A recent strategic survey completed between The Modern Finance Forum and BlackLine indicates that there is a lot of room for improvement in the financial reporting and accounting departments of most companies.

Information gleaned from the project implies that most companies operate under traditional models of month-end close. This model means waiting until the close period begins to record basic accounting transactions and not taking advantage of strategic opportunities to improve the reporting process.

Only 11% of Companies Have Transformed Their Reporting Process

Around the world, financial reporting is impaired by missed deadlines, inaccurate data, and financial bottlenecks. In fact, most accountants feel a sense of dread when the reporting period begins. They know to expect long nights and frustrating days spent trying to reconcile data that isn’t complete or is inaccurate. 

Adopting new technologies and processes to speed the reporting timeline and improve its accuracy abound, but few companies have taken advantage of them. 

When asked why, executives cited a lack of time, employees who didn’t have the skillsets to adopt them, and the high costs of adopting new systems. Additional reasons included company politics and cultural failings.

60% of Finance Executives Say Too Much Reporting Occurs Only at Month-End

If you were to peel back the layers of a month-end closing at a typical company, you’d likely find many processes that could be performed during the weeks and days before the closing period begins. 

This bottleneck is especially apparent with individuals who have remained in the same role for years; they may hold on to their regular routines and be reluctant to implement serious change. 

A controller seeking to truly improve the financial reporting process should look at each person’s role in month-end close and see what tasks they are performing. If some of these tasks can be performed during the month, rather than at close, efforts should be made to do so. 

Other endeavors can be made to automate tasks. If accountants are spending hours on a single spreadsheet or on recording basic cash transactions, consider implementing new automation through the use of technology. 

The chances are that once the accountant gets used to the new process, they’ll appreciate the time they gain to focus on other pertinent items during their workday.

A few facts cited in the study regarding the inefficiency of month-end closing include:

  • Only 28% of companies have automated processes
  • Just 38% of executives can see the state of reporting at any time
  • 83% of companies experience bottlenecks that hold up the reporting process
  • Significant data errors from subsidiaries affect 87% of companies 
  • Only 2% of companies use specialist software designed to improve reporting accuracy

Clearly, there is a lot of room for improvement in the month-end close process at a majority of companies.

Only 26% of Companies with Less than 100 Entities Have Adopted Strong Intercompany Consolidation Practices

This fact is disturbing, especially considering the number of companies that operate on a global scale. Intercompany consolidation is a necessary part of the financial reporting process. Companies that fail to adopt strong policies to mitigate reporting risks may find problems at the individual entity level.

Unfortunately, many of these small and mid-sized companies are unable to make a business case to their board for seeking stronger reporting systems designed to identify errors in the intercompany reconciliation process. Instead, they rely on outdated spreadsheet models that lack timeliness, leading to potential problems down the line.

71% of large-scale companies with more than 100 entities have adopted robust systems designed to improve the intercompany reconciliation process. However, the remaining 29% continue to rely on the old spreadsheet models. This reliance presents a significant risk to these larger organizations.

Leaders Who Transform Their Financial Reporting Departments Reap Benefits

Those leaders who have invested the time and resources required to improve financial reporting processes are most likely to see the benefits of their efforts. They are able to instantly see the financial status of their companies and make decisions quickly.

On the other hand, finance executives who haven’t made efforts to transform their reporting processes constantly complain about the time that it takes to get accurate results. They struggle with regular reporting cycles, and their employees are more likely to feel overworked and burnt out. 

Some 78% of companies that have made the jump to improve their automated processes are satisfied with the accuracy and trustworthiness of their financial results. By comparison, only 39% of businesses that have not made efforts to change their processes feel confident in their financial reporting. 

Making the Change

Clearly, there are significant benefits to adopting better financial reporting techniques, processes, and specialized software. Companies that make these changes have more oversight of their current financial status, including overdue customer accounts and cash flow. In addition, their employees are happier and less likely to feel overwhelmed. 

If you’re interested in learning more, read the full report on Agility in Financial Reporting and Consolidation.