Growth Companies

Metric of the Month: Days to Perform a Site-Level Annual Close

The process can be made faster and easier by performing pre-close activities throughout the year in the run-up to the annual close.
Perry D. Wiggins, CPADecember 3, 2019

December marks the final month of the fiscal year for many companies. That means that the year-end closing process is here, accompanied by its attendant work spikes and stresses.

The annual close comes during one of the heaviest workload periods of the year for accountants, as month-end, quarter-end, and year-end closing processes converge in a perfect storm that sucks time and energy away from activities that support daily operations. Accounting teams that can perform the annual close faster will be able to get back to business as usual more quickly and may even have time to spend with their families for the holidays.

Data on cycle times for the annual close from APQC’s Open Standards Benchmarking Database shows that top-performing organizations (those in the 75th percentile) perform the annual close in 15 days or fewer. That’s nearly twice as fast as median performers and three times faster than bottom performers. (See graphic, below.)

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While faster is generally better for this metric, every company will need to assess its cycle time for the annual close relative to peers of a similar size and complexity. Companies like Google and Facebook are naturally going to have a longer year-end closing cycle than a smaller organization like APQC. Further, a company’s stakeholders and compliance deadlines play a big role in determining how best to engineer the timing and pace of the annual close. For example, a 15-day cycle time may not leave enough time for some companies to conduct sufficient subsequent reviews of transactions after the cutoff period.

Pre-Closing Activities

The year-end closing process can be a very time-consuming and complicated set of activities for any accounting team to undertake, but it doesn’t need to be. This process can be made faster and easier by performing pre-close activities throughout the year in the run-up to the annual close.

One of the first and most important things an accounting team should do is plan for the year-end close by assigning responsibilities well in advance and knowing who will be accountable for what. Planning should include a checklist with all of the pre-closing, closing, and post-closing activities that need to be completed. The checklist should be available to all members of the accounting team and anyone else who might be involved in the year-end close process, whether from finance, sales, purchasing, or other departments.

There are at least three important activities related to the annual close that companies should start in earnest well before the end of the fiscal year. One of the most critical is performing monthly or at least quarterly reconciliations. Doing so helps reduce the time required to ensure the accounts are accurate, allowing the team to move on to other closing tasks more quickly.

The second is to look for anything that could cause an unexpected deviation in performance or a lot of additional work. For example, accountants should be cognizant of what changes to accounting rules or regulations might mean for the annual close. One change that many accountants are currently concerned with is the FASB’s new accounting standards on credit losses, which will certainly make the process more complicated for accounting teams that are caught unprepared. Do a quick check against any changes in accounting or tax regulations well before the year’s end — late December or early January is a terrible time to realize you’ve just been saddled with extra work and compliance-related activities.

One final way in which companies can move faster is by preparing the entire accounting team for the cutoff date and by working to ensure that there are procedures in place for flagging any significant transactions. At APQC, the transactions that come through in January are critical for me to review because some of them may need to be recorded to the 2019 books as accruals. Failure to review these post-period transactions can lead to errors in the financial statements, which will make the process more complicated than it needs to be.

While the holiday season and new year will likely be a time of widespread crash dieting, this is not the best approach to the annual closing process — improvements are best made incrementally. As you put your checklist and schedule together for the annual close, look at how long it took last year and think about how you might shave two or three days off this year and each year moving forward.

Identifying and performing as many pre-close activities as possible will help the process move faster and give accounting teams the gift of more value-added time, while mitigating end-of-the-year stresses and work spikes.

Perry D. Wiggins, CPA, is CFO, secretary, and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston, Texas.