Shagun is an ex-Fortune 100 auditor, process consultant and CEO of SkyStem who designed ART, a month-end close solution for accountants.
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Month-end close presents a considerable challenge for companies, particularly midsized ones. That’s because these organizations often grapple with the need to handle intricate operations swiftly and accurately, all while operating with a lean accounting team. Added to that, the month-end close process demands significant administrative effort and strategic work, stretching limited resources between manual, low-value tasks and high-value activities.
The good news is that acing the month-end close is rewarding: It enables organizations to ensure their financial statements are accurate, meet regulatory requirements and build trust among investors and stakeholders. However, failing to execute this process correctly exposes the company to myriad risks and potential consequences. Let’s find out what they are and how companies can overcome these challenges.
Errors may slip through the cracks.
One of the key components of the monthly activities is the balance sheet reconciliations. The immediate and tangible effect of inadequate balance sheet reconciliations is the increased likelihood of errors in financial statements. These inaccuracies can misrepresent a company’s financial health, which may cause investors and stakeholders to lose confidence in the reliability of the reported figures and could cause negative stock consequences.
Furthermore, given that regulatory bodies demand transparency and accuracy in financial reporting, not focusing on quality during the month-end close can result in noncompliance, fines, legal battles—and a damaged reputation that takes years to rebuild.
Implementing a standardized and rigorous reconciliation process plays an important role in safeguarding businesses against these errors and adverse outcomes. By meticulously comparing and verifying data across various accounts, companies can identify discrepancies in accounts before they escalate into bigger issues.
Inefficiencies can affect several aspects of the company.
Inefficiency is another consequence of a company with no standard process or low-quality balance sheet reconciliations. Without clear guidelines and streamlined procedures, the month-end close can become a chaotic and time-consuming process.
This inefficiency not only impacts the finance and accounting teams but also extends to other departments awaiting financial data for decision-making. Delays in financial reporting can hinder strategic planning and have a negative impact on a company’s ability to respond promptly to market changes.
What’s more, employees may experience decreased morale and job satisfaction due to the absence of standard processes and quality balance sheet reconciliations, reducing their overall productivity and commitment to the organization. And keep in mind that finance and accounting teams struggling with disorganized month-end closes are prone to stress and burnout.
Through automation, companies can reduce time spent on repetitive tasks like data entry, invoice processing and reconciliation, while also enhancing communication among various departments. This, in turn, allows accountants to redirect their focus toward more strategic tasks, fostering a more efficient and productive work environment.
Mistakes can lead to more exposure to fraudulent activities.
The lack of standard processes also heightens the risk of fraudulent activities within an organization, such as embezzlement or financial statement manipulation. When there’s a dearth of controls and oversight, unscrupulous individuals may exploit the situation to manipulate financial records for personal gain.
The solution again may lie in automated financial systems. These solutions harness the power of artificial intelligence (AI) and machine learning (ML) algorithms to enable organizations to receive regular updates from individuals, business clients or internal departments. This way, finance departments can establish a baseline for typical economic activities and detect fraud more easily.
There’s a better way.
The repercussions of having no standard process or low-quality of balance sheet reconciliations during the month-end close are far-reaching and can be detrimental to a company’s financial health and reputation.
Therefore, companies must establish standard procedures and practices to ensure the quality of balance sheet reconciliations during month-end closes. Implementing robust reconciliation procedures, embracing automation and technology and fostering a culture of accountability are crucial steps in achieving accurate financial reporting, boosting efficiency and reducing the risk of fraud.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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