The general accounting process is a core transactional process within the finance function, involving maintaining the chart of accounts; processing journal entries, allocations, and adjustments; conducting reconciliations, consolidations, and eliminations; and finally, preparing trial balances and closing the books at the period end. For smaller organizations, this vital process may not be too cumbersome or resource-intensive, but for larger, distributed organizations with many different business units or subsidiaries, this process can be very complex and resource laden. Leading organizations continuously work to streamline, standardize, and automate the general accounting processes and associated activities as much as possible, so that the work that remains is uniquely suited to the talents and skills the of the finance professionals and accountants working in this area.
What drives performance in general accounting? APQC recently conducted an analysis of its Open Standards Benchmarking (OSB) General Accounting and Financial Reporting Benchmarking® dataset to better understand performance drivers associated with top Key Performance Indicator (KPI) performance in general accounting, and found the following practices are associated with better KPI performance:
- Centralizing and streamlining general accounting processes―A critical part of financial management strategy is how the organization elects to structure the delivery of the processes in order to best support the needs of the business and other key stakeholders. Shared services are created by combining common or repetitive processes from multiple business units and centralizing them into one location, which is the shared services center. According to the OSB general accounting data, slightly less than 20 percent of survey respondents leverage shared services (e.g., serve as a shared services center or rely on a shared services center) for general accounting. Yet an analysis of the data found that the shared services delivery model for general accounting was associated with several key benefits, including a faster cycle time and fewer errors. Participants who indicated that they serve or rely on a shared services center for general accounting reported performing the annual close significantly faster and noted significantly fewer errors in the processing of journal entry line items than survey participants reporting a self-supporting role or relying on other business units for general accounting.
- Instituting strong data governance―Ensuring consistent and clean data in general accounting is of paramount importance in order to facilitate an accurate representation of an organization’s financial transactions. This includes finance data definitions and the underlying Chart of Accounts (COA). A little more than half of survey participants in APQC’s OSB General Accounting assessment have extensively achieved common finance data definitions and data governance, and about two-thirds of survey participants have extensively implemented a standard COA. An analysis of the data shows that organizations that more extensively implement common finance data definitions and data governance generally reported significantly better cycle time and efficiency KPIs than organizations that do not. Similarly, organizations that have more extensively implemented a standard COA reported that they perform the annual close significantly faster and reported significantly fewer errors in journal entry line item processing.
- Standardizing accounting processes and assigning process ownership―Process standardization is a critical driver of performance, and often a prerequisite to successful automation. End-to-end process management and global process ownership frequently go hand in hand with shared services implementation. A little more than half of survey respondents in APQC’s General Accounting and Financial Reporting OSB assessment have extensively achieved standard, common finance processes and about 44 percent extensively adhere to strict process ownership in finance. An analysis of the data shows that process standardization and leveraging global process owners can potentially pay off in terms of general accounting KPIs: Survey respondents that have more extensively standardized common finance processes also reported that they are significantly faster at completing the monthly consolidation of financial statements and the annual close; they also have significantly fewer errors in journal entry line item processing. Similarly, survey respondents that more extensively leverage global process ownership for finance perform the annual close significantly faster and have significantly fewer errors in journal entry line item processing.
- Performing pre-close activities/Striving for a continuous close―The month-end close at many organizations is a frenzy of activity, frequently involving overtime for those finance and accounting professionals involved in this process as they manually enter, gather, collate, and analyze data. In addition to the added stress at each month’s close, finance professionals spend countless hours on routine data collection and much less time critically analyzing the data, especially if they are pulling data from disparate sources or spreadsheets. Leading organizations, on the other hand, endeavor to even out the work throughout the month where possible. Advances in automation and cloud technology now allow organizations both large and small to practice “continuous accounting,” which facilitates access to financial data and analyses in near or real time. The good news is that, according to APQC’s OSB data in General Accounting, most survey participants report that they perform at least some pre-close activities before the accounting period ends. And an analysis of the data shows that survey participants which perform pre-close activities reported significantly fewer general accounting FTEs per $1 billion revenue and significantly lower general accounting process cost per $1,000 revenue than other organizations.
- Automating and integrating accounting processes and systems―While automation is a key enabler of finance process performance, APQC recommends that organizations focus first on understanding, standardizing, and streamlining their processes in order to maximize the return on their automation efforts. According to APQC’s OSB data in General Accounting, most survey participants are leveraging a commercial ERP of some sort as their primary system for general accounting. Cloud-based tools are becoming more and more affordable and accessible to organizations of all sizes for finance, and most survey participants are taking advantage of these tools for general accounting: 58% of survey participants said that they are currently leveraging the cloud as their software delivery method for general accounting and reporting. There is no question that manual data entry in any process introduces the possibility for error. Assuming quality underlying data, automated feeds from integrated systems can greatly reduce the number of errors while facilitating more efficiency and effectiveness for the process. APQC’s OSB data in General Accounting shows that more than half of journal entry line items for top-performing organizations are directly linked from an internal or external system, and/or are automated and recurring. Automation is associated with many better KPI results in general accounting. For example, an analysis of APQC’s OSB data in General Accounting shows that organizations that reported a high percentage of journal entry line items directly linked from an internal or external system reported completing the monthly consolidated financial statements significantly faster, with significantly fewer general accounting FTEs per $1 billion revenue, and significantly lower general accounting process cost per $1,000 revenue. Similarly, organizations that reported a higher percentage of journal entry line items that are automated/recurring perform the annual close significantly faster and incur significantly fewer errors in journal entry line item processing.
- Leveraging emerging tools and technologies for general accounting―Emerging tools and technologies for general accounting include Robotic Process Automation (RPA), cognitive computing, and blockchain.
Robotic Process Automation (RPA) is server-based and combines process steps with decision models or business rules with little to no human oversight. According to APQC’s OSB assessment in General Accounting, a little more than half of survey participants currently use RPA for portions of the general accounting process to at least some extent, with most of the remainder of survey participants planning to adopt RPA for portions of the general accounting process. An analysis of the data shows that survey participants that currently use RPA for general accounting reported significantly fewer general accounting FTEs and process cost.
Cognitive computing is an emerging technology for finance that involves self-learning computer systems that use data mining and machine learning to simulate human thought processes. According to APQC’s OSB assessment in General Accounting, about 40 percent of survey participants are either rolling out or have fully implemented cognitive capabilities across the finance organization for finance cost optimization, and another 30 percent are piloting this technology. And an analysis of APQC’s data shows that survey participants that have either rolled out or fully implemented cognitive capabilities for finance operations cost optimization reported multiple general accounting KPIs that had significantly better performance than survey participants that have not implemented cognitive capabilities.
Finally, blockchains consist of a peer-to-peer distributed ledger architecture that makes it easier to create cost-efficient business networks where virtually anything of value can be tracked and traded without requiring a central point of control. APQC’s OSB assessment in General Accounting shows that 58% of survey participants report currently leveraging blockchain in general accounting and financial reporting to at least some extent. According to an analysis of APQC’s data, the use of blockchain is associated with many potential advantages in terms of KPI performance. For example, survey participants that report at least some work enabled by blockchain reported completing the monthly consolidated financial statement significantly faster, reported a significantly lower number of general accounting FTEs, and reported significantly lower process cost than other survey participants.
Accountants and finance professionals are under more pressure than ever to work faster with increasingly large and complex sets of data and to do so at lower cost and with fewer errors. The good news is that the wide availability and accessibility of technologies like cloud-based automation, RPA, and cognitive computing have made the work of accounting far more manageable, efficient, and effective. Rather than spending all of their time gathering, collating, validating, reconciling, and analyzing financial data, accountants at leading organizations focus on centralizing service delivery, standardizing and integrating end-to-end processes, and leveraging automation to the fullest in order to focus on more value-added forms of work and to perform general accounting more effectively.