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CPA on Continuous Accounting VS Month-End Close

As A CPA my clients ask:

“How do CPA perform continuous accounting and how does it actually work?” “What’s the difference between continuous accounting and month-end closing?”

Stopping the madness to close the books each month is within reach for most companies. As a CPA I encourage clients learn how continuous accounting actually works. This piece will help highlight the main areas clients should look into.

Continuous accounting is a measured and balanced alternative to compressing a month’s (or more) worth of accounting tasks to close the books into a few days at the end of the month, quarter, or year by your CPA. Rather, the work to perform such closing tasks is conducted incrementally by your CPA during the month, quarter, and year.

The benefits include a reduction in the pile-up of accounting work and the stress this causes; lower risk of financial irregularities; and an earlier opportunity for financial planning & analysis to deliver the business forecast.

Let’s start with today’s inefficient workload procedures. As part of their bookkeeping, a CPA in a midsize and larger companies manually sift through thousands of spreadsheets generated by different systems. Without an automated system, it’s an uphill climb to methodically tick and tie the ledgers to confirm that every item is accounted for and properly connected to related items. This confirmation process is therefore pushed off to the end of the month, quarter, or year.

Another inefficiency derives from batch processing. When digital documents replaced paper-based accounting records, technological limitations caused the accounting work to be stored up during working hours and executed when computer systems were offline. As the volume of data expanded, the process took more time to run. Ultimately, the system was not ready to use when your CPA requires its use. Again, the solution was to push off the work.

What’s wrong here? Top-notch CPA and accounting talent is underutilized during non-peak periods and overworked during the peak period. To alleviate some of the workload, most CPA firms hire temp workers that eat up the budget.

These many inadequacies and the pains they inflicted — from burned-out CPA and pointless costs to an increased risk of errors, out-of-date results, and zero time for analysis — raise the obvious question: “What if we could account for the business at close at the speed of transactions?”

Well, the answer is, you can.

And Here’s How

The first thing to do is to rethink the internal paradigm of accounting, adjusting the mindset to consider the F&A process as one of continuous improvement. The goal is to optimize the accounting process one task at a time, then rinse and repeat. By building automation and accuracy into the accounting process, a CPA eliminates the time wasted performing redundant exercises and fixing errors. In this voyage, automated technology is a tool to achieve the ends; it is not the beginning of the journey.

Great things are possible once a philosophy of continuous accounting is in place. Instead of bringing up all the data in one batch process as before, the batch is split up into a series of smaller tasks. Tasks are scheduled as early in the accounting process as possible and embedded within the everyday workflow of the CPA. By breaking the tasks into smaller pieces, the completion of these elements becomes routine, a process that takes its cue from agile software development. Tasks are automated where possible and standardized elsewhere.

The last step is to monitor the effectiveness of these process efficiency improvements through predictive analytics, measuring the time it takes to close the books, the total costs per full-time F&A employee, and the average number of days for a CPA to complete a selected assignment.

Continuous Accounting in Action

Sounds all well and good, but readers have asked for “actual examples.” Let’s apply the above steps to a particular F&A task — account reconciliations.

The current state of many finance organizations is to perform the reconciliations at the end of the month, reducing the opportunity to conduct proactive analysis before then. The alternative is to split the batch process into smaller tasks, such as the daily reconciliation of key accounts. To perform this task earlier, scheduled end-of-month reconciliations are shifted to event-based reconciliations, i.e., as they occur. Automation is used to automatically reconcile the key accounts and match these transactions. CPA are now in the position to investigate anomalies associated with these reconciliations throughout the month, minimizing the period-end rush.

Let’s apply continuous accounting to another routine F&A task — intercompany accounting, the process of balancing the accounts between two different company branches to bring the balances to zero in the general ledger. The current state in most F&A organizations is to wait until the books are closed and entries are booked by these different entities before performing the task. Since the time it takes to record the transactions varies by entity, there’s no time to react to possible discrepancies, culminating in a rushed review at the period-end.

By dividing the batch process into smaller tasks, intercompany transactions can be recorded and approved on each entity’s books in real-time throughout the period. The task no longer waits until the end of the month, quarter, or year, as it is embedded along with the proper controls into daily workflows for automatic approval. By automating this process, a CPA is freed to focus on value-added services to the CFO.

As you can see, continuous accounting is a philosophical approach, not simply a technological one. Only by first analyzing the current state of F&A can a vastly more efficient future state be designed, followed by its development and continuous improvement.

About 

Gustavo A Viera is the managing partner of Gustavo A Viera, PA. His experience spans more than 25 years. He started his career in public accounting at PriceWaterHouseCoopers where reached the level senior audit manager. His Fortune 500 experience includes positions as CFO – Latin America Region for both Hewlett Packard and Telefonica of Spain. Gustavo also writes a blog twice a week that addresses trending accounting and tax issues. He is an SBA Advisor and teaches workshops for aspiring entrepreneurs. His office is located at One Alhambra Plaza Floor PH Coral Gables FL 33134, and is admitted to practice in the State of Florida as a licensed Certified Public Accountant. Gus welcomes questions and he can be reached at 786-250-4450.

About the Author

Gustavo VieraGustavo A Viera is the managing partner of Gustavo A Viera, PA. His experience spans more than 25 years. He started his career in public accounting at PriceWaterHouseCoopers where reached the level senior audit manager. His Fortune 500 experience includes positions as CFO - Latin America Region for both Hewlett Packard and Telefonica of Spain. Gustavo also writes a blog twice a week that addresses trending accounting and tax issues. He is an SBA Advisor and teaches workshops for aspiring entrepreneurs. His office is located at One Alhambra Plaza Floor PH Coral Gables FL 33134, and is admitted to practice in the State of Florida as a licensed Certified Public Accountant. Gus welcomes questions and he can be reached at 786-250-4450.View all posts by Gustavo Viera →

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