Companies have been using ERP software systems to account for their financial transactions and create month-end financial statements for half a century. The activities that kept accountants tied to their desks at month-end have not fundamentally changed – making sure incoming and outgoing invoices have processed properly, matching expenses with revenues, preparing reports to let management know how profitable the company has been in the past weeks, calculating adjustments like depreciation and accruals, etc.
Creating financial statements involves performing a series of steps in a specific order – these procedures must be performed with a high standard of accuracy and accountability, so that the resulting financial statements will accurate and complete.
As companies grow, the number of people involved in this process also grew – and globalization means that the teams involved might be spread around timezones, across countries around the globe.
The ordering of the procedures required to create the financial statements and “close the books” is often documented in a schedule or spreadsheet. These schedules must be meticulously updated to account for weekends, holidays, and changing team members. And then the schedule has to be stored in a single place, accessible to all participants.
If a manager is interested in finding out exactly where the team stands in a particular closing, they must rely on team members marking certain procedures as being successfully completed. The team member must also then notify the next person in the sequence that they may begin their task. Any documentation or evidence related to specific procedures must also be stored in such a way that it will be accessible when the financial reports are analyzed by internal or external auditors.
If companies use ERP software to account for the debits and credits of business transactions, why not also use software to control the procedures needed at month end?
The entity closing process can benefit from many of the features modern software offers today:
- Standardization – teams want to follow a best practice, reusable approach each and every month – creating financial reports is not an exercise in creativity
- Automation –many of the procedures required can be triggered to work in ERP systems without any manual interaction
- Workflow – notifications sent to team members keep everyone on-task and consider holiday calendars and weekends
- Visibility – the closing schedule kept on a whiteboard is replaced by central status tracking available to everyone, regardless of location
And since most businesses have more than one ERP system, the importance of standardization, automation, workflow, and visibility across the enterprise is increasing as companies struggle to ensure their financial statements are complete and accurate.
SAP S/4HANA for advanced financial closing brings these qualities to the entity close.
The solution helps closing teams document their sequential tasks and procedures in a closing template; for the latest releases of SAP S/4HANA, there is content that describes the key tasks in accounting required to create financial statements, along with optimized sequencing and dependencies. Companies use this content as a starting point for the creation of their company-specific templates – adding additional steps and procedures as necessary.
Each task in the template includes the documentation of standard operating procedures for the step as well as the people responsible for the task, approval requirements, and timing. These tasks can be performed in one or more ERP systems – a template represents the holistic view of the close across the enterprise.
When it is time to start the closing process for a particular month or year, this template is used to generate tasks lists for the accountants and managers involved. The task lists use the relative key date and organizational hierarchy information to parameterize specific tasks, which means teams do not have to manually adjust task lists each month. The task lists generated will always reflect a repeatable, best practice approach.
Within the close, certain tasks have to be completed before subsequent tasks can be started – for example, settlement of assets under construction must be completed before the depreciation posting run can be started. The automated routines or jobs in the ERP system can be triggered by the solution – based on the successful completion of predecessor tasks. This means that many of the procedures required can be triggered to work in ERP systems without any manual interaction.
The accountant responsible for the task is presented the evidence of the performance of the routine in the context of their task list – and they can review related technical or business documentation.
As ERP systems continue to automate increasingly more tasks using machine learning or robotics processing, the orchestration of these automated routines and the links among them are critical. Also, storing the evidence of the performance of the automated tasks in their specific context becomes more important: accountants will remain responsible for the completeness and accuracy of the financial statements.
Many enterprises include automation rules in their task lists that monitor certain key performance indicators – either on an ongoing basis or at critical points in time within the close. Should there be a zero balance in a certain account at month-end? Does a 3% change in the balance of a certain account compared to the same month last period require further investigation? Once set-up, the powerful automation tools monitor these values and alert accountants when they need to take action.
Accountants look to systems to identify transactions that require their attention. They do not comb through tens of thousands of line items looking for work. Intelligent workflow keeps business processes moving forward, which is important since every day in a closing period is critical. The notifications sent by the system need to consider factory and holiday calendars, weekends and bank holidays, and even vacation or unexpected illness.
The accountant needs the system to trigger their actions, based on the completion of preceding steps, especially for manual tasks where they need to actively make postings or analyze transactions. Time in the accountant’s calendars needs to be reserved to avoid over planning. Direct links take the accountant from the notification to the application where they perform their task; they can always refer to the standard operating procedure documentation for instruction, and they have a single repository to file their evidence.
System-generated alerts resulting from automated monitoring tasks must be sent to the responsible accountants for follow-up and resolution. And the system needs to provide the right amount of information in the right context – a manager who is always traveling needs to be able to see key information on their mobile device, whereas some accountants can review dozens of transactions from within a single screen.
The largest problem with taking an offline schedule or spreadsheet approach to the complex web of closing procedures is knowing exactly which tasks have been performed and which are still outstanding. It is nearly impossible to achieve true visibility in a multi-ERP system landscape without taking a closing hub approach – with a standardized template approach that addresses your enterprise.
Managers need to know exactly where the teams stand – regardless of location or ERP system. Having online analytics, accessible to anyone with a web browser, will help keep your team on track. Performance of tasks along the critical path can be tracked, and collaboration tools help teams focus their attention on areas with errors or delays.
SAP S/4HANA Cloud for advanced financial closing takes a hub approach that helps teams standardize and automate their closing procedures, using workflow and improving visibility to ensure your team is on track.
A true Cloud implementation experience:
Because of the benefits of automation and visibility, it is often complex enterprises with finance teams spread across multiple locations that need software orchestration of their entity close. Rather than choose any one existing system to host the control center for the close, this hub approach uses a lightweight, cloud-based application to trigger and report on closing procedures in the connected accounting systems. This hub approach is a complement to any landscape – regardless of where the ERP data resides – in an on premise system, or a hosted or public cloud environment. The ERP data required for the entity close is not duplicated or persisted into a cloud; the company-specific transaction details remain in the existing ERP landscape. SAP systems in your landscape will be connected to the closing solution using the SAP Cloud Connector technology to establish and maintain a secure connection.
Many details from the linked accounting systems then are used in the closing context. For example, organizational structures or factory calendars active in the accounting system will be used in the hub’s closing template. Customer-defined reports running in on premise S/4HANA systems can be registered for closing orchestration, so that they can be scheduled and triggered from the hub.
Customers can configure the hub to meet their company’s requirements. For example, strict segregation of duties can be enforced, requiring that the accountant that performs a procedure is not the person ultimately responsible for the task. Approval comments can be made mandatory. Authorization groups can be configured to allow local accounting managers some control of local procedures. Data privacy configurations control the usage and storage of real names in the system. Reporting settings determine the mapping of countries to regions for analysis views. Finally, notification triggers, frequency and type (email, etc) can be configured.
This powerful solution can be adopted by finance teams at any time – technical implementation is a matter of days, not weeks or months as was the case with legacy solutions. The finance team can use the delivered closing content to accelerate the business implementation of the project – the heart of which is the definition of the closing template.
With multiple releases per year, the functionality is always kept up to date. As automation increases in underlying SAP S/4HANA systems, these new capabilities will be accessible within the closing context – e.g. additional robots made available will be schedulable from the closing hub.
SAP is dedicated to delivering enterprise-ready processes. The hub is available in more than 20 languages and ready to support global closing initiatives across systems and charts of account.