As I work with customers running IFS Applications, one of the requirements that I see all of the time is simple. How can the books be closed more quickly?
I have seen all sorts of problems, including missed reconciliations, reliance on out-of-date information and estimating based on previous months or quarters. Getting ready for month’s end is a lot of work. But most of us would agree that the issue is not so much the overall amount of work that is needed, but the timing of that work. In an ideal world, we would avoid concentrating work at the end of the period and move to a more consistent effort pattern:
Sounds easy, but as always the devil is in the detail!
The first thing to look at in solving this problem is the reporting hierarchy. If you are a large group, the reporting hierarchy (both statutory and management) is likely to be complex and have many levels. The easiest solution here is to flatten the report preparation. You do not need to change the reporting hierarchy, but rather allow all entities to prepare their numbers in parallel, rather than in serial through the consolidation hierarchy. This requires some coding on transactions so that elimination requirements can be identified automatically.
The next consolidation challenge for groups is the use of multiple charts of accounts. There are several countries around the world that have statutory charts of accounts; however the vast majority of countries do not. So the trick here is to publish and require the use of a standardized chart. Where there are additional local chart requirements, use a secondary accounting dimension (a code part in IFS Applications). Or, you can use a defined and published translation between the two charts (normally using an attribute on the account code in IFS Applications). To ensure this works into the long term, a chart maintenance process must address both charts.
Another improvement opportunity is addressing the timing of when things need to be done. A few ideas to start with are:
- Offsetting customer invoicing periods so invoices can be generated and reviewed (if required) a few days before the end of the period. This is an easy way to move some work ahead of the month end.
- Using purchase orders wherever possible will significantly speed up cost accounting by controlling the financial exposure and creating a record of where and when costs are expected.
- Similarly, recording goods receipts when they happen throughout the period (rather than finance entering all of them at the end of the period) will make a big impact on recording the value and timing of costs automatically.
Once these obvious items have been addressed, I would encourage you to think about checking and validation that goes on as part of accounts preparation.
I regularly see error checking reviewed exclusively as a part of the month end process. But the majority of errors are probably generated as the result of business transactions (such as goods receipts). The earlier these errors can be identified and corrected, the lower the pressure will be at month end. A regular error checking process during the period is important. Perhaps check every Monday morning for any issues using standardized checking processes.
Similarly, bank account reconciliations and goods received not invoiced reconciliations should be checked throughout the period, minimizing the amount of effort required during closing.
The more we look at the stresses that can come with month end closing, the more we see that stress can be eliminated by spreading your workload out as much as possible. By taking this approach, you allow more time at the end of the period to deal with the things that can only be handled then, reducing the pressure and bringing forward the date that you can publish your results.
The next step is to start leveraging the benefits of IFS Applications to speed this up even further. When you want to talk about how to generate your accruals automatically and focus your efforts on the exceptions rather than the routine, drop us a line.