Ventana Scorecard: A Clean Close Without the Dirty Work

For more than a decade there has been general agreement among finance professionals and observers that most companies could shorten the time they take to close their books — some, significantly. There are several benefits of a shorter close, the first being that it leaves companies more time to do other important tasks, both finance-related and strategic. It enables them to make actionable management and financial reports available sooner. For public companies, it provides more time to analyze and check their numbers before they file financial statements. Especially for companies that take a long time to close, shortening the closing cycle can materially diminish the risk of having to restate results.

Our research has found that in the 1990s, helped by improvements in accounting, database, and reporting software, companies made real progress in shortening their accounting cycles. However, they made little further improvement in the first half of this decade. In the United States, the distraction of a recession, followed by implementation of the Sarbanes-Oxley Act, kept most companies from working on this issue. Since then, though, many of them have paid greater attention to accelerating their closes.

How long should it take to close your books? We find that about half of companies with 1,000 or more employees are done within five business days after the end of their month and within six days of the end of their quarter. About one-third of these companies would like to shave off a day or two, especially from the monthly close. Our research also shows that most companies that take more than two business weeks to do their monthly or quarterly close think that they should shorten it considerably. Many feel that they ought to be able to get this down to five or six business days.

We can't point to a “silver bullet” that will accomplish a shortened close immediately. But we can report that focusing on improving processes and using the right software are two areas where our research shows the greatest need for improvement.

Also, while there are some specific changes that will produce results (such as standardizing and simplifying journal entries), it turns out that what needs to change and how the changes are implemented are likely to vary among companies. Therefore, having a regular (monthly or quarterly) review to identify action items aimed at shortening the close is the process change that our research participants said produced the most consistent results. This may sound like Management 101, but surprisingly few companies have enacted such a process. Similarly, we find that corporations that have a stated objective to cut their closing interval usually achieve some improvement; those that don't, won't.

IT systems are the second area that corporations must scrutinize. Companies that use more of the right software and less of the wrong software close faster. For example, the data shows companies that use a dedicated consolidation application closing their books faster than those using their ERP system for statutory consolidation and faster still than those that rely on spreadsheets to do it. Corporations operating internationally — particularly large ones with large numbers of accounting entities or complex ownership structures — are most likely to have multiple accounting systems and therefore most likely to benefit from a dedicated consolidation application.

We also found that companies that are heavy users of spreadsheets in the closing process have more issues having to do with the quality of data used in preparing their financial statements than those that limit their use. The accompanying table provides a list of consolidation software packages currently available.

Closing the books faster has been a long-standing business imperative. Some companies recently have picked up where they left off in the 1990s and have started to focus on achieving further progress. Yet our data shows that a majority of companies can make progress in this area. Ventana Research recommends that CFOs and controllers put a standing program in place to find ways to reduce the time and resources required to complete their accounting cycles. To succeed, this program must include specific objectives, periodic review cycles, and accountability among those responsible.

View a chart of "The Closers: Software Designed to Help You Close."