The Financial Controller and CFO's Toolkit. Parmenter David
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Part II
To Be Completed Before the Next Month-End
Chapter 3
Rapid Month-End Reporting: By Working Day Three or Less
OVERVIEW
Although many large organizations have made massive inroads into fast and accurate month-end reporting the vast majority of finance teams around the world have month-end processes that are career limiting, to say the least.
This chapter explores the processes you can abandon, those you need to bring forward, and when the cutoffs should occur. All these changes can occur before your next month-end. Many of these practices are common sense; however, common sense is not always evident.
Many large organizations have made massive inroads into fast and accurate month-end reporting. I say to them, “Celebrate your achievement,” but still read this chapter as you may be able to achieve a quicker month-end close. However, the vast majority of finance teams around the world have month-end processes that are career limiting. This chapter is an extract from my white paper, “Reporting rapidly, informatively and error free.”20
When I was a corporate accountant, each month-end had a life of its own. You never knew when and where the next problem was going to come from. Two or three days away, we always appeared to have it under control, and yet each month we were faxing (email was not on the scene then) the result five minutes before the deadline. Our fingers were crossed as a series of late adjustments had meant that the quality assurance (QA) work we had done was invalid and we did not have the luxury of doing the QA again. Does this sound familiar?
CEOs need to demand a complete and radical change if they are to free management and accountants from the shackles of a zero-sum process – reporting last month's results halfway through the following month. Here are the facts:
● Leading finance teams are now providing commentary and numbers by the first working day.
● Companies are migrating to closing the month on the same day each month (i.e., months are either four or five weeks).
● In leading organizations, the senior management team (SMT) is letting go of report writing – SMT members are no longer rewriting reports. They have informed the board that they concur with the writer's findings but it is a delegated report.
See the attached electronic media for a checklist of implementation steps to reduce month-end reporting time frames and for the common bottlenecks in month-end reporting and techniques to get around them.
RATING SCALE FOR MONTH-END REPORTING
The following rating scale, see Exhibit 3.1, shows the time frames of month-end reporting across the 5,000 corporate accountants I have presented to in the past 20 years.
EXHIBIT 3.1 Speed of Month-End Reporting Ranking
BENEFITS OF QUICK MONTH-END REPORTING
As a CFO of a tertiary institution said, “Every day spent producing reports is a day less spent on analysis and projects.” There are a larger number of benefits to management and the finance team of quick reporting, and these are set out in Exhibit 3.2.
EXHIBIT 3.2 Table of Benefits of Quick Reporting
IMPACT OF A QUICK MONTH-END ON THE FINANCE TEAM WORKLOAD
The impact of quick month-end reporting is a redistribution of work moving out of the low value processing activities of month-end annual accounts to the more future focused activities such as rolling forecasting, systems implementation, and advisory, as shown in Exhibit 3.3. This is often accompanied by a change in the mix of the finance team, which results in a higher percentage of qualified staff.
EXHIBIT 3.3 Changing the focus of our work
A rapid month-end gives the finance team more time for the future. There are, on average, 22 working days a month. For a day one reporting entity, the finance team has 21 days allocated to the current month and beyond. A finance team taking 9 days to report has only 13 days left, a 40 percent reduction.
It is important to cost out to management and the board the month-end reporting process. When doing this exercise, remember that senior management barely has 32 weeks of productive time when you remove holidays, sick leave, travel time, and routine management meetings. Thus, a cost of $1,000 per day is not unrealistic. Based on an organization with 40 budget holders, with around 500 full-time staff, I believe the cost estimate is between $0.9 million and $1.5 million.
Such an analysis can be easily performed by your accounting team in 30 minutes, and will be valuable in the sale process of changing month-end reporting time frames.
I have included a costing template in the reader download as a guide to this exercise.
MAJOR STEPS YOU CAN DO BEFORE YOUR NEXT MONTH-END
Set out next are the major steps you can achieve within the month you are currently in.
Establish Reporting Rules within the Finance Team
Members of the finance team have to realize that they are sculptors, not scientists. There needs to be recognition that the monthly accounts are not precise documents. Assessments need to be made, and the monthly accounts will never be right; they can only be a true and fair view. We could hold the accounts payable open for six months after month-end and still not have the plumber's invoice that arrives when the plumber's company is doing its year-end and realizes that it has forgotten to invoice for work done.
We therefore need some rules about the month-end reporting process which need to be signed off by all the accountants. The month-end financial report should:
● Not be delayed for detail.
● Be consistent – between months, judgment calls, and format.
● Be a true and fair view and error free.
● Be concise – less than 10 pages (include the major business units' one-page reports but exclude minor units reports. These are shown as a consolidated number in the consolidated P/L).
● Be a merging of numbers, graphs, and comments on one page.
● Not be changed for adjustments that are likely to be set off by others yet to be found – instead all adjustments are to be offset against each other on an “overs and unders” schedule.
● Be based on an agreed corporate view of materiality. Materiality will not be set at a different level for each budget holder. If materiality is set at $20,000 for a P/L item consolidated result, then this amount is set for adjustments, variance reporting, and accruals across all entities.
I have
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David Parmenter, “Rapid Reporting in Three Days or Less and Error Free,” www.davidparmenter.com 2015.