Risk & Compliance

Running a Close Race

European companies are getting faster at closing their books, while American firms are beginning to lag.
Alan RappeportOctober 19, 2007

Companies around the world race to close their books at the end of the year, but those in some places are having more success than others.

A new study by BPM International and the Paragon Consulting Group, both British consultancies, compares the close times of firms in the United States, Britain, and continental Europe. Comparing 530 of the world’s largest companies during the past four years, they find that firms on the continent are accelerating their close times, British firms are stagnant, and the Americans are taking longer to close the books.

Europe’s greater efficiency has largely been driven by improvements in Switzerland, the Netherlands, and France. During the past four years, Swiss companies have reduced their close time by 15 percent. Companies such as Adecco, Ahold, Swiss Re, Phillips, and LVMH have shown dramatic reductions, according to the report.

In Britain the average close time for companies listed on the FTSE 100 index has remained at 54 days, unchanged in the past four years. The top four companies, which managed to report year-end results in 31 days or less, are Carnival, British Sky Broadcasting, Imperial Tobacco, and Northern Rock. This represents welcome good news for Northern Rock, which recently suffered a massive bank run and was rescued by the government.

“The stagnation is concerning, but don’t assume it’s all bad news,” says David Jones, director of Paragon. “There has been significant acceleration by some companies in the UK. For example, Vedanta, Alliance-Boots, Shire, Intercontinental Hotels, Imperial Tobacco, British Sky Broadcasting, and Lloyds TSB have all shaved at least two weeks off their time to close and announce year-end results.” But he adds: “Sadly, there are just as many companies who have significantly slowed down.”

American companies know the feeling. In the United States, the time it takes to close and announce earnings has increased by 10 percent in the past four years. More firms are also failing to have their books approved by auditors at the time of close. The number of year-end results announcements with audit sign-off fell from 45 percent to just 5 percent in the past four years, the study says.

“This is one of the great ironies of the introduction of Sarbanes-Oxley,” says Jones. “Tightening of compliance legislation was meant to increase confidence in reported numbers, but the impact in the USA has been to dramatically reduce the number of year-end results announcements that have the key confidence factor of being audited.”

Although U.S. companies are still the world’s fastest at closing their books, at this rate they could lose that title to their European counterparts within a decade, says Jones.