Ambiguity) environment. However, the complexity of financial management often results in delays of sometimes monthsThis puts pressure on the legal deadlines to prepare the documents to be approved by the Board, especially if a second call is required, and to prepare the group’s management and auditors’ reports. 70% of CFOs surveyed by IMA say that they are under pressure from management, partners or auditors to speed up the closing. 

Common mistakes

But improving speed should not detract from the quality of the financial close.  

Accounting and consolidation managers will be able to avoid some common mistakes such as: 

  1. Depreciating over the full year and not according to the fixed asset start-up date, or not depreciating at all if date is a few days away from those of closing. Likewise, do not depreciate assets that are temporarily unused. 
  2. Failure to regularize customer and supplier balances charged to reserves and to record them as expenses for the year. Not deducting a valuation adjustment for customers in arrears in accordance with the principle of prudence but waiting until the fiscal requirements are met. 
  3. Failure to account for interest accrued on loans between group companies as related-party transactions at market value. 
  4. Failure to charge to income purchases for which invoices are pending receipt or processing, or corresponding portion of subsidies received. 

Unidentifiable payments

When accounting for share-based payment transactions in which goods/services are acquired or received, the identifiable consideration received may be less than the fair value of the equity instruments granted or the liability incurred 

This will normally indicate that a further consideration has been received in unidentifiable goods or services. IFRS 2 will be applied to measure unidentifiable goods/services received as the difference between the fair value of the share-based payments and the identifiable goods/services received. The latter will be measured at the date of granting and for cash-settled transactions, the liability will be reassessed at the end of each reporting period, until its cancellation. 

Manual versus technological process 

The difference between running semi-manual processes and using Talentia Consolidation & Close software is measured by its results. The CFO and consolidation managers achieve a financial close that is significantly better in terms of speed and efficiency of the process and the quality of the information. 

Talentia’s financial management software is certified and complies with local and international standards for closing and consolidation. Helping the CFO and the teams involved to face the financial closing and consolidation processes with total peace of mind. Data can be securely collected from heterogeneous sources, and consolidation, financial control and review processes are accelerated and automated. This financial management software has a single platform for: 

  • Accounting. 
  • Consolidation. 
  • Financial statement analysis. 
  • Forecasting. 
  • Reporting. 

Thus, accounting and consolidation will go beyond the legal compliance of publishing annual accounts. They will provide information based on financial data that can be used to drive the business forward and analyze it for trends and risks. They will not only provide management and the market with numbers, but also with ideas