In times of high volatility, such as those we are currently experiencing, companies face the need to quickly understand current phenomena and make timely and correct decisions. The ability, therefore, to have reliable information in a tight timeframe becomes a crucial aspect of business life, and shortening the timeframe for reporting results (so-called fast closing) can be the answer to this need, provided that the reliability of the data on the basis of which to make relevant decisions is maintained.
However, no matter how fast the processes of consumptive accounting can run, there comes sooner or later a time when they appear incompressible, except by accepting an increasing approximation of information. Approximation that, beyond a certain limit is unacceptable when communicating information externally (so-called financial reporting to the market) or internally as part of the corporate incentive system (so-called MBO).
A blurred boundary: data reliability
The unreliability of data represents a boundary that should not be crossed, so it is necessary to understand where to set the bar. Once that boundary is drawn, one can reason about how to shorten the closing-the-book processes in order to have the information available as quickly as possible to be conveyed to the market or used internally. According to Art. 2 point 16 Directive 2013/34/EU, information is material when its omission or misstatement could reasonably influence decisions made by users of financial statement information, and according to Art. 2423 of the Civil Code, what influences the fairness and truthfulness of financial statement representation is material.
Therefore, in general, it is possible to say that information is material where in its absence, due to its absence or unreliability, it is not possible to effectively make decisions geared toward creating value and/or reducing risks. It therefore seems foolhardy to adopt an approach aimed at reducing the timeframe of the closing-the-book process within an ERP by moving part of the fast closing processes to personal computing media (i.e., Excel) and then simply decanting the results into the ERP, which then becomes a container of externally originated and therefore not reliably certified data.
On the other hand, an ERP guarantees data according to rigorous and certified logic unless it is increasingly fed with externally produced data (i.e., Excel files or other tools) that is not integrated with the ERP itself. Finally, consider also the aforementioned increasing volatility that requires greater flexibility in data processing and analysis. An ERP requires quite significant costs to be adapted to changing needs so data reprocessing ends up falling back on the aforementioned personal computing tools.
Rethinking the Fast Closing process in a CPM system
We can therefore try to rethink the closing-the-book process by starting with an analysis of the significance of individual data for internal and external reporting purposes and then consider a solution that sees this process move to Corporate Performance Management (CPM) systems. It is then necessary to identify the data with the highest significance and within that the data with the lowest data source traceability. The latter are those that create the greatest concern at fast closing and risk not being effectively manned with personal computing solutions.
In this critical area may fall processes whose impact on financial reporting can be significant e.g., management of leases under IFRS 16, of incentive & compensation systems, trade promotions, fleet management, rate adjustments based on actual volumes and costs, management of agency relationships, etc… vertical needs that an ERP can cover, but with high costs and generating increasing time incompressibility, while with departmental solutions costs and time are definitely more affordable.
The belief that ERP must necessarily cover the entire closing process in an integrated way is thus called into question, a false myth if there is widespread use of personal computing solutions. It is therefore appropriate to begin to consider moving the closing process to a CPM system, interfaced not only with the various departments but insistent on the ERP itself.
ERP, CPM system, or both?
The CPM system would then be deputized to go the so-called last mile, drawing from ERP at a certain date prior to closing and from departmental systems. Closing and settlement entries would therefore take place within the CPM system, which could easily handle the process of preparing consolidated financial statements.
Immediately prior to closing, reperforming activities could be thought of in relation to relevant processes based on deviations of ERP data from those obtained from the initial extraction and in relation to the relevance of the closing period (i.e., semi-annual and annual reporting). Finally, variance analysis would take place directly in the CPM system, the location where forecast data are processed.
In conclusion, the reduction in closing time, while maintaining the high reliability of the data obtained, seems not able to be effectively verified by moving certain processes to personal computing solutions that then pour into the ERP. The ERP is the indispensable seat of transactional processes, but the closing-the-book process can be effectively rethought, in relation to the so-called “last mile,” by making use of CPM systems, also supported by specific departmental solutions, which ensure high traceability of data formation processes and the ability to process them flexibly and accurately.