Robert Kugel's Analyst Perspectives

Our Focus on Close, Consolidate and Report in Finance

Posted by Robert Kugel on Mar 14, 2023 3:00:00 AM

For 2023, the Office of Finance practice of Ventana Research introduced Close, Consolidate and Report as one of its six focus areas. The change reflects the recent evolution of technology that supports this part of the finance department calendar. Ventana Research expects that the increasing investment in software to streamline these processes will, by 2026, result in two-thirds of finance and accounting departments improving their use of readily available technology to close quarterly books within six business days, up from one-half that can do it today. Our research coverage in this area includes dedicated consolidation software and close management systems as well as applications for intercompany financial management (IFM), automated reconciliations and disclosure management. Software for the close-to-report cycle also helps achieve objectives in digitally transforming how these processes are executed. Beyond efficiency gains, using automation enables organizations to have management and financial information sooner, provides more time for analysis and crafting performance narratives, achieves superior control of processes, and supports accurate accounting with less effort. It also enables departments to attract and retain the best talent because it minimizes time spent on tedious, repetitive tasks best left to computers. Accountants can then focus on more rewarding work that takes advantage of their skills, experience and expertise.

Ventana Research advises organizations that are not using consolidation software to evaluate its merits. Dedicated consolidation software designed for accounting departments first appeared in the 1980s toVR_2023_Assertion_CCR_Close_Books_Sooner_19_S (1) facilitate the monthly process of combining accounting results held in disparate, electronic general ledger systems. The consolidation process also can be complicated by the complexity of a corporation’s legal entity structure, which is a function of the number of entities, their legal configuration as well as ownership characteristics (such as joint ventures, minority shareholdings and crossholdings). Consolidation software has evolved over the years, making it easier to work with and more affordable. Yet, our Office of Finance Benchmark Research finds that 40% of midsize and larger organizations continue to use standalone spreadsheets exclusively to handle their consolidation processes. While not every company needs consolidation software, many will find that they can perform this task faster and with greater control compared to using spreadsheets, especially midsize organizations that have outgrown their manual methods.

Finance and accounting departments also need workflow software to define, orchestrate and supervise the entire close process. This ensures that all key tasks are completed, reviewed when necessary and approved by all those who must be involved. The process loses less time to poor coordination and dropped handoffs since the software automatically generates reminders that tasks must be started or are overdue. Controllers and CFOs can monitor progress and receive alerts and comments when snags appear, and the workflow manages approvals and signoffs, recording when these take place and by whom. For many midsize organizations, this formal process and documentation will represent a higher level of control than currently in place.

Investing in close, consolidate and report software achieves important benefits, mainly by speeding the close and improving departmental efficiency. Our research finds that 88% of organizations that use extensive automationVentana_Research_Benchmark_Research_Office_of_Finance_19_19_Automation_Speeds_the_Close_20220208 (2) in managing their close can finish within six business days versus just 40% that use little or no automation. Closing sooner and automating manual tasks frees up staff time for more thorough analysis and reporting. Our research finds that, for one-third of organizations, this is the most important reason for pursuing a faster close. Another 27% prioritized making management accounting data available sooner to executives and managers, and the same percentage said the most important reason was to make financial analyses available sooner. These factors are all closely related to promoting organizational agility, since they all enable decisions and actions to be made sooner.

In 2021, Ventana Research introduced the term intercompany financial management (IFM), a discipline for structuring and handling transactions within a corporation and between its legal entities, designed to maximize staff efficiency and accounting accuracy while optimizing tax exposure, minimizing tax leakage and ensuring consistent tax and regulatory compliance. IFM addresses a significant (if often unrecognized) problem for many companies because performing IFM well requires the ability to execute the minutiae of statutory and tax accounting details effectively to support the achievement of high-level corporate objectives.

The word “reporting” covers the many ways finance departments communicate their organization’s performance and condition, both internally and externally. Disclosure management is one form of reporting that’s part of our focus because of software’s ability to materially improve the efficiency, accuracy and control of structured documents created for periodic regulatory filings, board communications and other purposes. These composite documents involve multiple individuals working collaboratively to create, edit and review text, tables, charts and exhibits that incorporate data from multiple sources, all performed in a controlled process. Composite documents often have formats defined by law, regulation or contract and typically must be created at periodic intervals. Increasingly, regulatory filings must incorporate digital tags to facilitate processing and analysis and this, too, is managed by disclosure management systems. The complexity of complying with increasing regulation has been taxing organizations and expanding requirements for environmental, social and governance (ESG) reporting have added further burdens to the finance department in their disclosure management efforts.

Software also strengthens an organization’s accounting and financial statement integrity by substantially reducing reliance on standalone spreadsheets. Manual processes supported by desktop spreadsheets are inefficient and pose serious control issues because spreadsheets are error-prone, and it’s not easy to verify their accuracy. Control is a key characteristic of a well-managed finance department, but when staff are overworked and stressed, the likelihood of lapses in control increases. As an organization expands, the growing number of accounts, entities and transactions — and the amplified organizational complexity — all increase the probability of errors and risk. For growing organizations, maintaining the integrity of accounting processes and systems grows more difficult as businesses become more complex. Automated workflows, approvals, controls and escalations address this challenge by promoting financial control and financial statement integrity. The system documents processes and records that these processes were followed, reviewed and approved. The data collected by such systems also facilitates audits because all activity — especially exceptions — is easily discoverable.

Another important reason for increasing the use of technology is attracting and retaining the most competent and motivated finance and accounting staff. Finance executives are facing a shortage of accounting professionals. The old approach of just hiring more staff to handle increasing workloads and using temps for crunch periods is increasingly less feasible. Especially as vendors incorporate artificial intelligence (AI) to automate an increasing amount of repetitive work, manual approaches will become glaringly inefficient and a barrier to recruiting and keeping the most competent accounting professionals.

I recommend that CFOs and controllers assess their current close and post-close processes to determine how automation can improve their department’s performance. Organizations that take more than a business week to close the books should examine how software can improve performance. Justifying the investment can be very straightforward: Automation can cut workloads, immediately and into the future, thus creating ongoing savings. Close management software can enhance controls, ensure compliance and reduce the time and money spent on audits. And software that shortens the close can enhance a growing organization’s agility by providing executives and managers with information sooner. CFOs and controllers of midsize organizations should investigate the value that software can bring to the close, month after month and quarter after quarter.


Robert Kugel

Topics: Office of Finance, digital finance, Consolidate/Close/Report

Robert Kugel

Written by Robert Kugel

Rob heads up the CFO and business research focusing on the intersection of information technology with the finance organization and business. The financial performance management (FPM) research agenda includes the application of IT to financial process optimization and collaborative systems; control systems and analytics; and advanced budgeting and planning. Prior to joining Ventana Research he was an equity research analyst at several firms including First Albany Corporation, Morgan Stanley, and Drexel Burnham, and a consultant with McKinsey and Company. Rob was an Institutional Investor All-American Team member and on the Wall Street Journal All-Star list. Rob has experience in aerospace and defense, banking, manufacturing and retail and consumer services. Rob earned his BA in Economics/Finance at Hampshire College, an MBA in Finance/Accounting at Columbia University, and is a CFA charter holder.