Metric analysis

The best organizations publish consolidated financial statements in 4 days: indicator of the month

Consolidated financial statements allow organizations with a parent company and subordinate reporting units (for example, subsidiaries, regional operations, or multiple locations) to present their finances as one enterprise to creditors, investors, operational managers, and other stakeholders. Preparing these statements can be a complicated undertaking, but completing them in a timely manner is essential.

The cycle time in days to complete the monthly consolidated financial statements measures the number of calendar days (including weekends) that elapse between the execution of the initial monthly trial balance of the business entity and the completion of the agreed monthly consolidated financial statements of the business entity. Finance managers should track their company’s performance on this metric to ensure that the process of creating consolidated statements is optimized for accurate and timely reporting.

APQC data because this measure shows that the fastest organizations (i.e. those at the 25th percentile) are able to complete regular consolidated financial statements in four days, while the slowest organizations (those at the 75th percentile) have said to take more than twice as long — 10 days. (See table below.)

The risks of slow performance

Organizations that take too long to complete their monthly consolidated financial statements run the risk of missing key opportunities for analysis and problem solving. Even if finance discovers significant issues in the previous month’s statements, line managers won’t have much time to fix them the following month if they don’t receive the statements in a timely manner. It’s easy to see how the damage can get worse month by month as teams scramble to fix issues that should have been discovered earlier.

Meeting deadlines is important, but organizations also take risks when they work too quickly. Given too little time, line managers will struggle to complete their accruals, deferrals, adjustments, or other key accounting entries. The resulting consolidated financial statements will not present a true and fair view of the business.

The optimal cycle time for a business will depend on factors such as its size, industry, and complexity. For this reason, APQC recommends evaluating performance internally, within your industry, and against organizations of a similar size. Benchmarking from these different perspectives helps provide a more holistic picture of financial performance.

How to improve

Excessive use of spreadsheets, manual touchpoints in the process, and human error all increase cycle times for completing monthly consolidated financial statements. The good news is that there are proven strategies to improve the process and reduce cycle times. Here are three of the most effective strategies.

1. Centralize reporting and the chart of accounts

Part of the challenge of achieving monthly consolidated financial statements is that large, globally distributed companies typically operate multiple general ledgers and financial planning systems. While there is no way around region-specific compliance requirements, a company should aim to standardize and centralize the reporting process as much as possible, especially with respect to the chart of accounts (COA) . A lack of COA standardization and centralization means that reporting will take longer, especially if different business units are continually adding new accounts to their COA.

Having strong COA governance structures in place will not only help prevent the unnecessary proliferation of GL accounts, but it will also:

  • establish standards for key data elements to ensure consistency and continuity;

  • determine the deadlines for setting up or modifying the COA; and

  • allow for holistic thinking about how exceptions will be handled.

2. Take advantage of built-in technology

Manual approaches to data collection and lack of integration between systems result in longer cycle times for the completion of consolidated financial statements. Simplifying data collection with cloud-based tools addresses both of these concerns.

Cloud-based ERP tools provide visibility across an entire business and hold each individual and department accountable for any delays in financial statement preparation. These tools automatically update and share financial data across multiple systems. This helps avoid the kinds of errors and delays that occur when finance teams manually prepare financial statements. Implementing cloud-based ERP tools requires a commitment of time and resources, but it’s worth it considering the benefits.

3. Train and empower people

Before asking finance teams to achieve faster cycle times, work with them to better understand how much time they actually need. Also, ask if anything could be causing process delays. While it’s important to complete the statements in a timely manner, it’s also important to give the teams enough time to get the job done so that the financial statements don’t contain missing or incomplete information. To ensure greater consistency and standardization, provide training and resources such as office guides that explain how the job should be done.

Perry D. Wiggins, CPA, is Chief Financial Officer, Secretary and Treasurer of APQCa nonprofit benchmarking and best practices research organization based in Houston.