Annual closing 2022, are you ready?

Recurring issues related to the process can be found below: 

• Human-driven: Including delays in reporting from subsidiaries, a lack of team training, or a lack of control of Information Technologies (IT).
• Technology-driven: For example linked to the lack of homogeneity between repositories and systems. A lack of automation of tasks, and performance of consolidation tools (transmission/interfaces with ERPs, etc.).
• Process-driven: Such as weak audit trails, errors in data collection, last-minute corrections, time-consuming accounting reconciliations, management control, or intercompany activities. 

At Sia Partners, we have identified 3 main areas for improvement to remedy this:

• The digitalization of the closing workflow consists of formalizing and sequencing tasks to facilitate and automate their management by central teams.  Acting as the control tower of accounting and consolidation operations, it makes it possible to monitor their implementation, control the critical path in real-time, better coordinate the various stakeholders, follow up with them, and replace them if necessary to meet deadlines.
• The automation of financial statement reconciliation, which is a time-consuming operation, is even more complex to implement due to the lack of homogeneity in the accounting/management IT landscape. This can lead to breaks, the need for additional controls, and manual entries. Reconciliation tools have long been known to facilitate reconciliation between sub-journals and the general ledger, and between receipts and customer billings. The bank accounting modules of ERP tools and the cash management tools contained in the TMS suites, for instance, can also be mentioned as they facilitate the integration of electronic bank statements and their transformation into accounting entries to automate bank reconciliations. All reconciliation operations have recently been the subject of significant advances thanks to artificial intelligence (AI) and machine learning (ML). Publishers integrate intelligent solutions capable of understanding the logic of reconciliations and choice of accounting schemes to propose solutions, limit human intervention for their validation, and increase the share of automatic operations.
• The resolution of intercompany transactions: The implementation of digital platforms integrated into consolidation tools brings automation and fluidity to the reconciliation of intercompany flows and positions.
• The robotization of operations: Other recent technological contributions can indirectly contribute to accelerating publications such as the cloud/RPA coupling that facilitates the robotization of loads and processes, process-mining to identify bottlenecks, or Master Data Management to centralize the governance of accounting standards.

The delays in reporting by subsidiaries are the first cause of dissatisfaction in the consolidation process.  Indeed, seemingly not very complex, this step is more complicated in the field, especially for newly integrated perimeters: heterogeneous account plans, many subsidiaries, different accounting practices, regulations, etc ...

To remedy this, it seems essential to work on a convergence of the following:

• Practices are imperative, by having an accounting and consolidation manual, distributed and integrated by subsidiaries.
• Accounting and consolidation technologies help to avoid heterogeneous bundle formats, mappings, interfaces, and re-keying. 
• Organizations because it is easier for central teams to have a limited number of competent and well-trained interlocutors rather than a large volume of small, isolated subsidiaries. The organization of Shared Service Centers will help reduce delays and improve accounting quality. Indeed, larger team sizes allow better absorption of peak loads during the closing period, greater dissemination of good practices and group standards, and a more fertile ground for the harmonization of processes and standards.

• The anticipation of pre-closing data (processed in November) promotes the quality of analyses in the context of increasingly shorter deadlines. It also provides the opportunity to become familiar with the type of information reported at the subsidiary level and with the consolidation process. This is a recognized time-saving process but still not practiced often, particularly in building appendices. As the deadlines for appendices represent one of the major sources of dissatisfaction in the consolidation process.
• Continuous closing involves processing tasks on the fly to avoid month/year-end bottlenecks. Beyond reconciliations, this approach also applies very well to the justification of financial statements or the anticipation of manual entries (OD) at the end of the year.
• Closing standards can simplify year-end tasks, provided they have been validated by the statutory auditors:

- Evaluation standards cover almost all cycles. The most common tackle invoices not received from suppliers that are valued based on the prices showing in orders, invoices to be drawn up and valued based on purchase orders, and the adoption of standard production costs for the valuation of stocks. 

- Cut-off agreements can be developed to shift the date of consideration of certain information before closing. These conventions must be used in a limited and justified manner.

- Estimation standards may be developed to evaluate actual data unavailable at the closing date. These estimates must be based on statistical data and/or forecasted budget data.

Thus, given the challenge the annual closing represents, all these improvements can bring relief to finance departments. In addition to saving considerable time, they allow for consistent monitoring and are at the forefront of audit and compliance work (production of appendices: IFRS standards, provisions for risks, CSR...).

The contribution of technology is key but is not the only actionable lever; the organization of teams, the simplification of practices, and training also have an impact. It is a continuous improvement as a project that must be carried out throughout the year to successfully complete the closing.