This article originally appeared on Forbes.com. It’s a 7-minute read.
At the end of the first quarter, many CFOs confronted the unprecedented need to close their company’s books remotely and virtually, with their entire finance and accounting staff working from home. At the same time, they had to assess, report on, and forecast the business impact of COVID-19.
For the most part, it appears that CFOs met this need. The U.S. Securities and Exchange Commission (SEC) also provided some leeway for companies to make sense of the pandemic’s impact.
As the second quarter period-end closing neared, however, the SEC expected comprehensive and transparent information on COVID-19’s prior and future impact. An entire quarter had passed with virtually everyone in accounting still working from home.
For companies that manually close their books, this atypical work environment imposed significant regulatory pressures and work impediments. By contrast, finance and accounting teams that had already automated the closing process confronted much less difficulty.
Before the pandemic, for companies with manual close processes and non-automated workflows, when questions arose during the reporting period over the financials and supporting evidence needed to ensure accurate and complete information, staff generally reached out for answers to colleagues sitting nearby or, if needed, to business units across the organization.
Spreadsheets corroborating the supporting evidence were emailed to the petitioner, resulting in manual rekeying, reconciling, and a continuing search for data and errors.
In today’s remote and virtual work environment, not only do these processes slow down the period-end close, but they also increase the possibility of proprietary data falling into the wrong hands.
For example, spreadsheets sent from the physical office travel over the corporate-approved digital platform and VPN for cybersecurity reasons. But as the pressure intensifies to close the books on time, staff might utilize nonapproved and unsecured videoconferencing platforms to send and share data.
Screenshots of sensitive information are emailed—and in some cases, physically mailed—to petitioners, increasing the risk that this proprietary data could be hacked and end up in the wrong hands.
A Real-World Example of Automation’s Impact on the Month-End Close
This threat is reduced for businesses that automate their month-end close processes, eliminating manual processing tasks. For such companies, the recent second-quarter close was not much different than previous close periods.
My company, for example, closed the books in an entirely virtual environment in three days. Full disclosure: we’re a provider of finance and accounting automation software and have used our solutions to close our books since not long after the launch of the company.
Since the company became publicly traded in 2016, we have closed the books in the same time frame each year. What makes this past quarter’s close stand out is that we closed the books in the same period of time when the entire finance and accounting staff worked from their homes, amid the daily distractions of a life much changed.
To close in three days in such an atypical environment suggests we may have actually compressed the process.
Part of our success is attributable to the fact that remote work is nothing new for us. Many of our employees have worked from home every other Friday for more than a decade, and we never let this impact our close calendar. Our communications and technological capabilities were positioned for employees to function remotely, virtually, and securely.
A related problem for companies manually closing the books is the additional burden it imposes on audit firms. In presenting the supporting information for auditors to conduct the audit, confusing document versions absorb time and resources. By contrast, automation allows for an efficient, fast, and thorough review.
If a question arises over an account balance, auditors have complete transparency into the document flow to resolve the issue. All the review notes are visible and digitally stamped as final, eliminating version control issues as well as the risk of proprietary information ending up in the wrong hands.
Virtual closings will likely persist throughout the remainder of the year due to the persistence of COVID-19 transmission and the gradual reopening of physical workspaces. Finance and accounting teams will confront substantial demands on their time to work through the uncertain business repercussions, from vendor contract cancellations to pivoting physical marketing events to virtual ones.
For the thousands of accountants still likely working much of the time from their homes, this task load is not for the fainthearted.
Finding the Right Fit
Fortunately, many CFOs realize this need and are reportedly hastening their investments in finance and accounting automation. In making the move to cloud-based automation tools, finance chiefs need to consider the right fit.
Best practices include beginning with a future state in mind. To help design it, ask your finance and accounting teams what they consider the most inefficient, time-consuming, and risky accounting processes. After all, they are in the trenches performing manual and repetitive work tasks and can identify and prioritize needed process improvements.
Once the processes are standardized, they are ready to be automated. In seeking an automation software partner, ignore flash and sizzle marketing campaigns and ask instead what users can expect when working with the software. Their experiences must be foremost in the decision-making.
During demonstrations of the product, bring in members of the accounting department and have them present various use cases to see how the software responds and evaluate the depth of functionality.
Once the decision is made on a provider, establish metrics to ensure automated processes yield the expected outcomes, such as enhanced communications, efficiency, and data accuracy. Review these metrics on a quarterly basis to find out what worked best and least.
Going forward, it is expected that many functions that are not dependent on a physical location, such as Accounting, will continue to operate in a hybrid virtual-physical workspace.
If ever there was a time for companies to move to automated processes, it is now. CFOs just need to make sure that when choosing an automated solution, they find the best fit for their organization’s specific needs.
Visit our Virtual Close Hub for the resources you need to effectively work with a distributed workforce and prepare for a successful year-end audit.