Deja vu? Almost certainly

I’ve written on this topic many times in recent years and no matter how much progress I think is being made I still find myself with something new to say on the subject, as well as lots of old messages that I feel compelled to keep repeating. No matter what remedies we seem to devise the challenge remains and yet I’m not talking about some kind of embarrassing illness. The fact is the financial close is one of those topics that just won’t go away.

Why is that? Well for one the goal posts keep getting moved. The demands of the market put constant pressure on ever more timely and better quality reporting and regulators are working overtime to introduce new requirements designed to protect stakeholders of all persuasions. And that’s even before we consider the sheer complexity that today’s Financial Controller has to cope with when it comes to producing a set of audited financial statements. So what is the solution? Is there one?

Well there is certainly no silver bullet, no magic blue or red pill or even software solution that can solve all the issues that together form the barriers to a fast and efficient close process (despite what many would have us believe). That said I think we now have enough evidence and enough time has passed for us to come to realize that actually the solution lies in knowing that the challenge can never be solved. This enemy will never truly be beaten…or at least not while I’m still able to write about it.

As I said, the fact is the financial close is one of those topics that just won’t go away and it got me thinking about the last whitepaper I wrote on the subject where our closing argument is about continuous improvement. It’s become clear to me that this is actually the key. While all our thinking about how to approach a fast close project is as sound as ever, and its certainly something that an organization has to do in order to close its books and report in-line with its peers, it’s the steps an organization applies afterwards that will be the key to their continued success and improvement even in the face of an ever changing regulatory landscape.

Any company that has been through a fast close project that followed the methodology we prescribe will have defined a target. They will have looked at their peers in the market and for example have set themselves the goal of a 5 day close process. They will have then examined their close processes, identified the barriers to a fast close in the organization and will have defined an action plan comprising quick wins and big wins to get them to their goal. The key to their ability to maintain this target and perhaps improve further then lies in both continuous and opportunistic improvements and this is achieved by repeating the same approach every time something changes.

Let’s take a case in point, the transition to IFRS in North America or Japan, or perhaps even the adoption of XBRL on a global basis. Now I’m not going to get into the details of how we should tackle these issues here, I’ll leave my fellow blogger Philip Mugglestone to cover that but what’s interesting is that both these changes will impact reporting processes and as a result might have an impact on the speed and efficiency of the close process. So while the patient is on the table, take the time to consider that potential impact. Will it give rise to a new fast close barrier that may not have previously been encountered? What steps need to be taken to not just mitigate the risk but also determine if this wider change creates an opportunity to address something else in the close process that was not possible in the original project?

Of course, every time I’ve shared this opinion recently it then raises the next challenge which is one of cost. Too much regulation and a cost of compliance that is too high. The solution many think is to get compliant as quickly as possible and at the lowest cost possible. Not so in my opinion. If we are to learn from both SOX and the transition to IFRS in Europe an approach which just “ticks the box” will in fact cost more long term.

So what’s my point? Essentially I’m saying that our work is never done and to prove that we only have to look at the Global Close Cycle Rankings from BPM International. This annual research program has 4 years of data on 4^th quarter close process at over 1000 global companies. While there seems to be a trend for general improvement, every year the results show a mix of both improvements some countries and worsening performance in others as companies who had previously improved close times now see them increase. This underlines the need to develop an approach which strives for continuous and opportunistic improvement so not only will a company be able to maintain it close times in the face on an ever more complex environment, but they’ll also reap the benefits of creating a more sustainable close process which will in turn be more adaptable in a changing landscape.