As companies grow, they get faster at closing their books and reporting financial results to investors. That seems counter-intuitive, given that as companies expand, they tend to increase the number of entities that must be consolidated and the number of discrete systems that have to be tapped for data. Moreover, when they expand globally through acquisition, companies often wind up with new subsidiaries in foreign jurisdictions that run on accounting systems geared to local reporting regimes.
Unless these acquiring organizations go to the trouble of standardizing and integrating systems globally, the process of harmonizing data surely takes extra time. What gives?
Let's start with some facts. APQC's Open Standards Benchmarking data (see Figure 1) proves that companies with revenues greater than $5 billion have faster cycle times for releasing consolidated earnings. The comparison is made between those $5 billion-plus companies and the aggregate of all companies that answered this particular benchmarking survey question. For example, the larger-sized group in the top quartile had a cycle time of 10 days, while the performance of the aggregated group in the bottom quartile was 40 days.
According to Leinani Nakamura, a partner with Mohler, Nixon & Williams, an accounting and tax firm in Silicon Valley, the larger companies sport faster cycle times because they have, out of necessity, invested heavily in developing their financial processes over time. These large firms have made significant ERP investments to improve the efficiency—particularly the speed—of transaction accounting. Still, she says, "the most fully developed ERP systems do not address 100 percent of the activities that typically require manual adjustments and applied judgment, what we call 'outside of the ERP activities' such as fair market valuation." And these largely manual tasks are a breeding ground for errors.
Nakamura observes that large companies today are under increasing pressure to achieve further gains in speed and accuracy, while also reducing complexity and cost. The way to move up the maturity curve, she says, is to embrace a structured methodology for optimizing the entire financial close. This includes the Lean Six Sigma methodology of continuous improvement combined with best practices and, for a growing cadre of large companies, automation of those discrete process steps that caused undue complexity.
A good first step is to benchmark current performance. That advice is surely not surprising, coming from APQC.
Mary Driscoll is a senior research fellow with APQC, a nonprofit benchmarking and best-practices research organization. She is a regular contributor to Business Finance.