The act of closing the books and recording each transaction as a journal entry, then examining all of these transactions to ensure that they are approved and valid, is known as financial closure. An accountant examines all revenue, income, and gain accounts before transferring the balance to the income summary account. They do the same thing with losses and spending accounts. The goal is to have all temporary account balances at zero at the start of each new accounting period. The sum is transferred to permanent accounts, and each cycle starts over. Financial Close Management.month end close accounting,cfo monthly period end close
What is a Financial Close Management?
Before the accounting cycle closes, the immediate financial process involves reviewing and reducing account balances. It starts with recording each transaction and activity in the journal, then moves on to the review stage. This usually means that they’ve booked all of their journal entries and resolved all of their high-risk transactions, but there’s still a mountain of analysis and reporting to be done. There may also be some risk because businesses that close in a short time frame emphasize estimates and accruals that aren’t always accurate.
What are the challenges in Financial Close Management?
Today’s business leaders expect more from their chief financial officers and finance teams, as well as from the close process. Profit margin burdens, new competitors, emerging technologies, altering customer preferences, and even threats from private equity firms are all posing challenges to these general managers. That means that for today’s CFOs, closing the books, delivering the numbers faster, providing additional insights, and disseminating the information in easily digestible formats are all critical tasks.
Many of the financial close issues facing CFOs this year are similar to those faced in previous years, but the demands on those issues are increasing. CFOs are increasingly being pressured by their own company’s business managers, who expect faster closes. They’ll also be expected to create more agile accounting functions that can respond to market change and make adjustments to companies’ increasingly complicated operating and decision support models.
CFOs must take advantage of the improved master data management and information available in finance. CFOs are also juggling new and evolving statutory and regulatory requirements, such as financial reporting and lease accounting standards, as well as changes to the dynamic tax laws. Changes in accounting and tax standards are part of a larger category of legislative and regulatory changes that CFOs should always be strategically prepared for by managing people, processes, and technology in a forward-thinking manner.
Another issue that has a strategic impact on how businesses build close processes is the lack of risk-based assessments of their work. Not all reconciliations must be completed during the close, allowing the finance team to look over the balance sheet and rank and segment accounts by risk. This process can help determine when and how often reconciliations should be done, as well as who should approve them.
What are the solutions to optimize Financial Close?
The best place to start when the CFO and finance team are trying to identify and greatly reduce inefficiencies in the financial close is to look at all manual journal enteries. The finance team can then reverse-engineer a solution, usually through automation, starting with the manual journal entries. Best-performing companies want to not only close on time, but also in a way that doesn’t burn out their employees by forcing them to work overtime hours every close or deny them professional development opportunities by keeping them in each close for too long.
Establishing an account-to-report global process owner who manages the process, looks for ways to harmonize and enhance it, advocates for budget money, and makes decisions on standardization and other relevant issues is another approach that can assist minimize bottlenecks in the close. Organizations can also construct official, temporary, accountable teams tasked with monitoring the financial close and then altering and enhancing the process, replete with official governance structures.
What are the best practices in FCM?
New tools and technologies, such as cloud-based innovations, robotic process automation, mobile applications, smart closure and real-time close tools, and bolt-on capabilities, such as techniques for reconciliations or lease accounting, can support an efficient and accurate financial close. Companies can fully automate the financial consolidation, reporting, and period-end closing process with cloud-based solutions, giving them greater visibility into their financial outcomes. By utilizing a cloud-based financial system, one company was able to reduce time to closure by 70%.
Internal customers and consumers of management information can work together with CFOs to discover and act on opportunities to close the books more quickly and accurately. Finance can streamline the information supplied by questioning general managers, vice presidents, and operations team members about the precise information they require and understanding the drivers of their businesses.
FAQ’s on Financial Close Management
How much time does it take for closure?
Closing is usually done at the end of each month. Finance teams, on the other hand, must close at the end of each quarter and each fiscal year.
How can SattvaCFO support Financial Close Management?
SattvaCFO supports organizations facing challenges in Financial Close Management (FCM) and set process to close books of account. Please connect with us.
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