A Step-by-Step Guide to

Building a Financial
Close Process
Acceleration Roadmap

Giovanni Perone
PwC

Copyright 2013
Wellesley Information Services, Inc.
All rights reserved.
Disclaimer

PwC is pleased to offer this educational presentation regarding

multi-national companies and their use of the SAP General Ledger.

Certain matters that will be discussed today represent services that

PwC may be prohibited from providing to our audit clients. In those
instances, the information is being provided to inform you of options
as you assess your companys approach to tools such as SAP G/L.
Independence rules are complex and we recommend discussing all
services in advance to ensure they are designed within the context
of independence rules.

Thank you for joining us today.

1
In This Session

What is driving the closing process for businesses?

Findings from PwCs third annual financial benchmark study
Finance Maturity Model
PwCs SAP SmartClose approach
Tools to accelerate the close
Releasing the value of people, process, and technology
Understanding business benefits of SAP General Ledger (New
G/L) functionalities
Build a sustainable business case for SAP General Ledger

2
What Well Cover

Understanding the context and driving forces for more efficient

reporting and closes
Putting your business on the front foot
Closing the books: Tips, techniques, and best practices
Exploring SAP functionality to accelerate the close process
Taking a look at a use case scenario
Wrap-up

3
Context Root Cause

Multiple competing reporting requirements

Todays world: Many public and private businesses must fulfill
multiple complicated financial reporting packages
Required by different regulating bodies at different reporting
deadlines
A process that is being repeated on a periodic basis (monthly,
quarterly, and yearly)
This requirement is paired with managements demand for
meaningful insight on corporate financial information tied to
figures presented at close

4
Context Reaction

Constant struggle
Consequence: Finance function is in a constant struggle to
achieve goals by aligning close process between reporting
units and corporate consolidated financial statements
And balancing competing internal and external reporting
requirements
Often, only limited time available to analyze and decide how to
leverage technology to facilitate the close process by
automating time-consuming accounting activities
Results: Requirements and time constraints, leading to
mushrooming of auxiliary spreadsheets outside SAP systems
These spreadsheets are used to produce the financial close
and related analysis
5
Context Solution

Remediation
In this session, we are going to discuss how to replace the
spreadsheets with SAP functions to bring back accounting in
your SAP system

6
External Driving Forces

Companies are continuously asked to provide higher quality

information faster and more efficiently
Converging financial reporting standards from FASB and IASB
are evolving and not clear
For example: IFRS 4, IFRS 8, IFRS 9, impact of IFRS 10, 11,
and 12 with IAS 27, leasing deliberations, and revenue
recognition project underway
Higher expectations of transparency from banks, venture
capital firms, and other financing sources
Increased scrutiny from the investment community, with larger
penalties for restatements and/or material weaknesses
Accelerated deadlines for certified results, and greater
complexities associated with multi-GAAP reporting
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Internal Driving Forces

Executives are seeking greater insight, rapidly and on demand

Greater need from the business to provide critical decision
support with timely and accurate analysis
Demand for automation and integration within financial
systems for tax, management, and operational reporting
Increased responsibilities beyond traditional components of
corporate reporting, including planning, budgeting and
forecasting, and business analytics
Expectation to deliver insight into how to interpret data to drive
decision making and improved performance

8
Driving Force Cost Pressure

Companies continue to face cost pressures for competitive and

economic reasons
Cost reduction

Executives looking to maintain profit margins demanding

better value for the money from finance functions (direct
EBIT impact)
Quality and controls

Pressure to do more with fewer resources without

compromising accuracy and control continues
Adverse influence

Significant overtime, higher turnover, and increased resource

replacement costs
9
What Well Cover

Understanding the context and driving forces for more efficient

reporting and closes
Putting your business on the front foot
Closing the books: Tips, techniques, and best practices
Exploring SAP functionality to accelerate the close process
Taking a look at a use case scenario
Wrap-up

10
Putting Your Business on the Front Foot

Overview
Typical finance functions operate at over 40% higher cost than
top quartile performers (previous year 60%)
Top performers spend less, while sustaining high levels of
insight, control, and efficiency
2012 showed an increase of 7% in finance efforts for insights

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Putting Your Business on the Front Foot
(cont.)
Overview (cont.)
Around 60% of participants still rely on manual spreadsheet
manipulation for reporting
Only around 30% of participants have a formalized strategy to
align technology to business needs

12
Putting Your Business on the Front Foot
(cont.)
Insight
Top performing finance teams take just seven days to produce
their forecasts. The typical function needs 19 days.

13
Putting Your Business on the Front Foot
(cont.)
Efficiency
Leading finance teams employ nearly 40% more people in
business partnering roles
And pay around 25% more than typical functions to help attract
quality professionals

14
Putting Your Business on the Front Foot
(cont.)
Controls
Leading finance teams have automated 70% more of their key
controls than typical functions

15
Interpretation

Tools, technology, and support services to deliver top-quality

finance function performance at lower costs are readily available
Shared services are back Helping to offload some of the day-to-
day routine work to transitional specialist
Cost for qualified staff is increasing, indicating that the war for
talents is on (again)
Still, the spending on IT is not fully paying off
How do you make the finance spending sustainable?

16
What Well Cover

Understanding the context and driving forces for more efficient

reporting and closes
Putting your business on the front foot
Closing the books: Tips, techniques, and best practices
Exploring SAP functionality to accelerate the close process
Taking a look at a use case scenario
Wrap-up

17
Closing the Books

A. Close-to-report process starts with transaction accumulation and

sub-ledgers close
B. Corporate close includes the close of business units general
ledger, adjusted trial balance, and consolidation of financial
statements
C. Cycle concludes with analysis, reporting, and filing of the
financial statements, also known as the final mile

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Days from Close to Report

Average closing cycle takes 8.2 days

Regulatory requirements lead to an increase in days needed for
closing process

Average Top Bottom

Days Quartile Median Quartile Min. Max.
Monthly 8.2 5.0 7.0 10.0 1.0 30.0
Quarterly 12.1 6.0 10.0 15.0 1.0 63.0
Yearly 27.6 10.0 17.0 32.5 1.0 270.0

Source: PwC Global Practices Benchmark, 2011

19
Finance Maturity Model

Objective
Standardization and automation of processes has a higher
degree of efficiency with lower total cost of administration
How do you assess your finance organization in regards to
efficiency and effectiveness?

Sub-optimal
Days to Close

Good
Practice

Best
Practice

Cost of Close
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Finance Maturity Model (cont.)

Sub-optimal
Financial close takes longer than average

Limited strategic financial vision

Significant amount of manual entry

Processes subject to numerous adjustments

Non-standardized business processes

Heavy dependency on overtime and heroics each month

Certain management reports are not available, and therefore,

need to be developed ad hoc
No insight or data modeling

Limited automation

Unmanaged, multiple versions of the truth

21
Finance Maturity Model (cont.)

Good practice
Financial close is at or below average

Financial strategic vision set

Manual entries are manageable, near average

Some business process standardization

Automation of targeted areas

Staff spends time on close and analytics

Business insight on spreadsheets

Some business modeling

Monthly management reports assembled

Multiple versions of truth, but managing

22
Finance Maturity Model (cont.)

Best practice
Close process near top quartile

Finance vision aligned with corporate strategy

Staff focused on continuous improvement

Finance serves as true business partner

Business processes are standardized

Automation of time-intensive processes

Business insights and scenario-based modeling

Single version of the truth

Monthly management report packages address management

needs

23
Assess Close Process

Use the closing pipeline as the starting point

Key questions are:
How do you work today?

What are your current pain points and bottlenecks?

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Assess Close Process (cont.)

Identifying the Critical Accounting Policies and Estimates (CAPE)

is key for accelerating the close
Key questions are:
How do you handle them today?

What are the dependencies in regards to CAPE information?

25
SmartClose for SAP

Achieving sustainable improvement in the close-to-report cycle

requires a holistic approach that considers factors across all
business dimensions
The following dimensions need to be assessed:
People

Organization

Technology

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Dimensions and Assessment Criteria People

Are the resources and financial talents of the organization high

performing?
Evaluate roles and responsibilities in the organization

Review closing calendar; determine whether or not defined

milestones support accountability
Evaluate workload distribution and resource alignment

Determine effectiveness of communication throughout the

organization
Measure performance and rewards

27
Dimensions and Assessment Criteria
Organization
Are financial processes streamlined, simplified, and standardized
throughout the cycle?
Determine effectiveness of sequenced activities, and whether
or not work is performed away from the close
Evaluate appropriate use of estimates and materiality
thresholds
Review issue resolution process and determine effectiveness of
root cause analysis
Assess the quality and value of the monthly cash-to-receive
cycle

28
Dimensions and Assessment Criteria
Technology
Are the capabilities of systems and tools properly leveraged?
Identify opportunities to further leverage technology

Evaluate employee technology proficiency for the current

systems or applications
Determine whether or not intensive manual activities are
automated
Evaluate the use of data to appropriately meet organization
reporting needs
Leverage tools to track status real-time and promote
accountability

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Leading Practice for Close at Work Day 5
Close Activity Day Activity Complete
Production/Process Order Closure -1
Payroll -1

Close Process
Inventory -1
Material Close 0
Accounts Payable 1
Fixed Assets/Depreciation 1
Cash 2
SG&A Accruals 2
Revenue 2-3
Operational Costs 2-3
Accounts Receivable 2-3
Intercompany 3
Legal Entity Ledger Close & Review 3-4
Consolidation Activities & Review 4-5 WD5
Management Reporting 7-8
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What Well Cover

Understanding the context and driving forces for more efficient

reporting and closes
Putting your business on the front foot
Closing the books: Tips, techniques, and best practices
Exploring SAP functionality to accelerate the close process
Taking a look at a use case scenario
Wrap-up

31
Common Characteristics of Optimizing Close

Smart use of accruals and estimates

Proactive issue resolution and error correction
Streamline transaction processes
Automation or elimination of manual entries
Elimination of non-value-added activities
Automation of reconciliations
Elimination of duplicate data entry

32
Common Characteristics of Optimizing Close
(cont.)
Utilization of materiality thresholds
Workload distribution away from period end
Accountability and enforced deadlines
Publish the closing calendar and track status
Cross-trained finance personnel
Clear and regular communication
Continuous process improvement

33
SAP Functionality to Accelerate the Close

Several automation tools are positioned to assist organizations

with accelerating the close process
1. Financial Closing Cockpit

2. General Ledger

3. Enablement for Financial Shared Services

4. Business Planning and Consolidation

5. Improved Analytics through HANA, BI Accelerator, Xcelsius,

and Crystal
6. Optical Character Recognition and Data Entry tools in
Combination with workflows
7. Disclosure Management and XBRL

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SAP Functionality to Accelerate the Close
(cont.)
Several automation tools are positioned to assist organizations
with accelerating the close process (cont.)
8. Mobility

9. Intercompany Transfers

10. Accrual Engine

11. Credit Risk Management

12. Financial Supply Chain Management

13. Local Chart of Accounts (CoA), Operational CoA (Company

Code), and Group CoA

35
What Well Cover

Understanding the context and driving forces for more efficient

reporting and closes
Putting your business on the front foot
Closing the books: Tips, techniques, and best practices
Exploring SAP functionality to accelerate the close process
Taking a look at a use case scenario
Wrap-up

36
Use Case Scenario

Outline
For this exercise, assume the close and consolidation
process does not meet the needs of the business
People
Controllers resources were primarily centrally located in
Corporate Headquarters
Resources were involved in the close and consolidation of
multiple manufacturing operations
Close process was characterized by tight deadlines, numerous
manual adjustments, and excessive use of spreadsheets
A series of complex reports are produced for both management
and external purposes
37
Use Case Scenario (cont.)

Organization
Tasks within the close-to-report process are not efficiently
sequenced
Produces many post-close adjustments and a confusing
number of financial statement versions
Estimates and accruals are difficult and time-consuming

Insufficient time is available for review and reconciliation,

leading to inaccuracies in the first reporting package
Significant reliance on spreadsheets produces multiple
versions of the truth

38
Use Case Scenario (cont.)

Technology
Current systems environment includes both SAP and a
planning/forecasting tool
Significant issues arise from manual system interfaces and
inconsistencies of data between systems
SAPs capabilities are under-utilized

An assessment of the SAP functionality in use and a gap

analysis to leading practices is expected to reveal significant
opportunities for improvement

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Use Case Scenario (cont.)

Goal
Enhance the close-to-report cycle to improve the quality of
financial reporting
Objectives
Streamline and automate manual tasks, utilizing SAP
functionality where appropriate
Reduce or eliminate errors and post-close adjustments
Reduce reliance on spreadsheets and improve standardized
reporting
Identify and implement Quick Wins during and throughout
the work
Re-sequence close schedule activities so that more time can be
focused on Analytical Review of results
40
Scoring and Prioritization

Summary of opportunities to accelerate the financial close

processes prioritized by potential of acceleration and ROI
Identify the observations with the biggest impact

41
Change and Improvement Opportunities

After the assessment, the following opportunities for improving

the close process have been identified:
1. Opportunities exist to automate existing discrete manual
processes using existing SAP functionality
2. Opportunities exist to accelerate cut-offs to create more
bandwidth for review time during the close
3. Existing systems and related interfaces are not fully optimized,
often requiring manual upload, balancing, offline calculations,
and manual reconciliations
4. Multiple processes within corporate and at the reporting units
can be accelerated to pre-close to achieve greater bandwidth
for review

42
Change and Improvement Opportunities (cont.)

After the assessment, the following opportunities for improving

the close process have been identified: (cont.)
5. Month-end reporting is a cumbersome process with multiple
data sources, formats, and manual tasks required
6. Over-utilization of systems requires inefficient manual uploads
to enable analysis and under-utilization of technologies with
higher degrees of automation
7. Develop long-term, technology-enabled roadmap

8. Implement long-term, technology-enabled business strategy

9. Users are not familiar with SAP functionality

43
Scoring and Prioritization People Dimension

People opportunities
Standardization and automation

SAP end-user training

44
Scoring and Prioritization Organization
Dimension
Process opportunities
Move forward closing activities that are not strictly tied to the
closing date
Harmonize data sources and formats

Organisation
45
Scoring and Prioritization Technology
Dimension
Technology opportunities
Automate existing interfaces for data transfers and uploads,
and eliminate source of errors at the data source
Monitor regulatory and IFRS developments in regards to
technological solutions for early adaption and continuous
process improvement

46
Possible Benefits

Increased amount of time available to review results during the

three-day close
Streamlined several manual tasks through automation and
leveraging of SAP ERP functionality, such as service procurement
and accrual
Re-sequenced several close activities, such as moving Accounts
Payable (A/P) to Work Day 1
Reduced reliance on spreadsheets and leveraged more
standardized reporting
Created a foundation for future continuous improvement activities
Improved the business user communitys knowledge of SAP
Prepared the organization for longer-term technology enablement
47
What Well Cover

Understanding the context and driving forces for more efficient

reporting and closes
Putting your business on the front foot
Closing the books: Tips, techniques, and best practices
Exploring SAP functionality to accelerate the close process
Taking a look at a use case scenario
Wrap-up

48
Where to Find More Information

Putting your Business on the Front Foot: Finance

Effectiveness Benchmark Study 2012 (PwC, January 2013).
Drifting or Driving? Finance Effectiveness Benchmark Study 2011
(PwC, 2011).
SAP Release Strategy for All Major Software Products. Status:
March 2013, published by SAP
https://websmp205.sap-ag.de/releasestrategy *

SAP Note 1070629 FAQs: New General Ledger Migration

* Requires login credentials to the SAP Service Marketplace

49
Where to Find More Information (cont.)

PwC Open University

A free online library of executive business courses developed
by PwC thought leaders
Open access to PwC insights on current business issues with
free CPE credits!
More than 280 virtual courses covering multiple industries and
topics
www.pwc.com/openuniversity

50
7 Key Points to Take Home

Accelerating the close process is about aligning people,

organization, and technology
Starting point and clear-cut definition of end state are important
for scoping the functionalities in SAP to accelerate the close
process
Opportunity to integrate information into the ERP system and
streamline business processes
A project to optimize the close process can be started at any time
(except maybe for the year end)
Increase your level of comfort over controls and take IFRS
development into consideration for continuous improvement
Opportunity to develop finance staff in regards to business
analytics
Clear communication is key
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Your Turn!

How to contact me:

Giovanni Perone
giovanni.perone@ch.pwc.com

Please remember to complete your session evaluation

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Disclaimer

SAP, R/3, mySAP, mySAP.com, SAP NetWeaver, Duet, PartnerEdge, and other SAP products and services mentioned herein as well as their
respective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. All other product and
service names mentioned are the trademarks of their respective companies. Wellesley Information Services is neither owned nor controlled by SAP.

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