Companies must sustain and improve remote closing as pandemic goes on
Leaders should consider ways to enhance the remote close process
INSIGHT ARTICLE |
The COVID-19 pandemic required companies to adjust rapidly; they suddenly found it necessary to conduct their financial close remotely, and in many cases, this led to hastily adopting inefficient processes. Many labored to make it through the first and second cycles, but with work-from-home environments continuing for an undetermined amount of time, a framework must be established to make the close process more repeatable and sustainable remotely—and even possibly pick up some leading practices along the way.
For most, the first remote financial close was simply about figuring out how to replicate a typical close in a distributed environment. Overall, companies handled the shift to a remote close fairly well, but often at the sacrifice of long hours, trial and error, and many headaches—not an ideal way to operate for at least a few more months. As we continue to navigate uncharted waters during the pandemic, a defined, sustainable remote close process has quickly become a necessity.
Learning from the initial remote close
As expected, the first remote close posed a host of challenges for many companies—and hopefully, a few improvements were made the second time around. However, lingering challenges and issues should be addressed to ensure a smoother process moving forward—and of course, new challenges continue to appear within this ever-changing environment.
Many companies have encountered obstacles accessing necessary data and systems: obtaining VPN access; issuing laptops to more of the workforce; dealing with upstream and downstream interruptions of data flow, etc. In many cases, organizations experienced trouble collecting information from third parties whose businesses also faced interruptions. Departments and partnering companies must work together to reach an understanding and a common strategy to share information.
In addition, companies faced communication challenges and control breakdowns due to the unfamiliar remote close process. Many organizations still relied on physically maintaining documents in binders, filing cabinets and evidencing approvals via physical signatures before the pandemic. In conversations with clients, we have found many did not realize how much they counted on human interaction until they no longer had that ability; walking down to someone’s office to alleviate a bottleneck or quickly resolving an issue became impossible. By losing that direct connectivity, many initially struggled to develop a new virtual framework.
Beyond developing a new communication structure, audit and compliance also need to be considered. You must be cognizant of reviews that may now occur on video rather than in person. Screen shots may now provide necessary evidence of approvals and reviews. You should work with internal audit, external audit and regulatory bodies sooner rather than later to confirm that new remote processes meet expectations and demands. Experts agree, we will eventually have COVID-19 in the rearview mirror. When that time comes, you do not want to face significant deficiencies or material weaknesses because of a changed process.
Furthermore, with a constantly evolving environment because of the pandemic, many companies are struggling to interpret government assistance programs under the Coronavirus Aid, Relief and Economic Security Act and appropriate treatment of unprecedented items, including subsequent events, fair value considerations and triggering events, just to name a few. In many cases, you may question where to start in a process or to whom you should turn for advice. It is a challenge to work through these new, complex situations by yourself, and it’s often best to reach out to a trusted advisor with a network of resources for assistance. We are all in this together.
Many organizations may feel it is too late to fundamentally adjust their remote close process. However, many improvements can be implemented incrementally to improve efficiency in the short term, and lay the groundwork for further improvement in coming months. Many technology vendors are offering promotions, some of which can even be integrated within a matter of weeks. Experts in the area of close improvement have quickly developed offerings specifically to address the challenges of COVID-19, and we have seen many success stories already.
Considerations to enhance your remote close process
Coordination of close activities quickly became more difficult when the pandemic hit, not only because the people performing the close were remote, but also because many of those same people were juggling home life and professional life. Consider identifying a remote close coordinator to oversee the elements, logistics and structure for the close.
You can be creative with this selection, as it does not necessarily have to be someone from accounting. Consider company members whose duties are now significantly reduced because the office is closed, but with the skill set to assist in scheduling meetings, setting up video conferences, obtaining the status of certain tasks, etc. Assigning a coordinator to handle the administration of close activities allows for accounting and finance professionals to focus on completing essential tasks and continuing as value-added partners to the business.
Much like the traditional close process, consistency is key. Accounting and finance professionals have more requests than ever because businesses are trying to adapt by adjusting forecasts, looking at liquidity and reforecasting the business based on constantly unfolding events. These departments must have a proactive, scheduled communication strategy to distribute information, not only internally, but also outside the business, regarding the plan for adjusting the forecast and budgets, in addition to the usual communication cadence of financial performance.
An established meeting rhythm is also important for remote financial close success. Instead of the normal schedule of walking down the hall to initiate reviews and approvals, your company should create a structured cadence for virtual events mirroring activities people would commonly perform in person during the close. A defined schedule allows people to plan activities and avoids the “hurry up and wait” scenario we so commonly experience during close.
Technology has also become a critical facet of the remote workforce, and you should continue to evaluate how solutions may streamline the close process. Perhaps your company has already used video conferencing capabilities; but with a variety of options, a better platform may be available. In addition, you should consider a cloud storage strategy to efficiently share information and collaborate. If you have not already invested in a close-improvement technology solution, now is the time.
Another key strategy for improving the financial close—and especially a fully remote one—is shifting to a more risk-based approach. Revisit your materiality thresholds, because they may have changed due to disruptions in the business; now may not be the time for perfection.
While you still want to close the books completely and accurately, it is a good time to take a hard look at what you are spending time chasing. Ticking and tying every penny just simply is not a day-two activity, and it may not be worth the time to chase something immaterial at this point. Instead, focus on the important items, close the books and use the time before the next close to work on immaterial items. A risk-based approach is a great idea in nonpandemic times, but it’s an even more important consideration now.
Also, consider shifting some key entries to accruals based on historic data and common sense. Many companies already leverage accruals, and placing a heavier reliance on this method could provide more time or let you avoid waiting on data that may take even longer than normal to obtain. Estimates based on business knowledge and historical data can provide a reliable picture of financial performance rather than dragging out a close in an attempt at perfection.
After reviewing lessons learned and taking ways to improve a distributed close into consideration, decide on a path forward and create a plan of how to get there. Even small improvements can add up to a sustainable process while navigating a global pandemic.
Do not forget to allow yourself and your team some grace. Reminding your team that this too shall pass, maintaining a team spirit and supporting each other will go a long way. Do not forget to inject a little fun to keep the tone positive; a quick online trivia round to kick off a close meeting may provide a much-needed moment of levity. Seeing children or pets wander in on video chats can bring a smile to the entire team, so embrace the blending of home and professional surroundings while getting the books closed at the same time.
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This week's topics include: financial reporting during the COVID-19 pandemic, key factors for remote financial close, internal audit prep.
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