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The demand for financial controls and compliance is steadily growing. And just as finance departments are being pressed to contribute more and more to their organizations, an increase in regulations is creating the need for more thorough procedures.
How will your organization handle these conflicting pressures?
There are important steps you can take to implement control activities, streamline your processes and improve risk identification. Ultimately your goal is to increase control and trust your numbers. The following are the five essential elements of internal control over financial reporting.
Control Environment
How are you creating awareness of and visibility to potential risks in the financial close such as fraud, manual errors and shared spreadsheets? Your controls environment is the foundation that sets the tone for all other internal control activities.
Risk Assessment
It’s important to identify and analyze relevant risks and cross reference them with your key objectives to determine any barriers to success. Potential risks include fraud, manual errors, shared spreadsheets, unclear overviews of roles and responsibilities and weak policies and procedures.
Information and Communication
How well are finance department personnel informed of ongoing control activities and their purpose? Are they updated when changes are implemented?
Monitoring
IT systems that are purpose-built for monitoring the financial close process allow you to more effectively test and adjust control activities, and to regularly address and remove bottlenecks.
Control Activities
Clearly defined processes and activities at corporate, reporting unit and transaction levels are designed to reduce your identified risks. Examples of control activities include:
Transaction matching: Reduced manual processing to minimize the risk for human errors
Audit trails: IT systems that prohibit wrongdoing such as defined roles protected by passwords and need-to-know access limits
What are some characteristics of high-performing organizations?
- Spend five days or less on their monthly financial close process
- Produce high-quality internal and external financial reporting
- Have a documented and detailed understanding of significant processes, enabling them to identify and mitigate risks through strong internal controls
- Leverage a shared service center
- Have moved most of their mundane, manual tasks to an automated process
- Have a high degree of system integration, and one centralized standard chart of accounts
- Have implemented group-wide materiality thresholds and adopted a risk-based approach to the financial close process
How you can get started now…
There are three critical areas to creating a more responsive delivery model for reporting: strategy and vision, technology and data and people. Many companies think it will take months of analysis to improve their financial close process: that isn’t true. When done properly, you can come a long way in assessing your current status in just a couple of weeks. There is no better time than now to start owning your financial close journey.