Month-end close can often feel overwhelming. You have to reconcile all your transactions, find mistakes and make sure every number adds up. This process can be time-consuming and stressful, but there’s a silver lining: using best practices and automation can really help simplify things.
In this article, we’ll break down what month-end close is, what makes it challenging and prone to mistakes and how automation can make it all a lot easier.
What Is Month-End Close?
Month-end close is the process enterprises use to wrap up their financial records at the end of each month. They go over all the transactions, fix any mistakes and make sure everything adds up correctly.
Month-end close is important because it shows you how well you performed that month. It helps catch any mistakes early and gives a clear picture of money coming in and going out. That way, the enterprise can make better decisions and plan for the next month.
Step-by-Step Month-End Close Process
Here is how the month-end closing process works:
- Prepare for the close: Before you start, gather all the financial info and double-check that every transaction is recorded right. Having a clear plan for the team helps keep things on track.
- Record transactions and reconcile accounts: Once you have all the data, record each transaction carefully. Then, match up your book numbers with bank or other external statements to catch any mistakes.
- Review financial statements: Next, review the financial statements to make sure everything looks correct. If you find any errors from the earlier checks, fix them now.
- Adjust entries and finalise the close: Sometimes, you need to adjust for things like expenses or income that haven’t been fully recorded yet. After making these changes, finish up the close and lock the records so nothing can be changed afterwards.
- Do a final report: Finally, put together the financial reports and make sure they meet all the rules. This gives everyone a clear and accurate picture of how things went for the month.
Common Challenges in Month-End Close
Month-end closing is a straightforward process, yet errors can happen for various reasons. Let’s take a look at some challenges that make the month-end close difficult for enterprises:
1. Close Schedule and Tasks
Even though defining the process of the month-end close is essential, many enterprises struggle to implement this, relying instead on past experiences and outdated approaches to organise their work. There are several risks and consequences associated with the lack of a month-end closing process:
- Lack of control: Without defined tasks, there is no way to track who is responsible for each task or when it will be completed.
- Limited opportunities to improve: Without a defined month-end close, it’s impossible to tell if the processes are working. This also makes it more difficult to tell what works and what doesn’t.
- Late reporting: A poorly defined process usually correlates with late reporting. Organisations might be consistent with the timing of month-end close yet deliver reports to the business management much later than is potentially possible.
- Audit compliance failure: Without a clear process and defined responsibilities, enterprises can fail to meet audit requirements. This can lead to difficulties in tracking transactions, incomplete documentation and failure to demonstrate proper controls.
Solution
Instead of relying on shared spreadsheets and emails, organisations can streamline the month-end close process with intelligent close management tools. Aico’s Closing Task Manager uses configurable task templates that are run at set intervals.
These templates include key details like task name, description, company, close period, priority, risk, preparer name, due date, dependencies and approval workflows. By using this software, teams no longer need to track tasks manually and due dates; they can complete their tasks efficiently and monitor progress in real time.
2. Segregation of Duties
Without clear segregation of duties during the month-end close, accountants may face undue workloads, and compliance risks increase. Lack of segregation of duties can also pose risks to an organisation’s finances.
To illustrate this, let’s look at the manual journal entries, which accountants prepare, approve and post in the ERP system. For example, when one individual handles all aspects of journal entries, there’s an increased risk of errors or inappropriate postings. Having clearly defined duties and approval rights minimises risks and contributes to an audit-compliant close.
Solution
Define duties within the team with smart workflows. Intelligent process automation tools designed specifically for finance have to be highly configurable so that organisations can define their preferred workflows. For example, Aico’s manual journal entry management solution offers a role-based authorisation model. It means that you can predefine who can create different types of journals, what kind of approvals they need and who can transfer journals to your ERP systems.
3. Supporting Evidence
Compliance and audit go hand in hand and often result in headaches and stress for many accountants. It is easier to perform the month-end close in a compliant manner once rather than add missing documents when the audit comes.
Another significant pain point during the month-end close is ensuring that all manual journal entries are supported with appropriate documentation. Having the correct supporting evidence in place ahead of time reduces the stress of scrambling to find documents when the audit comes.
Solution
Enforce mandatory supporting evidence attachment. Implementing process automation tools like Aico, which is developed specifically for financial close purposes, allows organisations to define what kind of transactions require supporting evidence and enforce the attachment of documents systematically.
4. Back-Up Documentation
Digital back-up document archiving is an excellent example of compliance contributing to the speed and timeliness of the close process rather than making it troublesome. Physical document archiving has a significant impact on costs and the pace of both close and auditing.
Not only do materials have to be printed out, checked for accuracy and approved by appointed individuals (who sometimes might be in different locations), but there also has to be a control mechanism ensuring the documents are archived correctly. A flawed document archiving process will result in compliance violations and increase the time spent on auditing and ultimately, also the costs.
Solution
Automate backup document archiving. An intelligent finance automation tool like Aico ensures that archiving is done when, for example, a journal is approved and posted in the ERP system. All transactions recorded in journals are saved in a format that makes permanent archiving easy. Archived documents can be viewed from Aico, but additionally, a PDF version of each journal is created to meet legislative compliance requirements. Auditors can access digital archives remotely and review transactions and associated supporting evidence.
Automate Month-End Close with Aico
Aico helps mid to large-size companies deliver their financial close process up to 50% faster. Our solution is a ready-made intelligent process automation platform to manage key financial close processes like close task management, account reconciliation and journal entries.
Book a live demo to find out how Aico can help transform your financial close:
