September 02, 2021

The 5 Steps of the Continuous Accounting Approach

A lot of what happens inside businesses these days is way more continuous than it used to be. Just look across at FP&A, for example. Forecasting has shifted from something performed each quarter (at best) to be "rolling"—so it more accurately reflects how the business environment is changing.  This demands continuous data flows from actuals, updated business drivers, and more frequent adjustments to the model.

Outside of Finance, what started in R&D as an approach called "Agile Development," where work is broken up into more discrete and measurable chunks and teams run continuously and transparently, has now been adopted by other departments across the business in different forms.

In many ways, this all isn't new—breaking work down into more manageable pieces and making incremental improvements started in manufacturing, way back with the first Ford Model T.

But what's made all of this possible in the office? New ways of thinking about work, advancements in collaboration, process analytics to see how work is progressing, and more intelligent automation, have made crunching work continuously, practical.

What does this all mean for Accounting? The record-to-report process, which traditionally saves all the work to period end, is now looking seriously long in the tooth and ripe for reinvention.

A Not-So-Fond Farewell to R2R

No doubt, closing the books using the record-to-report process has existed for as long as you can remember. And the memories probably aren't that great: period-end crunches, late nights, reams of reconciliations, and journal entries to pile through right at the last moment, usually on a Friday night.  Why is that?

It's because while R2R covers all the steps in closing the books, it condenses a tremendous amount of work into a short period and delays data processing and reporting until the end of the period. Back in the day, in an era of mainframes and batch processing, it made sense, but the logic of that approach diminishes every year.

And worse, with executives pushing to close the books faster, compressing the same amount of work into month end, following the same process means one thing: working harder, more late nights, and fewer available weekends. Not to mention, it's impossible to be an effective business partner if you're heads down in a period-end blackout.

For many in Accounting, that's a deal-breaker.

Finally, having little time left at period end for variance analysis or tracing the root cause behind exceptions is a liability in an era of growing accounting complexity, regulatory reporting, and compliance landmines.

5 Steps to Continuous Accounting

In a nutshell, Continuous Accounting means taking the time to identify traditionally period-end tasks that can become day-to-day activities and using real-time automation and controls to tackle them during the period.

By doing so, there's more time at period-end to focus on variances, anomalies, and analysis—because more of the transactional work has been handled throughout the month. And by processing more in-period, Finance gets a clearer, real-time financial picture, rather than just waiting until month end.

There are five basic steps to moving from traditional R2R to continuous accounting:

  1. Split batch processes into smaller tasks. Start by identifying batch activities that dominate period-end and break them down into logical work units to make them more manageable.
  2. Schedule those tasks as early as possible in the period. Once identified, build a work plan to try to perform those tasks as early as possible during the period.
  3. Start by embedding those tasks within an everyday activity. Rather than a static period-end checklist at month end, create a task workflow that distributes them over the period.
  4. Automate tasks where possible; standardize elsewhere. Use automation technology to crunch as many in-period tasks as possible; if you can't, minimally ensure centralized task flow, approvals, and documentation to standardize them.
  5. Continuously monitor performance. Apply dashboards and analytics to identify outstanding items in the task list, variances, and anomalies, so you can break through bottlenecks and address risks as soon as, or even before they happen.

Choosing Your Starting Point

With Continuous Accounting, it pays to be pragmatic and to focus. The best period-end tasks to start with are the ones that are the most repetitive, high-volume, and back-end loaded.

Analyze your current state by surveying the team on the biggest ticket period-end accounting task that is the most significant roadblock. Evaluate if it can be broken up and automated more in-period.

For example, high-volume account reconciliations and transaction matching can be a great place to start. Often there's a lot of repetitive accounting going on at month end, like credit card transactions, bank to GL reconciliations, AR/AP, point of sale, and inventory. Identify which activities create the time crunch and look to split-schedule-automate them.

Another opportunity is often around manual bulk journal entries, such as amortizations, bank and credit card fees, and intercompany allocations. In some cases, they can be standardized as auto-recurring journals, while more advanced technology can auto-create journals with supporting items, bank files, and matched transactions.

While automation is essential, it's practically impossible to shift to Continuous Accounting using spreadsheet checklists to chase down preparers, reviewers, and approvers. Use an online task management tool instead to handle all the task dependencies, certifications, and email notifications in real time, so you don't get buried in email and Slack.

Getting out of spreadsheets for task tracking will also provide better visibility into completed and outstanding items by task type, geographic location, and due date—and make it easier to tweak the process continually.

World Fuel Services' Continuous Accounting Journey

World Fuel Services provides fuel, logistics, and technology solutions to aviation, marine, and land customers at 8,000 locations across 200 countries and territories. Their Continuous Accounting vision is to automate as much as possible, simplify their processes, and standardize across entities and segments. For their accounting team, the goal is to free up more time to become increasingly analytical.

The team identified cash account reconciliations as their biggest roadblock and took a split-schedule-automation approach. In the past, they only reconciled cash at month end. By moving to Continuous Accounting and using automation, now they're doing it multiple times a month. Doing so has enabled them to cut 40 to 50% of effort from the monthly auditing of cash reconciliations.

As part of their continuous improvement initiative, they conduct a holistic periodic analysis of processes and technology solutions to fine-tune their approach repeatedly. Precise focus on where to apply Continuous Accounting is vital, with the team asking, "What's the ROI on shifting the task to continuous? Is the process stable, and do we need to transform it first?"

Get Lean

Ready to add that extra layer of discipline and structure to your Continuous Accounting journey? Lean Six Sigma provides an excellent framework as a tried and tested process improvement strategy. Lean techniques were first pioneered at Toyota back in the 1980s to drive efficiency and reduce waste, but have now become mainstream, adopted to systematize improvement across industries and business initiatives.

Lean is built around five phases: Define, Measure, Analyze, Improve, and Control. In a nutshell, set your objectives, establish current performance, identify the bottlenecks, address them, and then see whether it was effective. Repeat.

Lean Six Sigma is also about identifying and eliminating specific kinds of waste that drag down processes. Ultimately, the team is only working on what matters and improving the quality of work. It lays out seven specific areas of waste to measure and improve:

  1. Overproduction. If the team is spending too much time in spreadsheet creation and manual entry, they're overproducing—too much effort for too little output.
  2. Overprocessing. Are accounting staff repeatedly going over the data checking for errors because they aren't confident in the process? That's overprocessing.
  3. Defects. When too many errors are caught too late in the close process, such as in reconciliation or reporting.
  4. Waiting. For example, when reviews and approval requests are sitting in inboxes far too long, that's time wasted.
  5. Motion. When data isn't flowing to feed each process—locked up in a business unit or a subledger, it all squanders time and causes accounting delays.
  6. Inventory. The pile-up of too many spreadsheets or document sprawl chokes up processes.
  7. Transportation. Nope, this isn't time spent getting to and from the office. It's time spent manually retrieving and archiving data, and it adds up.

As you move towards Continuous Accounting, you can use a Lean Six Sigma approach to apply a time-proven process for measurably reducing tasks that don't add value—and improving the quality of those that do.

Continually Measure Results

As Peter Drucker said, "you can't manage what you don't measure." Establishing KPIs provides a powerful way to gauge success and enforces a feedback loop on where the following change initiative should be focused. For teams, it's a way to strive toward and transparently measure against established goals.

For example, an initiative focused on continuous reconciliation automation might have the following KPIs:

  • Overall time to close the books
  • Percentage of tasks completed on time
  • Number of items processed per accounting head
  • Manually reconciled accounts/total accounts
  • Reconciliation approval and rejection rates
  • Auto-certification rate

Use metrics for continuous improvement, conduct metrics-based periodic reviews with the team—what went well and where to improve next—and assign ownership for process improvements. Ensure your process metrics aren't just about efficiency—risk, quality, and service matter too.

Finally, don't spend all of your time on data collection. Look for your accounting apps to collect and present the data for you in easy-to-read dashboards—so you can focus on analyzing the metrics and planning your next modernization move.

Move to a Point-in-Time Close

The more you move to Continuous Accounting, the closer you get to a point-in-time, and touchless close.

It's where your CFO has a clearer financial picture at any point in the month, rather than just at the end. And the more you perform in-month, the more in focus it gets.

For example, Ventana Research found that 88% of companies that automate a substantial amount of their close processes can close within six days and report they have more timely information to run the company.

Getting to a point-in-time close starts with the first Continuous Accounting step. Begin the journey by analyzing your current state to identify where the challenges and efficiency gaps are in your close.

Next up, tackle the easy wins—the most amenable tasks to automate throughout the period, and set up your vision and metrics for success.

Then, put it into action: split up the process, schedule it throughout the period, embed it in everyday workflows, and automate it where possible. Consider using techniques like Lean Six Sigma to systematically (and continually) improve your process.

Use the saved time at the end of each period to investigate alerts from flux analysis, exceptions, and anomalies to improve quality and reduce risk. Take time to be strategic around process improvement by mining process metrics to enhance continually.  

Get your free copy of Modernizing Accounting For Dummies to read the rest of the book. It provides a roadmap to help you move to modern accounting and drive finance automation at your F&A organization.

Tammy Coley

Modern Accounting