Closing books in the new normal
As the world continues to adjust to the changes wrought by COVID-19, previously small annoyances in closing the books of a company can turn into significant hurdles. While it was sometimes already challenging to close books pre-pandemic, the difficulty of the task is now compounded by new stressors such as strained technology resources, a distributed workforce, and even personal concerns regarding health and finances.
This article will discuss some strategies on how CFOs, controllers and their teams can communicate effectively and drive clear priorities during a virtual close. Based on the EY article How to manage your close process virtually, these considerations aim to help companies close books effectively as well as position them for post-pandemic recovery. This will apply whether company operations are manual or are more advanced.
ESTABLISHING A STRONGER TEAM DYNAMIC
Even in the best of times, effective collaboration can be a hurdle in itself. A large, multinational organization may have to deal with thousands of users across multiple geographies who need to be aligned in terms of processes and deliverables. While there may be one or two people who specialize in certain tasks, teams of people should ideally be equipped with vital knowledge to pick up on each other’s work in the event someone is unavailable.
Given today’s circumstances, however, establishing new and dynamic technology-empowered team norms becomes even more critical. Teams are encouraged to conduct more meetings and utilize video software for key agendas to establish a more personal connection. The team also needs to look for new methods and solutions that promote closer remote collaboration since e-mails are often quite a limited tool — in fact, there is a constant risk of e-mails being overlooked or for a user to be overwhelmed by the sheer number of e-mails we now receive on a daily basis. In addition, teams should consider reviewing controls that require two-person coordination before the close. Determine whether remote working demands have changed these controls, and ensure they are properly documented to support eventual audits.
It will also be vital to communicate with management early regarding how reporting and reviews will be handled. Management reporting recipients need to be briefed before making any changes. As an example, it should be determined how trial balance and preliminary P&L reviews will be conducted remotely to properly manage expectations. A plan has to be in place for report distribution as well as reviews related to the close.
UTILIZING EFFECTIVE TEAM SOFTWARE
Instead of relying mostly on meetings to understand statuses and involvement in the process, a team can use dashboards and standard reports with read-only access for stakeholders and auditors for visibility. Teaming software allow simultaneous collaboration on the same task or reconciliation, the flexibility of which is especially useful in the current working environment. Features that enable users to attach documentation and access work that has been accomplished in previous periods will allow new or even temporary workers to gain the necessary information from one place, establishing better continuity even if one or two key team members are unable to work.
Effective teaming software solutions can also facilitate communications and establish one source of truth. By having one place where all files are consolidated and can be securely transferred, employees will not need to search in multiple sources and save time. An efficient software solution will allow teams to create business rules that can help operationalize high-risk priority accounts with frequency information and due dates. Another function that should be prioritized is the ability to set review levels and frequencies based on criteria defined by the business. Some accounts may have less volatility than others and will not need to be reviewed monthly, while others may be zero-balance accounts that can be certified automatically.
An efficient task management solution can handle the documentation, support and sign off of any activity, while the best task management software can set up recurring tasks for certification or tracking.
UNDERSTANDING RISKS AND SETTING PRIORITIES
After establishing clearer ways to team up in the new normal, the next point of focus is identifying the most high-risk items and addressing them. With strained resources and issues in technology, such as maintenance and cybersecurity, arising given our current circumstances, understanding and prioritizing risks accordingly will help keep the focus of the team from fraying or latching onto low-impact concerns. Teams must learn what they can from external and internal auditors as well as how their controls can identify the high-risk items that need to be prioritized.
It is recommended to scrutinize how overall activities relate to broader milestones in the close — for example, they can center on closing sub-ledgers and the general ledger. All the dependencies such as entity-level processes that are dependent on local steps will need to be considered. Risks such as reconciliations, journal entries and tasks like controls must have their risks assessed.
Teams can also reduce activities by evaluating and enforcing materiality thresholds, with the addition of appointing a point person to monitor the close checklist to serve as a secondary control in ensuring the team does not miss any steps. After reviewing the virtual close plan with auditors and soliciting their input, any extra steps can be determined to further support the audit process.
OPTIMIZING TODAY WORK BETTER TOMORROW
Though the immediate goal is to close the books, these considerations can pave the way for companies and teams to become more optimized. By learning how to address and manage risks and pain points under the unprecedented challenges to be found in our current environment, teams can develop the necessary agility, resiliency and flexibility to meet future disruptions and better position themselves to grow and thrive in a business world beyond the pandemic.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.
Aaron C. Escartin is a Tax Partner of SGV & Co.
