9 Red Flags to Assess Your Financial Close Processes
Often used as an early warning sign, red flags can proactively assess the risk of re-work, financial restatements, and fraud throughout your financial close process.
These red flags often occur throughout your financial close due to the utilization of desktop applications that lack automation, audit trails, and integration, forcing increased manual interaction throughout your processes. Unfortunately, this increases the complexity and makes it difficult for companies to have clear visibility into their financial close.
9 Signs Your Financial Close May Be in Trouble
1. Overreliance on Spreadsheets
Businesses have come to rely upon spreadsheets so heavily that they lose sight of the original purpose of the spreadsheet and begin to make decisions based on erroneous data.
2. Lack of Standardization
The second red flag your organization needs to be aware of is a lack of standardization and consistency across the financial close process.
3. Multiple Late Adjustments
Does your team encounter frequent surprises at month end? If so, you’re not alone. For many accounting and finance professionals, manual journal entries continue to be a bottleneck in the financial close process.
4. Inaccurate Data
Multiple studies have shown that nearly 90% of all spreadsheets contain at least one material mistake, and most often, organizations are not even aware of these errors until it is too late.
5. Lack of Visibility
The fifth red flag is a lack of visibility into the status of the close. In many organizations, team members, especially management, have difficulty determining and quickly viewing the status of tasks, risk factors, bottlenecks, and more.
6. Lengthy Close Process
The sixth red flag is a lengthy closing cycle. For example, in terms of the reconciliation process — a key function in the financial close process — you tend to spend most of your time simply gathering data before you can even begin to think about reconciling it.
7. High Costs from Labor and Audit Fees
The seventh red flag is high costs. These costs can stem from several things but most often are attributed to increased labor costs and audit fees due to the high volume of manual processes.
8. Changing Workforce
The eighth red flag you should be aware of is a changing workforce. Transaction volumes and account numbers are constantly growing as revenues increase and organizations become larger and more complex.
9. Lack of Confidence in Period-End Numbers
According to a recent report by EY, “almost half of CFOs are not even confident in their financial compliance.” And this leads us to our ninth red flag – a lack of confidence in the integrity of the period-end numbers.
The following eBook explores the top nine financial red flags you need to know to proactively assess risk in your financial close and how other finance and accounting organizations have addressed these risks by investing in automation.