Continuous Accounting is an approach to managing the accounting cycle that can be the key to achieving a more strategic finance and accounting function in a company. It is designed to be a practical approach that addresses the tactical issues that prevent finance departments from being more strategic. Continuous accounting embraces three main principles:
End to End Process – Data Integrity
The first is the need to automate mechanical, repetitive accounting processes in a continuous, end-to-end fashion. Managing processes in a controlled, end-to-end fashion improves efficiency and it ensures data integrity. Ensuring initial data integrity is crucial because the absence of data integrity is the root cause of a lot of time consuming work that departments perform that adds little value to the rest of the company.
Optimise Process – Work in Real Time
The second is optimising the accounting calendar by distributing workloads continuously and evenly over the accounting period (the month, quarter or year) to eliminate bottlenecks and optimise when and in which order accounting tasks are performed.
Monitor Real Time Performance for Improvement
The third is establishing a culture of continuous improvement in managing the accounting cycle. A continuous improvement culture sets increasingly rigorous objectives, reviews performance to those objectives frequently and makes addressing performance shortcomings a departmental priority.
Master Data Allows Automation
Continuous accounting requires the effective use of data (Master Data) and technology (software) to automate accounting and finance processes in an end-to-end fashion. This doesn’t mean that every step is entirely hands-off but processes are designed to automate the execution of as many steps as is practical. It also involves automating all the hand-offs that take place between people in performing the process as well as any managing all administrative and approval steps that must take place.
Data & Automation for Speed, Accuracy & Control
End-to-end automation has two objectives. One is to cut down on the time employees spend doing work that computers can do faster and more consistently. The second is to improve the quality of the data in a company’s financial records to ensure greater accuracy, consistency and control of financial data.
Manual Administration Creates Time Consuming Consolidation
Automation improves data quality because eliminating human intervention in the handling of data substantially reduces the potential for errors in a well-controlled IT environment. Consequently, by design, end-to-end financial process automation strengthens financial controls and facilitates auditing. Spreadsheets and manual calculations create the need for time consuming reconciliations and checks to spot errors and identify their source.
Ensure Total Data Integrity
An important design objective for end-to-end automation is to ensure that there is a single authoritative source for the data (Master Data) that’s used in accounting processes. Technology exists to ensures that even with multiple accounting and financial management systems and data stores, there’s no duplication of data that requires checks and reconciliations.
Continuous Accounting Allows for Real Time Periods with Flexibility & Control
The second component of continuous accounting focuses on optimizing workloads. Increasingly, financial software gives companies greater flexibility. The classic accounting calendar with its monthly, quarterly and annual cycles developed over centuries as a practical approach to dealing with the limitations of the paper based systems and manual calculations. Their frequency represents a trade-off aimed at balancing efficiency and control: waiting until there are enough entries to justify performing the work, but not waiting too long to identify fraud, procedural issues and accounting errors. The monthly accounting close developed for many accounting tasks because a weekly cadence proved to be too short a period to be efficient while quarterly was too long to wait. Other accounting processes are typically handled on a quarterly or semi-annual basis because this longer frequency reflects a more appropriate trade-off of efficiency and control.
Even when computers were first used to automate bookkeeping and accounting, the old accounting calendars persisted. The limitations of early business computing technology forced system designers to use batch processing.
Batching – Equivalent to Paper Based
From an accounting process standpoint, batch systems don’t offer much of an improvement over paper-based ones in changing the timing of finance and accounting processes. They impose the same need to balance efficiency and control in taking computing systems off-line to handle computations and summarisation in a way that doesn’t interfere with transactions processing. Only within the past decade has information technology reached a performance threshold that eliminates the need for such batch processing. Companies that use batch-less accounting systems have greater freedom to schedule their accounting cycle.
Monitor KPI’s, Increase Speed & Accuracy, Increase Profitability
The third principle of continuous accounting is continuous (or continual) improvement. Decades ago, continuous improvement revolutionised manufacturing worldwide and culture of manufacturing departments. Continuous improvement can be used as a management approach to overcome organisational inertia. This is particularly difficult in accounting departments because accounting is a discipline that requires consistency, which is necessary for the faithful presentation of a company’s financial performance and health. But performing accounting processes the same way may not be the best way.
Continuous improvement requires ongoing assessments to identify issues and how to address them, as well as a mindset that accepts that these sorts of changes will be made.