Closing and reporting are an essential part of financial accounting and bookkeeping. Ledger balances are tallied, journal entries are passed, and accounting books are reconciled. Based on the accounting entries made by various departments, the income statements, balance sheets, and other regulatory reports are prepared. They are distributed to the chief executives, and all the major departmental heads, and put on the company portal for general viewing. The regulators are given a copy for their reference and their records. Not only are these financial records important from the point of view of performance evaluation and internal decision making, but they are also a regulatory necessity.
As with any process that is impacted by every department of a company and whose results have wide ramifications, the financial close and reporting process is also beset by several issues.
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The process requires data from all the departments and every aspect of the company’s functions. When that happens, the process becomes chaotic. Some managers submit the information on time and some don’t. Sometimes the information is submitted on time, but it is wrong or incomplete. Then the finance teams have to chase the departments to submit the right information before the due date.
Platform Compatibility Issues:
Large companies, especially multinational ones, store their data on multiple platforms, especially if they have taken over other companies. Compatibility between the platforms is often an issue. This leads to the data being infused with errors further delaying the closing process.
Some companies are careless about being updated with the latest regulations. Financial regulations are prone to several changes these days as the authorities try to get greater control over an area that is under increasing public scrutiny. If the books are not prepared as per the latest guidelines, then it causes serious internal and external problems for not just the accountants, but also the chief executives.
It is common for journal entries to be passed without the correct approvals. Entries are passed against the wrong code and against incorrect headings. Debits and credits are written on the wrong side. Accounting entries are passed without the correct documentation to justify them. Sometimes the reconciliation teams are not thorough in their process and the errors are not caught. Entries against last-minute transactions are either passed incorrectly or they are not passed at all. In international transactions, the figures could be calculated using the wrong exchange rates. Different countries could submit their financial numbers at different times, and they could also use different templates.
System Upgrade Troubles:
Companies go for systems upgrades on a regular basis. The data does not always feed accurately from one application to the other. Errors are made in mapping the charts of accounts. There is confusion about who is responsible for maintaining the reference data, and whose permission is required before static data changes are made. Old-timers in the organization do not adjust to new systems easily and quickly, and they have a hard time pulling out extracts, entering data in the system, and reading old records. Duplication of records is a very real and serious problem that often plays havoc with the closing process. When data is entered manually, this problem only gets larger.
Whether it is a monthly closing or a quarterly one or a yearly closing, the process is always complicated and one that is ridden with issues, both large and small.
The trick is to identify them in advance so that they can be dealt with beforehand. Learn from previous closings, list what went wrong, and make sure those lessons are learned and rectifications made next time around. The financial reports cannot be wrong. If they are, then decision-making will suffer, regulators will be displeased, and investors will get the wrong picture. To fix issues quickly so that the closing and reporting process goes smoothly. Taking the help of an expert Finance and Accounting Service provider can help businesses overcome their troubles with financial close and reporting processes.