Thinking ahead to automation

In May 2016, IMA (Institute of Management Accountants) surveyed more than 751 financial executives, managers and analysts across the U.S. to learn more about how companies conduct their accounting processes, the issues they face and how they have been resolved.

In addition, best practices were to be identified. The goal of the study was to learn more about the extent of automation; what other areas they would like to automate; what challenges they face; and what has proven successful in the area of automation.

Overall, 75 percent of survey participants said they record the time required to complete the booking.

The current financial close process

The results show that many companies have room for automated financial accounting. Control verifications are typically performed as needed - monthly, annually or quarterly.

Similarly, labor and inventory reconciliations, journal entries, and cost allocations are performed by many companies as needed.

It was found that large companies were more likely than small companies to document their closing processes. 21 percent of all smaller companies even stated that they did not document their closing processes at all (in contrast to ten percent of larger companies).

Overall, these results show that about two-thirds of the companies either do not document their closing processes at all or only partially.

In addition, the study found that approximately two-thirds of the companies surveyed are heavily dependent on packaged or ERP applications as part of their closing processes.

In addition, two-thirds rely on spreadsheets. The high reliance on spreadsheets seems alarming, considering the associated risks and problems such as changing accounting standards, time required, input errors and cell connections within such spreadsheets.

Accounting processes challenge

According to survey participants, the most time-consuming and labor-intensive accounting processes are balance sheet account reconciliations, variance analysis, bank and credit card reconciliations, and journal entry preparation.

These processes lend themselves particularly well to automation. More than two-thirds of respondents said they were under pressure to speed up the closing process.

When asked where this pressure comes from, 50 percent cited top management or owners. Other sources of this pressure were identified as department heads, middle management, investors and auditors.

The biggest obstacle in the closing process is getting information from other areas or departments. Examples include final sales figures, deliveries, timesheets, and travel expenses.

Other common barriers include human resources, up-to-date software systems, and correcting data errors. All of these issues can be addressed with integrated systems and automated processes.

Satisfaction

The processes most likely to meet expectations are journal entry creation, balance sheet account reconciliations, and bank card reconciliations.

The processes that are least likely to meet expectations are variance analysis, cost allocations, and control verification.

Overall, few participants expressed satisfaction with how the closing process went. Only 21 percent were satisfied and 54 percent were mostly satisfied.

Of the remaining survey participants, 20 percent were mostly dissatisfied and 5 percent were very dissatisfied. These results were observed uniformly for both large and small companies.

Despite the fact that, according to two-thirds of all respondents, automation would improve the flow and usability of data to the appropriate decision makers and streamline the financial planning process, only 32 percent have partially automated accounting processes over the past year.

Automation

Most of the processes mentioned here were related to payables, journal entry creation, receivables/invoicing, bank reconciliations and reporting.

A seamless accounting process means scheduling activities so that they occur more regularly. Over the past year, only 23 percent of respondents have moved some activities that were previously performed only at the end of an accounting period to occur more regularly.

The most frequently mentioned activities were related to account reconciliation, bank reconciliation, journal entry preparation and reporting. When asked about the key benefits of spending less time on close cycles, a majority responded that it gives them more time to work on strategic initiatives that can help grow the business.

Another 23 percent said the most important benefit would be more timely and accurate financial reports. If this time could be reduced by at least a day or two, it would free up resources that could be used for more advanced and beneficial analysis.

About a quarter of respondents said this would enable more accurate financial reporting. The reason for this, they said, was emerging time resources for validating data and improving the information retrieval system.

Conclusions

The results of the study suggest that many companies can benefit from a more continuous accounting approach. This means shifting the timing of activities so that they become more regular.

Continuous accounting is much more than the automation of accounting processes. It is a methodology whereby processes that traditionally take place at the end of the month or at the end of the respective period are continuously distributed over that period.

The goal here is to improve accuracy, provide more time for reviews, and increase overall efficiency.

The survey collected data on closing processes that reflected challenges and satisfaction related to their current processes, as well as the impact of greater automation of accounting processes.

Two-thirds of all companies surveyed either do not document their closing processes at all or do so only for certain activities. Regrettably, two-thirds also said they were heavily dependent on spreadsheets.

This heavy reliance on spreadsheets results in both more time spent preparing financial reports and a higher risk of inaccurate results.

The use of spreadsheets and other manual closing processes primarily contributes to increased time spent on balance sheet accounting and bank reconciliations, variance analysis, and journal entry preparation.

Companies should rethink these and other manual processes and look for ways to automate at least some of the steps in the process of collecting and integrating data.

More than two-thirds of respondents said they were under pressure from upper management or other decision makers to speed up the close process.

The biggest barriers to achieving such acceleration are information gathering from other departments, human resources, up-to-date software systems, and correcting data errors.

Finance executives should closely evaluate these barriers within their organizations and look for ways to remove them. Only one-third of companies reported automating parts of their accounting processes in the last year.

Providing robust figures for the return on investment (ROI) of a new data system is often difficult. The reason for this is that it is often very difficult to calculate the true value of such investments in isolation from other initiatives.

For all finance professionals who would like to reduce the amount of time they spend on financial statements and invest more time in value-added activities that help the company achieve its strategic objectives, the following approach is recommended:

It is helpful to talk to other division managers and decision makers and ask them what kind of information they would like to have in order to make the company more profitable. This helps to find out how these stakeholders would use such information to help the company.

In addition, a correlation can be made between these activities and increased yield. Following this, an assessment can be made to determine where this information can be found and what tools would help in the collection and processing of this data.

Finally, illustrate how reducing the time spent collecting and processing accounting information leads to the provision of information that provides greater returns.

This is the most effective way to secure management support.