Analyst Gary Simon explains why the cloud is uniquely suited to integrating and automating the many steps required in modern-day closings
Over the last decade the financial close process – which runs from period close in subsidiaries through to electronic filing to regulators – has been continuously stretched by regulation, broadened information needs, and increasing business complexity. But financial close applications have hardly changed, and this has created large gaps in functional capability and process support, most notably around account reconciliations, task management, transaction matching and even journal entry.
Some of these needs have been met by software vendors on a piecemeal basis, but smart CFOs know that straight-through processing – getting everything right the first time – requires end-to-end process support. Without such support, and as a result of the shortcomings in the process, business analysis and decision-making, which rely on effective financial close management, remain fraught with difficulty for many organizations.
Cloud Platforms Emerge
For these organizations, however, there is good news. The advent of the cloud, along with cloud-based financial control and automation platforms, is making it possible to bring together essential accounting components into a single sharable environment. Here, applications are built to a common design standard and they can share cost centers, accounts and other metadata, as well as security, user set up and user interface.
The scalability, immediacy and accessibility of cloud platforms such as BlackLine enable all parts of the organization to enjoy access to whatever functionality is needed, regardless of where it may reside. This brings distinct benefits to the financial close, where there is a need for:
Accounting processes and workflows that can reach out across the organization with high user participation;
Management to have complete, on-demand visibility into the process; and
Collaboration support among individuals within and between business functions.
Collaboration among users is essential to helping finance processes evolve from the past – in which close tasks were handled sequentially – to where many key processes can be managed in parallel.
This allows the finance function to take care of a significant number of account reconciliations outside of the critical path of the close, rather than in the middle of it, which is a traditional way to handle reconciliations.
And it’s not just balance sheet account reconciliations that can be shifted off the critical path. It is also possible to bring forward detailed transaction matching and journal entries, which play essential roles in close tasks for subsidiaries and the corporate center.
Cloud-based task management allows the tasks and issues that are intrinsic to the financial close to be maintained in a central and secure environment. These tasks include everything from audit evidence and management commentaries to externally generated documents such as balance confirmations, compliance sign-offs, checklists of close tasks, and regular instructions
And embedded workflows allow tasks to be routed among the different users in a process chain. This can be done to obtain a compliance approval, to escalate an issue to a supervisory level, or simply to invoke the next stage of the process. Linked to email and alerting systems, including mobile devices, such workflows give organizations the means to expedite the close process while maintaining appropriate levels of control.
Once tasks are accessible in a single shared environment they become visible to authorized users anywhere in the process. Their status can be captured, thanks to the integrated workflow, and they are open to measurement. A rich repository of performance built up over time and embedded in the application helps identify whatever delinquent tasks might hold up the overall financial close, making it easier to take care of them earlier in the process.
A Way Forward
With the increasing pace of market, regulatory and technology activities, there’s every reason to expect that the financial close process will continue to become more complex and challenging in the years ahead. That’s why the shift to digital technologies and the emergence of cloud-based financial controls and automation platforms is so important: it provides a step-change in capability and a dependable way forward for process improvement.